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Impact Investing Strategy: Managing Conflicts between Impact Investor and Investee Social Enterprise

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  • Anirudh Agrawal

    (Department of Management, Society and Communication (MSC), Copenhagen Business School, 2000 Frederiksberg, Denmark)

  • Kai Hockerts

    (Department of Management, Society and Communication (MSC), Copenhagen Business School, 2000 Frederiksberg, Denmark)

Abstract

Impact investing pursues the dual goals of creating socio-economic value for the marginalized, and ensuring net positive financial returns. Impact investing firms achieve their goals through their investments in projects and enterprises which create both social and commercial values. The primary aim of this article is to contribute to our understanding of the process of impact investing, particularly with respect to issues related to aligning impact investing and investee social enterprise goals. The research method employs case-based research methodology. The data consist of six cases of impact investing and their investee social enterprises. In addition, the data involve interviews with experts from the field of impact investing. The findings are that: (1) Social mission plays an important moderating role in the inter-organizational relationship between the impact investor and the investee social enterprise, (2) and an emphasis on due diligence, sector specialization, and communication increases the likelihood of investment while (3) social impact measurement and reporting and frequent engagement increase the likelihood of post-investment alignment. The key contribution of this article is that impact investing (unlike venture capital) is influenced by the ability of its investee to create social value, which plays an important role in the inter-organizational relationship between investor and investee. Furthermore, similar to industry specialization in the for-profit investing, social sector specialization is equally relevant for alignment and returns.

Suggested Citation

  • Anirudh Agrawal & Kai Hockerts, 2019. "Impact Investing Strategy: Managing Conflicts between Impact Investor and Investee Social Enterprise," Sustainability, MDPI, vol. 11(15), pages 1-21, July.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:15:p:4117-:d:253121
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    1. Michael Moran & Libby Ward-Christie, 2022. "Blended Social Impact Investment Transactions: Why Are They So Complex?," Journal of Business Ethics, Springer, vol. 179(4), pages 1011-1031, September.
    2. Gimede Gigante & Emiliano Sironi & Caterina Tridenti, 2023. "At the Frontier of Sustainable Finance: Impact Investing and the Financial Tradeoff; Evidence from Private Portfolio Companies in the United Kingdom," Sustainability, MDPI, vol. 15(5), pages 1-21, February.
    3. Icíar C. Jiménez-Barandalla & Carlos Velasco-Márquez, 2023. "Inversión sostenible y de impacto para la viabilidad financiera de la empresa social. El caso Liight," Estudios Gerenciales, Universidad Icesi, vol. 39(166), pages 67-76, March.
    4. Mario La Torre & Helen Chiappini (ed.), 2020. "Contemporary Issues in Sustainable Finance," Palgrave Studies in Impact Finance, Palgrave Macmillan, number 978-3-030-40248-8, February.
    5. Dinh, Jeannette Mai & Isaak, Andrew Jay & Yahyaoui, Yasmine, 2024. "Investing for good – Uncovering crowd investors' motivations to participate in sustainability-oriented crowdlending," Technological Forecasting and Social Change, Elsevier, vol. 207(C).
    6. Othmar Manfred Lehner & Alex Nicholls & Sarah Beatrice Kapplmüller, 2022. "Arenas of Contestation: A Senian Social Justice Perspective on the Nature of Materiality in Impact Measurement," Journal of Business Ethics, Springer, vol. 179(4), pages 971-989, September.
    7. Cojoianu, Theodor F. & Hoepner, Andreas G.F. & Lin, Yanan, 2022. "Private market impact investing firms: Ownership structure and investment style," International Review of Financial Analysis, Elsevier, vol. 84(C).
    8. Irene Bengo & Alice Borrello & Veronica Chiodo, 2021. "Preserving the Integrity of Social Impact Investing: Towards a Distinctive Implementation Strategy," Sustainability, MDPI, vol. 13(5), pages 1-19, March.
    9. Laura Toschi & Elisa Ughetto & Andrea Fronzetti Colladon, 2023. "The identity of social impact venture capitalists: exploring social linguistic positioning and linguistic distinctiveness through text mining," Small Business Economics, Springer, vol. 60(3), pages 1249-1280, March.
    10. Annebeth Roor & Karen Maas, 2024. "Do impact investors live up to their promise? A systematic literature review on (im)proving investments' impacts," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3707-3732, May.
    11. Deike Schlütter & Lena Schätzlein & Rüdiger Hahn & Carolin Waldner, 2024. "Missing the Impact in Impact Investing Research – A Systematic Review and Critical Reflection of the Literature," Journal of Management Studies, Wiley Blackwell, vol. 61(6), pages 2694-2718, September.
    12. Chen, Suwen & Harrison, Richard, 2020. "Beyond profit vs. purpose: Transactional-relational practices in impact investing," Journal of Business Venturing Insights, Elsevier, vol. 14(C).
    13. Guillaume Dumont, 2024. "Evaluating the Credibility of Entrepreneurs’ Impact Promises in Early-Stage Impact Investing," Entrepreneurship Theory and Practice, , vol. 48(6), pages 1525-1555, November.
    14. Mohd Alsaleh & Muhammad Mansur Abdulwakil & Abdul Samad Abdul-Rahim, 2021. "Does Social Businesses Development Affect Bioenergy Industry Growth under the Pathway of Sustainable Development?," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    15. Nachyła, Pola & Justo, Rachida, 2024. "How do impact investors leverage non-financial strategies to create value? An impact-oriented value framework," Journal of Business Venturing Insights, Elsevier, vol. 21(C).
    16. Kai Hockerts & Lisa Hehenberger & Stefan Schaltegger & Vanina Farber, 2022. "Defining and Conceptualizing Impact Investing: Attractive Nuisance or Catalyst?," Journal of Business Ethics, Springer, vol. 179(4), pages 937-950, September.
    17. Isaline Thirion & Patrick Reichert & Virginie Xhauflair & Jonathan Jonck, 2022. "From Fiduciary Duty to Impact Fidelity: Managerial Compensation in Impact Investing," Journal of Business Ethics, Springer, vol. 179(4), pages 991-1010, September.
    18. Junlan Tan & Yasir Ahmed Solangi, 2024. "Assessing impact investing for green infrastructure development in low-carbon transition and sustainable development in China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(10), pages 25257-25280, October.
    19. Akhtaruzzaman, Md & Banerjee, Ameet Kumar & Le, Van & Moussa, Faten, 2024. "Hedging precious metals with impact investing," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 651-664.
    20. Leonardo Boni & Laura Toschi & Riccardo Fini, 2021. "Investors’ Aspirations toward Social Impact: A Portfolio-Based Analysis," Sustainability, MDPI, vol. 13(9), pages 1-20, May.

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