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Year: 2019
Published in: Sustainability
Cited as: Agrawal, A. and K. Hockerts (2019). “Impact Investing Strategy: Managing Conflicts between Impact Investor and Investee Social Enterprise.” Sustainability 11(15): 4117.

Abstract

Impact investing pursues the dual goals of creating socio-economic value for themarginalized, 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.

Recommendations from this resource

Social Entrepreneurs

the investees must clearly demonstrate their future goals related to scalability of the reach and social impact. Such a communication would signal usage of the investment and exist probabilities. During the post investment period, the interacting firms must constantly engage with each other. The engagement would reduce the probability of tensions among competing logics and drift. Since, the impact investor draws its legitimacy from both social and commercial value creation, the reporting and communication of social and commercial by the investees would elongate the period of engagement.

Support Organisations

This study suggests that the social and commercial performance of inter-organisational collaboration among impact investing organisation can be increased and risk of tensions reduced through pre-investment and post-investment strategies. The pre-investment strategies must include due-diligence, sector specialization, and communication of scalability of reach and social impact. The sector specialization by impact investors would help impact investors understand the risks, opportunities and social disequilibria in a specific social sector like health, education, domestic violence, gender discrimination. Therefore, the social logic of the
impact investor would be dominant for a particular sector, while the commercial logic would be in a stronger position to access the risks and returns.t.

Future Research

1) Data collected for this study was cross-sectional. A longitudinal study would reveal greater
insights into decision-making complexities, and would reveal greater details on how institutional logics
affect decision making. 2) The propositions and the model developed should be tested using
a survey method. 3) Future studies should be able to analyze critically the impact investing decisions
and the inter-organizational relationship between impact investors and social enterprises via the
institutional logics framework.