Meeting the challenge of impact investing incentives and business models (Evans 2011)


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Impact investors face the challenge of trying to manage an underlying business or entrepreneur towards the desired balance of financial return and social or environmental outcomes (impact).

So what tools do impact investors have? How can impact investors sort out the various drivers of eventual performance across the financial and impact dimensions in a simple and meaningful framework?

This presentation summarises the results of related research. Full paper is available via email at as are the associated speaking notes to this presentation.

Please note that concepts are most applicable for direct investors in social ventures.

Published in: Economy & Finance, Business
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Meeting the challenge of impact investing incentives and business models (Evans 2011)

  1. 1. Meeting the challenge of impact investing: Optimizing the investment process for returns and impact Madeleine Evans PRI-Mistra Dynamics of Responsible Investment Conference Sigtuna, Sweden Panel: Investing and the Public Good 28 September 2011
  2. 2. About the researcher Madeleine Evans has recently completed her Master of Public Administration at the London School of Economics as a Thouron Scholar, where she focused on development economics and policy. Madeleine co-founded the Network for Impact Investing and Social Enterprise (NiiSE) at the LSE, an organization fomenting postgraduate students’ awareness, research and careers in these fields, followed by a counterpart network for young professionals, Impact Generation. Her personal research interests span impact investing strategy, financial regulation, and the role of financial markets in sustainable development. E-mail: Prior to moving to London, Madeleine graduated from the University of Pennsylvania with a B.S. from the Wharton Address: School and a B.A. in International Studies from the College of Arts and Sciences. Flat 5 92 Redchurch Street Madeleine is currently working at the private equity fund London E2 7GP Terra Firma. 2
  3. 3. About the research The content in this presentation is the product of a year of investigation, culminating in a dissertation for the Master of Public Administration Program at the London School of Economics, entitled: “Meeting the challenge of impact investing: How can contracting practices secure social impact without sacrificing performance?” The dissertation presents a strategic toolbox for investors with financial and non-financial objectives. Content is based on lessons from economic theory of contracts and from in-depth interviews with sixteen UK, German, and US impact investors (with a special thank you to DEG, who provided generous access to data and support for this project): The relevance of the ideas in this presentation will depend on the investor’s control over the underlying portfolio, legal and funding constraints on contract structuring, and the degree of active management pursued by the investor. Copies of the paper or further details are available from the author. 3
  4. 4. The strategic challenge Entrepreneur Entrepreneur Investor wonders proposes idea to goes after profit what happened to impact investor impact The questionsHow does the nature of the investment and contracting process drive the balance between financial returns and positive impact? How can investors manage these drivers to increase welfare? 4
  5. 5. Incentives matter 5
  6. 6. Acquisition Structuring Management Market Contract Relationship Choices by portfolio business management Investor “blended” returns 6
  7. 7. The business modeldescribes whether objectives are easy to jointly achieve Cross- Trade-off subsidy Lock-step SynergyThe operating environmentmakes certain models more likely or feasible Consumer preferences Supply chain dynamics Values Policy & regulation NGO and media activism Market Contract Relationship
  8. 8. onlyContracts can^help investors manage outcomes they can measure well Values Market Contract Relationship
  9. 9. Valuable offers of future financingcan provide complementary incentives Too risky Market connection Future financing > Next best option Technical assistance Values Market Contract Relationship
  10. 10. Final thoughtsTrade-offs are manageableWe have an initial understanding of our tools andof common practical pitfallsWe need to make data work harder