The Challenges of Maximizing Social Impact as an Investor

Abstract: [Context] Social impact refers to the positive and negative consequences of any organization on the environment and society. One actor in the social impact landscape is the impact investor who expects financial return for their investments as well as positive social impact. Although the impact investor plays a crucial role in the social impact capital market by financing organizations that explicitly address social and environmental problems, the academic literature regarding impact investing has yet to develop especially from the investor perspective. One reason for the lack of academic research in this field is that the impact investor stands at a crossroad, between social impact and social enterprise research. [Purpose] Therefore, the purpose of this research is to determine the current state of impact investment processes as well as the challenges that investors face and, lastly, the role of social impact measurement within the impact investing process. [Findings] An exploratory multi-case study was conducted with semi-structured interviews which resulted in eight interviews from impact investors across four countries and within different focus areas in the social impact landscape. The findings show that impact investors face a variety of challenges based on the stage of their portfolio enterprises, the alignment of the social enterprise’s business model with their social impact mission, the horizon of their investments and, last but not least, their investment exit strategies. As for the role of social impact measurement in the investment process, the findings show that the majority of impact investors measure the impact of their investments although the method of measurement varies while the remaining investors, that do not measure social impact, illustrate the challenges that come with measuring impact in their personal contexts such as the difficulty of measuring the impact of an early stage social enterprise that may be susceptible to pivots.