Impact Investments for the Social Economy: Reframing the impact investing phenomenon by evaluating impact investment strategies from a social ecological economics perspective

Abstract: Social economy organisations are attributed a major role in solving societal and environmental problems and in implementing social innovations in Europe. These organisations are private entities running economic activities whose main purpose is to provide goods and services to their members or the community at large, with profits coming second. Nevertheless, these organisations are not sufficiently supported, especially from the capital market side. Not all impact investors, which in principle should be investors with the goal of creating social and environmental benefit, are strategically aligned with the social economy entities. An identified reason could be the structurally embedded relationship-to-profit of impact investors which refers to their legal distinction in for-profit or not-for-profit. Consequently, the objective of this research is to critically evaluate the strategic decisions of impact investors paying attention to their relationship-to-profit and using indicators that assess their compatibility with social economy entities. This is done to fulfil the aim of distinguishing impact investors according to their supportiveness towards the social economy. A framework is developed that captures the influence of the relationship-to-profit on the strategic decisions of impact investors. This framework is then used as an instrument to test predictions from the theory implementing a case study approach including four diverse impact investment organisations. The results from qualitative coding and survey answers indicate that not-for-profit impact investors choose with almost no exception the strategy that is aligned with the social economy across all dimensions. On the other hand, for-profit investors compromise on the possible social benefit achieved by mainly investing in for-profit entities and not being transparent about their profit utilisation among other less socially beneficial choices. These findings stress the importance of bringing in the relationship-to-profit as an important indicator when evaluating social and sustainability impacts.