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Historical Development and Investment Rationale

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Impact Investing

Part of the book series: Palgrave Studies in Impact Finance ((SIF))

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Abstract

This chapter covers the phenomenon of impact investing. It will introduce the topic and discuss the rationales of investors to allocate part of their resources to impact investing. Those rationales vary for the different groups of investors who are contributing to the capital in the impact investing market.

There are different theoretical approaches to understanding investment decisions. One key consideration is the interplay between financial and social return requirements. Financial returns are easily quantifiable in the form of EBITDA, net profits or revenues, whereas social goals are not easily quantifiable. Both goals are interdependent and trade-offs can occur when capital providers with different return expectations are involved in the financing of a social enterprise. Traditional public sector funding usually comes with restrictions and has an impact on the financing structure of the organization. Similar restrictions can be observed for the different income streams. Crowding-out can occur when donors and public authorities support an organization.

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Notes

  1. 1.

    The different tools and methods to assess the social impact are presented in later chapters of this book.

  2. 2.

    The motives of foundations and donors are also regularly criticized. Large foundations can influence entire fields and occasionally even control them and there are concerns about democratic legitimacy and governance issues.

  3. 3.

    Investor profiles can be found in Chap. 4.

  4. 4.

    Similar considerations are known for family firms that focus on socio-emotional issues when considering decisions (Berrone et al. 2012).

  5. 5.

    Donors and lenders without a claim to a return can also have a great influence on the orientation of the organization. In this case, they can be understood as principals.

  6. 6.

    The chapter on social impact assessment discusses the methodologies to monitor the performance of social enterprises.

  7. 7.

    Conflicts are all those situations in which interests are aligned.

  8. 8.

    Compartamos Banco’s and SKS’s initial public offerings have caused considerable criticism as part of the start-up financing has been provided through public funds and the profits have been distributed to private actors.

  9. 9.

    The public authorities act in the interests of the target group and ensures equivalent access to the service. Examples include school visits where parents’ contributions are deducted from the public contributions. The same applies in shelters where the homeless cannot contribute monetarily to the service. All additional revenues would be deducted from the public payments.

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Authors and Affiliations

  1. Faculty of Management and Economics, Witten/Herdecke University, Witten, Germany

    Wolfgang Spiess-Knafl

  2. Munich Business School, Munich, Germany

    Barbara Scheck

Authors
  1. Wolfgang Spiess-Knafl
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  2. Barbara Scheck
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Spiess-Knafl, W., Scheck, B. (2017). Historical Development and Investment Rationale. In: Impact Investing. Palgrave Studies in Impact Finance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-66556-6_3

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  • DOI: https://doi.org/10.1007/978-3-319-66556-6_3

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-66555-9

  • Online ISBN: 978-3-319-66556-6

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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