October 09, 2015

Impact Investments Don’t Have to Sacrifice Financial Return, Says Study

Title: "Great Expectations: Mission Preservation and Financial Performance in Impact Investing"

Organization: The Wharton Social Impact Initiative at the Wharton School of the University of Pennsylvania

Summary: One of the biggest debates in impact investing is whether investors must sacrifice financial return to achieve their desired social or environmental impact. Researchers at the Wharton Social Impact Initiative found that wasn’t the case when they analyzed the financial performance of 53 private-equity funds that focus on impact investments. The funds made 557 individual investments in social-purpose companies.

The researchers chose funds that seek market-rate returns, on the assumption that the tension between financial performance and social mission would be most pronounced for them. But when the researchers compared the impact-investing funds’ performance to the Russell 2000 and other public market indices, they saw that the funds had achieved comparable financial results without the companies they invested in abandoning their social or environmental missions.

"Our research fills a near void of rigorous analysis of private-investment and social-impact outcomes, and, most important, the link between the ideals of doing well and doing good," Chris Geczy, one of the two Wharton finance professors who oversaw the study, said in a written statement.

Leaders at the Wharton Social Impact Initiative said a lot of research has yet to be done on the interaction between financial performance and social return in impact investing. Jacob Gray, a senior director at the institute, cautioned against reading too much into the current research.

"The industry includes distinct market segments with very different social and financial value propositions," he said in a statement. "One must be very careful not to generalize the performance of the market-rate-seeking segment of funds that we studied to the entire, multidimensional industry."

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