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Transformative Impact: Insights from Leading Scholars in Impact Investing

Social Impact Educators Learning Series

Monday, 21 October 2024, 4:30 pm CEST | 10:30 am EDT | 8:00 pm IST

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Social Impact

from entrepreneurship to investment

Professor: Lisa Hehenberger, Ph.D.

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My background

Investment banker

Ph.D. in Management

Research and Policy Director at venture philanthropy network organization

Assistant Professor at Esade Business School

Associate Professor at Esade Business School, Director of Esade Center for Social Impact, advisor, board member, founder, etc.

2004

2010

2016

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How do we solve societal challenges?

We need new models to tackle societal challenges – considering the persistency of challenges, and diminishing resources of governments

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Enterprises with impact

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Positive or negative changes experienced by people or the planet as a result of one or several activities

Social Impact – what is it?

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How is social impact related to sustainability?

Sustainable Development Goals (SDGs) provide a direction, social impact focuses on results and how to get there.

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Why is Social Impact important?

Talented employees are looking for purpose in their work
Customers want sustainable products and services
Regulation is increasingly demanding disclosure and reporting on social and environmental impact
Investors are seeking double materiality
Companies must be able to measure and manage their impact

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Impact vs. ESG

ESG

IMPACT

ESG risks and opportunities analysis

Environment

Social

Governance

Contribution to solving social and environmental problems

Intentional

Additional

Measured and managed

Contribute to solutions

Act to avoid harm

Source: SpainCAP (Adaptation)

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ESG and Impact Investing in the Investment Spectrum

Seeks maximum financial returns while contributing to social and environmental solutions

Finance First Impact Investing

Traditional Investing

Responsible Investing

Sustainable Investing

Impact First

Impact Investing

Philanthropy

Exclusively focused on maximizing financial returns

without proactively considering social and environmental aspects

Seeks maximum financial returns while acting to avoid any social or environmental harm

Seeks maximum financial returns while proactively tackling ESG value creation opportunities

Social and

environmental

impact consideration take precedence over financial returns

Financial returns are disregarded in

favour of social and

environmental

impact

Impact First

Finance First

Impact Investing

Source: UK National Advisory Board on Impact Investing (Adaptation)

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Impact investing

“Investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” (The Global Impact Investing Network - GIIN)

Core characteristics:

Impact intentionality
Financial return expectation
Impact measurement

(GIIN and the G8 Social Impact Investment Taskforce)

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Global Market for Impact Investing

AuM:

$ 1.164 Trillion

(US$ billion)

Source: GIIN

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It all comes back to your strategy…

Source: Investing for Impact – Case Studies across Asset classes, Bridges Ventures

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Inputs

Activity

Outputs

Impact

Outcomes

What is the impact goal? (what is the broader social change your organization is trying to achieve?)

What are the expected outcomes? (The changes, benefits (or disbenefits), learning or other effects that result from what a project or organisation does. These short-term steps will contribute to a final goal and may include changes in users’ knowledge, skills, attitudes, and behaviour)

What are the expected outputs? (products, services or facilities that result from an organisation or project’s activities. These are often expressed quantitatively, for example, number of users)

What activities are aiming to solve the social problem or issue? (specific steps, strategies or actions)

What resources or inputs does the social enterprise have and need to undertake its activities? (time, talent, technology, money, etc.)

What are the key factors in the cause-and-effect relationship, and the necessary assumptions? (expected causal link from inputs to intervention to desired outcomes – any prior research to support this claim? any own evidence?)

Designing a Theory of Change

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About Theory of Change for Impact Investors and Investee Social Enterprises

Theory of Change
Investment Strategy

Impact Investor

Theory of Change
Business plan

Social Enterprise (Investee)

BENEFICIARIES

DIRECT IMPACT

INDIRECT IMPACT

EVPA framework

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Exercise 2: Developing an Impact Investing Strategy

You are setting up a new impact investing fund

Your task is to:

1.Decide on one or several social problems that you want to address with the fund, and in which geography

2.Define a Theory of Change of the fund and a financial return objective

3.Develop an appropriate investment strategy to address the social problem

Develop a powerpoint presentation (10 min.) to pitch the new fund to potential investors. Try to make the presentation as comprehensive as possible.
The Theory of Change will then define the choices you make for your investment strategies, including Geographic focus, sector focus, beneficiary group, etc.
Draw a Theory of Change that depicts the resources the fund needs, the types of activities it will engage in (financing + non-financial support + ?), the direct output, the outcome, and the desired impact. Also consider which indicators you will use to measure impact at portfolio level.

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IMM at every stage of the Investment process

Governance of Impact Measurement in European Impact Investing Funds

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Course structure

	Monday 20/11	Thursday 23/11	Monday, 27/11	Thursday 30/11
14:00 – 15:00	LH: Intro to the course Intro to impact investing Integrating impact in the investment process	GC: Overview of impact investing instruments (social impact bonds, blended finance, data from the GIIN)	ALL: Due diligence role play 30’ each company, 2 groups asking questions, the other 4 taking notes for the debrief	ALL: 3 groups present to investment committee (the other 3 present only the investment structure) + Q&A
15:00 – 15:45	MR: How to do the initial screening + Investment criteria	MO: Theory on impact measurement (including a bit on how to do a Theory of Change)	Debrief on how the DD went	(continue)
15:45 – 16.00	BREAK	BREAK	BREAK	BREAK
16.00 – 17.30	Each group does the screening of the 6 investment opportunities We collectively decide pros and cons of each and the 3 cases that go through, assigning one to each group (3 for 6 groups)	MR: How to prepare DD Give them some time to ask basic questions about the case (understanding the financials, the impact data, the business model, etc.)	MR: Deal structuring in MCE and term sheet	Guest speaker GC: Careers with impact LH: Conclusions
Pre-session homework	Watch ppt about MCE Read 6 cases Answer survey	Read the additional information about their case	Prepare questions for DD Do initial DD report (positive and negative aspects)	Prepare presentation to Investment Committee, with results of the DD, proposed deal structure
Deliverable		One-pager about the company assigned to them, on how they meet MCE criteria and main risks	Questions for the role play + Summary of main concerns	Presentation to investment committee (risks, impact, financials, term sheet)

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Esade Center for Social Impact (ECSI)

Our synergetic model

Society needs to tackle important challenges in new ways and understand what works and what doesn’t

ECSI works to strengthen our collective capacity to do so and to create a more sustainable and equitable world

What do we do?

We develop research with rigor, reach, and relevance about and for social impact

What is social impact?

Social Impact is the positive or negative changes experienced by people or the planet as a result of one or several activities�

Research areas

Impact investing
Impact entrepreneurship
Impact measurement and management (IMM)
Gender lens investing

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Internal partnerships

Social Impact Lab

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Each year, we work with more than 1.000 business students and collaborate with other HEIs

Work with students to date

Courses

Social Entrepreneurship & Impact Investing (CEMS, M.Sc., MBA)
Corporate Strategy (BBA, Double Degree Law & Business)
Impact Business Models (BITBASI)
Impact Investing in Action (MBA)
Impact Measurement & Analysis (MSc, BITLASI)
Addressing Global Challenges (systems change) (BBA, MSc)
Challenge-based innovation for the SDGs (various)
Global Citizenship Seminar (CEMS)
Socio-Political Environment of Business (BBA)

Erasmus+ collaborations

Expand: An Idea Accelerator to Tackle Homelessness
Social X-Change: Impact measurement in social enterprises

New materials

Social Impact Career Guide

Teaching cases

Batec Mobility: Creating, scaling, and selling an inclusive business
Moltacte: A social enterprise that puts employees at the center
UnLimited Spain: A systems approach to building the impact economy

Impact community activities

MBA Social Impact Lab

Masterclasses
Leading from Within workshops
Study tour
and more...

Waste Accelerator

Impact Talks

Student consulting projects

Student competitions

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About Juliana Vélez, MBA student

ECSI's “Social Impact Lab significantly shaped my decision to pursue my passion”
“The Social Entrepreneurship and Impact Investing course introduced me to fundamental principles and practical examples, making me realize what I wanted to do moving forward”
Developed idea for Brikap in accelerator program, with mentoring from ECSI

About Brikap

Brikap is an educational platform for adults driven by artificial intelligence, aiming to bridge educational gaps while providing technical training to vulnerable single mothers with low education levels. Through a practical and interactive methodology based on adult learning, Brikap customizes the learning journey of each user, prioritizing active problem-solving and maintaining a continuous feedback cycle to ensure skill development.

Example: �Developing social impact leaders

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We envision a future in which all business school graduates:

Understand the interconnected nature of economic, social, and environmental dimensions of business and society
Make decisions in pursuit of a flourishing and sustainable economy, society, and natural environment
Act to shape their organizations and the transformations taking place in society for the good of all, drawing upon self-knowledge and collaborating with others

We work to integrate social impact into business education to develop conscious, compassionate, committed, and competent business leaders

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Esade Center for Social Impact (ECSI)

Developing research with rigor, reach and relevance�about and for Social Impact

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Q&A with Lisa Hehenberger

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Making sense of impact investing

Lessons from research and teaching

Anne-Claire Pache

Chaired professor in Social Innovation

ESSEC Business School

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IMPACT INVESTING AS A HYBRID PRACTICE COMBINING FINANCE AND PHILANTHROPY

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HOW PEOPLE RESPOND WHEN DISCOVERING IMPACT INVESTING…

« My approach is rather binary. There is the business world, you meet a demand, sell products, and make a profit to survive and thrive. And then there is philanthropy, a world where the demand is not solvent, where no business model is possible. I struggle to imagine something in the middle… » (DUNCAN, private equity fund manager)

« I fully engaged in [impact investing] because I finally found consistency. If I practice impact investing, all my activity is logical, consistent, and creates a double value. I cannot tell myself: on the one hand, I do very positive things, and on the other hand, anything goes! For me, it’s impossible. » (ZACK, entrepreneur)

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Research question

Why is it that some high-net-worth individuals embrace impact investing, while others reject it and rather compartmentalize their investments and their giving ?

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Our study

A qualitative-inductive comparative case study

14 high-net-worth individuals (HNWIs) in France, all engaged in significant funding of social projects and exposed to impact investing : 3 waves of in-depth, life story interviews (n=54) (Atkinson, 1998)

HNWIs = individuals owning between 1 and 20 million dollars in liquid assets, either inherited or earned through entrepreneurial or financial activities. Access and power disparities = challenges of interviewing elite informants (Solarino & Aguinis, 2021).
54 interviews: 26 in 2015 (pilot study, access through French private bank), 14 in 2016 (second wave with polar cases), 14 in 2017 (third wave). 82 hours and 1400 pages of data.
Interview guide: childhood and upbringing, training, career, civic life, representations & practices of giving and investing, evolutions & changes.
Combining retrospective accounts (recollection of past events) and real-time accounts (their current cognition) of their sensemaking of impact investing (Langley, 1999).
Multiple case studies are useful in process studies as they show how a similar process occur in different contexts (Gehman et al., 2018), allowing to identify common patterns/mechanisms despite different outcomes. Interested in variance and process.

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DATA OVERVIEW

Name (sex)	Birth date	Professional activity	Origin of wealth	Finance Logic	Philanthropy Logic	Response
MONIQUE (F)	1965	Electroradiology technician (retired)	Inherited	Novice	Familiar	IGNORES
ALFRED (M)	1952	Hotelier entrepreneur	Both	Familiar	Identified	REJECTS
CHARLES (M)	1945	Owner and Top manager of brokerage firm (retired)	Created	Identified	identified	REJECTS
DUNCAN (M)	1957	Top manager in private equity investment fund	Created	Identified	Familiar	REJECTS
GARY (M)	1953	Top manager in management consulting firm (retired)	Created	Familiar	Identified	REJECTS
MAX (M)	1951	Owner and Top manager of private equity investment fund	Created	Identified	Identified	REJECTS
VALERIE (F)	1958	Top Manager in industry, Consultant in strategy (retired)	Both	Familiar	Identified	REJECTS
VINCENT (M)	1961	Co-owner and Top manager of turnaround investment fund	Created	Identified	Identified	REJECTS
BOB (M)	1937	Gastroenterologist (retired)	Inherited	Familiar	Identified	ADOPTS
DANIELLE (F)	1936	Advertiser, Collection director of publisher (retired)	Created	Familiar	Identified	ADOPTS
LORENZO (M)	1974	Tech entrepreneur, Social entrepreneur	Created	Familiar	Familiar	ADOPTS
MARY (F)	1962	Visual artist	Inherited	Familiar	Familiar	ADOPTS
RICKY (M)	1955	Top manager in management consulting firm (retired)	Created	Familiar	Familiar	ADOPTS
ZACK (M)	1982	Co-owner and Top manager of agribusiness family group	Inherited	Familiar	Familiar	ADOPTS

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KEY FINDINGS

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ALL CASES WENT THROUGH THE SAME SENSEMAKING PROCESS WHEN EXPOSED TO IMPACT INVESTING

1 HNW individual ignored it, 7 rejected it, 6 adopted it

Why did they respond differently ??

THEY NOTICED CUES

13 recognize II
1 ignores it

THEY CREATED INTERPRETATIONS

13 create positive or negative assessments of II

THEY TOOK ACTION

7 reject II
6 adopt II

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WHAT MATTERS…

Is how individuals relate to the two « logics » that compose impact investing: the « finance logic » and the « philanthropy logic »

Are they novice ?

Are they familiar ?

Are they identified ?

Hybrid organizations combine distinct identities, forms, and institutional logics that would not conventionally go together (Battilana et al. 2017; Battilana & Lee, 2014).
What about “hybrid practices” spanning organizational boundaries (Pache & Thornton, 2020) at the individual level?
Islamic banking in Germany – religion × market (Gümüsay et al., 2020), product development at Alessi - industrial manufacturing × cultural production (Dalpiaz et al., 2016), microfinance in Bolivia - banking (profiting from loans) × development (alleviating poverty) (Battilana & Dorado, 2010)
Institutional logics (patterns of beliefs, practices, values, assumptions, and rules that shape acceptable goals and organizing principles within a field, cf. Thornton et al., 2012) perspective on hybrids = the dominant perspective to study hybrids. Institutional pluralism (multiplicity of logics) and complexity (incompatibility of logics)
Diverse responses: ignorance (Jones et al. 2011), rejection (Gümüsay & Smets, 2020), or adoption (Kim et al., 2016) = people may or may not see/value the fit between the combined elements (Wry et al., 2014)
What shapes their responses? Literature suggests adherence to logics at play (Pache & Santos, 2013), reflection on their own experience (Voronov & Yorks, 2015), identity alignment (Wry & York, 2017)... The role of ‘institutional biographies’ (Bertels & Lawrence, 2016) and how individuals develop specific commitments to multiple logics from their experience.
Hybridity renders latent contradictions between logics salient, thus triggering sensemaking (Bévort & Suddaby, 2016). Hybrid practices = ‘novel, ambiguous, confusing, or in some other way violate expectations’ (Maitlis & Christianson, 2014) What about the sensemaking process (Weick et al., 2005) that individuals go through as they encounter hybrid practices?

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“NOTICING CUES” STAGE:

THE COGNITIVE LIMITATIONS OF NOVICES

Novices with finance (or philanthropy) don’t understand impact investing �and ignore it when exposed to them

“Several times, I was asked to invest in ventures. But I am not an investor. I don’t really care about that and I don’t know how to do it. I am happy to rely on my bank to manage my assets. […] So I find impact investing very confusing.”

(MONIQUE, electroradiology technician)

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“CREATING INTERPRETATIONS” STAGE:

THE USE OF COMPARISONS

To interpret impact investing, individuals compare it with practices they know, depending on how they discovered the practice: who presented it to them, where, and which goals they were pursuing

IMPACT INVESTING

FINANCIAL INVESTMENTS

VS

IMPACT INVESTING

PHILANTHROPIC GIFTS

VS

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“CREATING INTERPRETATIONS” STAGE:

THE LIMITING ROLE OF LOGIC IDENTIFICATION

Impact investing compared with investing

Impact investing is appropriate

Impact investing is not appropriate

IDENTIFIED with finance

FAMILIAR with finance

Charles, Duncan,

Vincent (3)

Bob, Danielle, �Lorenzo, Mary,�Ricky (5)

ADOPT

REJECT

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“CREATING INTERPRETATIONS” STAGE:

THE LIMITING ROLE OF LOGIC IDENTIFICATION

“It may be due to my investor’s background, but I have trouble understanding impact investing. I don’t understand this idea of earning money, but not too much. […] I don’t know what type of financial return we are talking about, here.”

(DUNCAN, private equity fund manager)

Identifed with Finance

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Impact investing compared with giving

Impact investing is appropriate

Impact investing is not appropriate

Identified with philanthropy

Familiar with philanthropy

Alfred, Gary, Max,Valerie (4)

Zack (1)

ADOPT

REJECT

“CREATING INTERPRETATIONS” STAGE:

THE LIMITING ROLE OF LOGIC IDENTIFICATION

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“Giving is giving. Getting paid for a gift? Well, it is doubtful […]. I think that commitment and generosity are very important things and I find it ethical to keep them strong and pure. I am afraid that investing, even when expecting a lower financial return, leads naturally to investing where it is the most profitable.”

(GARY, top manager in consulting firm)

Identified with Philanthropy

“CREATING INTERPRETATIONS” STAGE:

THE LIMITING ROLE OF LOGIC IDENTIFICATION

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“CREATING INTERPRETATIONS” STAGE:

THE ENABLING ROLE OF LOGIC FAMILIARITY

Individuals familiar with finance and philanthropy are open to adopt hybrid practices; they have enough understanding of finance and philanthropy (vs. novices) without being attached to them (vs. identified)

“I made my last significant donation in 2012. I believe that there is currently not enough money in impact [investing], and too much of it in philanthropy, so I think my money will be more useful in impact investing.”

(ZACK, entrepreneur)

“When I realized that [a French impact investing fund] was already doing just that, wow, I said, I was going to invest in this fund instead of doing it myself !”

(LORENZO, entrepreneur)

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KEY TAKEAWAYS: IMPACT INVESTING IS NOT FOR EVERYONE !

Adoption of impact investing depends on:

how the practice is presented (as an alternative to finance or as an alternative to philanthropy)… because it will shape what people will compare it to… and how they will evaluate it

how the individual relate to the practices that impact investing combines

People identified with either philanthropy or finance are not likely to adopt impact investing

People that are only familiar, but not identified, are more likely to adopt it

This is important to take into account when teaching impact investing !

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A TEACHING CASE ON IMPACT INVESTING

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A TEACHING CASE ON IMPACT INVESTING

Investir & +, an impact investing fund, meets Simplon, a potential investee

Case A: Students discover the strengths and weaknesses of Simplon

=> Should Investir & + invest in Simplon ?

Case B: Students learn that Investir & + invested in Simplon and accompanied them for a few years, going through the challenges of an investment relationship

Should Investir & + exit from Simpon ?

Case can be taught in a class discussion format or with a role play format, with students playing the role of the investment committee.

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Q&A with Anne-Claire PACHE

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Breakout room discussion

What are the most effective ways to integrate impact investing into business or finance curricula, and how can we make it engaging and relevant for students of different disciplines?

What gaps exist in the current research on impact investing, and how can interdisciplinary collaboration contribute to advancing the field?

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We want to hear your opinion!

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Upcoming learning series

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Academic Hubs

North America Academic Hub

LATAM Academic Hub

Join Europe Academic Hub WhatsApp Group

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Social Change Innovators (SCI)

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Catalyst 2030 Medium page

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Find out more

https://catalyst2030.net

Follow Catalyst on Social Media

@Catalyst2030

@Catalyst_2030

Catalyst 2030

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Reflection