Impact investing in South Africa: managing tensions between financial returns and social impact

Abstract

Purpose Impact investment is an emergent field worldwide and it can play an especially important role in Africa. The aim of this study was to examine how impact investors in South Africa manage the tensions between financial returns and social impact. Design/methodology/approach The research was based on 15 semi-structured interviews with key stakeholders in the impact investment community in South Africa to understand the related challenges, trade-offs and tensions. Findings There are two opposing views expressed as to whether the tensions between financial return and social impact result in trade-offs. It is proposed that impact investors embrace this duality and seek to approach it through a contingency and a paradox view. The tensions can be approached by focussing on values alignment, contracting processes, engaged leadership and sector identification. The authors integrate the findings into a proposed framework for effective tension management in an impact investment portfolio. Research limitations/implications This study was limited to selected South African interviewees. It would be valuable to extend the study to other African countries. Practical implications The issue of values alignment between investors, fund managers and investee firms is an important finding for practice. As is the four-part iterative framework for sensing the operating environment, defining impact, organising internally and defining the investment approach. Originality/value This study contributes empirical evidence to scholarship around organisational tensions, especially work in hybrid organisations. It affirms the value of a nuanced application of paradox theory. It examines these tensions through the lived experience of impact investing professionals in an emerging market context.

Impact investing in social sector organisations: a systematic review and research agenda

“…At the individual level, impact investors assess the personal characteristics of social entrepreneurs. In this regard, a major evaluation criterion used is the integrity of social entrepreneurs (Drayton, 2002;Mogapi et al, 2019;Block et al, 2021). Research shows that social entrepreneurs having either high voluntary accountability efforts (e.g., voluntary disclosure of organisational reports) or high reputation are more likely to receive an overall positive judgement of integrity from potential impact investors (Achleitner et al, 2013).…”

“…One such dimension is the specific sector in which the social organisations operate. Research shows that impact investors often have their preferred investment sectors, which are mostly determined by socioeconomic and contextual realities as well as their passion (Jayashankar et al, 2015;Mogapi et al, 2019). As a result, they favourably judge social organisations that operate in their preferred investment sectors.…”

“…Some impact investors favourably judge social organisations whose mission focuses primarily on social goals (Miller and Wesley, 2010;Leborgne-Bonassi e et al, 2019), while others favour social organisations with a balanced focus on both social and commercial goals (McWade, 2012;Apostolakis et al, 2016). Similarly, research shows that some impact investors positively assess the higher commercial experience of the leadership team of social organisations by perceiving such experience as necessary to attain financial sustainability (Mogapi et al, 2019). In contrast, some other impact investors negatively judge the higher commercial experience of social organisations' leadership team by recognising such experience as a major driver of mission drift (i.e., focusing more on profit at the expense of social impact) (Miller and Wesley, 2010; see also Scarlata et al, 2016Scarlata et al, , 2017Lim et al, 2020).…”

“…Although the supply of capital is essential in impact investing, it is only one part of the equation. The impact investment markets also need to have enough capacity to absorb the available capital, which is commonly known as investment readiness (Giloth, 2019;Mogapi et al, 2019). More specifically, investment readiness is the perception that investee organisations possess appropriate attributes to attract investment capital (Hazenberg et al, 2015).…”

Determinants of impact investing for tourism development in emerging destinations of sub-Saharan Africa

“…It is an investment opportunity (Hope Consulting, 2010) and/or an investment approach (WEF, 2013) made by investors into companies, organizations, and funds with clear intentions to create measurable financial, social and environmental impacts alongside a financial return for the investors, regardless of stage of maturity of the beneficiary enterprises (see e.g. Mogapi et al, 2019;Agrawal & Hockerts, 2019;Tekula & Anderson, 2019;Roundy, 2019;Choda & Taladia, 2018;Urban & George, 2018;Castellas & Ormiston, 2018;Findlay & Moran, 2019). They are ergo 'investments intended to create positive impact beyond financial return' (O'Donohoe et al, 2010: 5;Lehner et al, 2018;Roundy et al, 2017).…”