Riskless Business: The Limits of Impact Measurement and Management in Investing

Lauren Kaufmann, Legal Studies and Business Ethics, The Wharton School, and Michael Brown, Wharton Social Impact Initiative

Abstract: Gender lens investing (GLI) is part of the broader “ethical capitalism” movement, in which social ills are mitigated through markets, finance, and corporate activity. GLI practitioners contend that integrating gender into financial decision making allows for both smarter investing and also for improving gender equality in society. While existing research documents investor preferences and behavior, far less is known about impact investments’ portfolio companies and how these firms purport to generate social impact. This research project investigates the dynamics between GLI practitioners and their attitudes toward generating social impact including: financial and social metrics, factors constituting investors’ motivation behind their selection of portfolio companies, and the concomitant theory of social change (implicitly or explicitly) tied to their selection of firms. What makes a portfolio company (perceived to be) socially impactful? How is social impact captured through financial valuation? Answers to these questions may help managers understand how financial professionals conceptualize social impact, allowing high-impact firms to hone their social impact strategies to more effectively attract appropriate capital from investors. By understanding the various ways in which business firms are conceptualized by investors as vehicles for improving gender equality, this project will advance knowledge for academics, industry professionals, and policymakers.