Power dynamics that shape decision-making in impact investing

Abstract

Impact investing is a term that is used for a financial instrument that addresses both financial return and social or environmental impact. Impact investing combines traditional financial market logic with developmental or sustainability objectives, the field introduces multiple stakeholders with differing priorities and levels of influence. While impact investing encourages collaboration amongst stakeholders to coexist in value creation, this assumption brings a layer of complexity in decision-making that may be structured by underlying power asymmetries. Much of the existing literature that has contributed to impact investing focuses on pre-investment screening process or post-investment performances outcome, with limited attention to power dynamics influence decision-making in impact investing. This study examines how power dynamics influence decision-making in impact investing, drawing on the perspectives of decision makers to explore how influence, control over resources and stakeholder negotiation shape investment outcomes. A qualitative, interpretivist research design was adopted, by using semi-structured interview with impact investor decision-makers across institutions, private equity firms and related stakeholders in the field of impact investing. 16 participants were interviewed using an interview guide informed by the literature review and research questions. Data was analysed through a thematic analysis process to identify recurring patterns and themes within participants. The key findings to the study are that impact investing is layered with interacting power structures within decision-making. Capital providers establish investment mandates and define the boundaries within which decisions are made in the investment. Trade-offs between financial and social objectives occur within these structured conditions rather than in neutral spaces of collaboration and co-creation between stakeholders. Control over financial resources allows dominant actors to define acceptable risk- return thresholds, impose investment mandate conditions and influence decision-making for actors involved. These dynamics suggest that decision-making within impact investing operates with hierarchical power structures, challenging the portrayal of impact investing as neutral collaborative arena of value creation.