Value, Values, and Valuation: The Marketization of Charitable Foundation Impact Investing

Introduction

There is an inherent paradox in impact investing; it brings the very financial tools that have failed to create a just, equitable and sustainable world, to the pursuit of creating a more just, equitable and sustainable world.

–Jed Emerson, The Purpose of Capital ( 2018 )

Despite the paradox and unresolved challenges it presents, the impact investing market grows; in 2020 over 715 billion U.S. dollars were invested in impact investments, according to the Global Impact Investing Network ( 2021 ). Extant scholarship on this market has also developed in recent years, ranging from definitions of impact investing (Höchstädter & Scheck, 2015 ) and diverse investor roles (Tekula & Andersen, 2018 ), to practices such as measuring social impact (Millar and Hall, 2013 ; Nicholls et al., 2015 ; Hehenberger & Harling, 2018 ) and the rating systems built upon such quantification (Barman, 2016 ). Still others have theorized processes incorporating value and values (Ebrahim and Rangan, 2014 ; Kroeger & Weber, 2014 ; Nicholls, 2010 ; Nicholls, 2018 ). In their paper, Sardy and Lewin ( 2016 ) develop a framework that adds an impact dimension to the traditional dimensions of risk and return, thereby shifting the traditional risk-return tradeoff through a stakeholder model.

Much of this literature engages with dual institutional logics of hybrid organizations and theorizes market structure and design. The aim of this paper is to uncover the nuanced practice of incorporating social and financial values in impact investing, and to bring into question this presumed duality and subsequent incorporation. In other words, does the market in fact incorporate social and financial goals, thereby producing ‘returns’ of both types through market exchange? We argue that to prove impact investing is in fact coordinating both financial and social values, and thus is indeed a ‘moral market’ (Fourcade & Healy, 2007 ), it must be demonstrated if, how, and where each of these values is ‘coordinated.’ While all markets have a moral fabric, as they exist in a broader social and cultural context (Fourcade & Healy, 2017 ), moral markets explicitly coordinate both social value and financial value in market settings, rendering them both distinct and dually motivated.

Recent studies of corporate social responsibility (CSR) and sustainability programs explore the practice of value coordination. Schaltegger and Hörisch ( 2017 ) find that legitimacy—more than financial profit—motivates CSR participation. Impact investors are also compelled by the need to be both legitimate and make a profit, in part because they are similarly bound by fiduciary duty. Yet, whereas impact investments seek to create social and financial returns jointly, CSR programs are distinct initiatives of for-profit firms, such that social pursuits of these programs are funded by otherwise purely financially motivated organizations. In this way, impact investing may be more comparable to social enterprises or hybrid organizations, which are directed by missions incorporating financial and social goals. Pache and Santos’ ( 2013 ) examination of a hybrid organization in which competing logics are present, demonstrates that individuals respond to logics based on their relative familiarity with them. Their study illuminates the interplay between macro (organizational) and micro (employee) forces, unveiling the process by which individuals incorporate disparate logics in a variety of ways in multi-valued settings. This approach is also suitable for adapting organizational insights to a market setting with a range of organizations and actors. However, in both the CSR and hybrid organization examples above, the motivations (legitimacy or profit) or logics (corporate and social) are predetermined rather than emerging fundamentally from those in the organization. With the aim of testing and refining the existing theory of social finance and impact investing, our study addresses a gap in the literature on dual institutional logics in hybrid organizations by bringing an economic sociological lens to social and financial value identification and incorporation.

In John Dewey’s Theory of Valuation , he purports that value is not intrinsic, but rather the product of an ongoing social process. Therefore, in a moral market, both financial and social value(s) are coordinated through social action like challenge, negotiation, and assessment. Identifying value coordination requires expanding notions of value beyond monetary, and into related forms of value (Dewey, 1939 ) to make room for the social. For instance, while financial value is commonly discussed in the form of market price in the impact investing market, social value may be communicated by price (e.g., by calculating a social return on investment) or through prizing or praising of its value. It is possible to imagine social value in this market may be overlooked, incorporated (also considered, but separately from financial value), or integrated (considered in relation to financial value) into a price equivalent as in the social return on investment example. These distinct forms of valuation make visible the subordination, distinction, or relationship between values. This also demonstrates how social and financial values may be incorporated in multiple ways, instead of in accordance with binary logics.

Çalışkan and Callon make it possible to identify valuation with their marketization framework ( 2009 ; 2010 ). Their proposed framework employs a socio-technical arrangement of framing elements that permit categorization of market-level action and valuation as well as that of organizational impact investors thus clarifying if, how, and where these values are incorporated. Bringing their constitutive, elemental approach to our examination of impact investing allows for the uncovering of all possible value combinations that are prioritized in the market, rather than the presumption of certain values (i.e., financial and social) and combinations.

To examine value incorporation in impact investing, we use data from interviews with charitable foundation investors, intermediaries, and field builders. Charitable foundations are a growing segment of impact investors (Tekula & Andersen, 2018 ), and hold more than 1012.9 billion U.S. dollars in assets, the vast majority of which is invested in financial markets (Urban Institute, 2020 ). From these foundation interviews, both market-level valuations and investors’ valuations can be considered within the marketization framework, yielding findings at both levels, thus allowing for comparison between these levels as well. Our findings illustrate a market imbued with varied, and various, valuations. At the market level, impact investing largely does not incorporate social value and instead primarily prioritizes financial value. As investors explain their organizations’ investment behavior in the impact investing market, they align with or differentiate their organizations’ valuations from predominant market-level valuations. These insights permit a second level of analysis, in the form of an investor typology which can be mapped onto the broader marketization framework. Our study unpacks these multi-layered dynamics, examining social dynamics and relational (Emirbayer, 1997 ) and structural mechanisms underlying market creation.

This study makes a number of contributions. It expands knowledge regarding how value incorporation occurs in impact investing, thereby testing and refining the existing theory on hybrid organizations and social finance. Applying economic sociological theory to the examination of hybrid contexts like impact investing demonstrates the value of cross-disciplinary theory application in business ethics (Crane et al., 2016 ), and refines the use of institutional logics in hybrid contexts (Nicholls, 2010 ; Pache & Santos, 2010 , 2013 ). Whether unincorporated, incorporated, or integrated, valuation at the market and organizational investor levels illuminates variation within this growing moral market. Valuations indicate where the market succeeds and struggles with overcoming paradox through practice. Our findings contribute that dual logics (social/financial) are not always incorporated in a binary way. Rather, in moral markets like impact investing, investor valuations comprise a spectrum of strategies in which financial and social values are prioritized and incorporated differently by different actors.

The rest of the paper is organized as follows: First, we elaborate on relevant economic sociological theory as well as a brief overview of the related impact investing and CSR literatures. Following that we explain the project’s methodological approach and findings of value incorporation at the marketization level, investor types by value incorporation, and comparisons of market- and investor-level valuations. We then discuss the significance of these findings as they relate to the practice of impact investing and the market potential to incorporate social and financial values. Finally, we provide an explanation of study limitations and suggestions for future research.

Theoretical Motivation and Background

Institutional logics in hybrid contexts has become an important approach to the study of impact investing and business ethics. In this study, we use a pragmatic approach to build on Nicholls’ ( 2010 ) and Pache and Santos’ ( 2010 , 2013 ) use of institutional logics in hybrid organizational and market contexts, demonstrating that social and financial values are coordinated in a variety of ways in moral market (Fourcade & Healy, 2007 ) contexts. We aim to contribute to the understanding of how valuation occurs in the multi-valued setting of impact investing. These insights regarding valuation may be applicable to other multi-valued or hybrid contexts as well, including organizations like social enterprises and CSR and sustainability initiatives. Additionally, this research contributes to the theorization of how moral markets are structured, through the application and proposed expansion of a marketization framework (Çalışkan & Callon, 2010 ). Finally, this paper seeks to contribute to the literature on the ethical practice of impact investing, informing specifically how a subset of investors claim value for their investments.

Approaches to Multi-Valued Contexts

Incorporating social and financial values is thoroughly, if specifically, addressed in the literature on corporate social responsibility and sustainability. While this extant research primarily considers social initiatives of for-profit companies rather than impact investing’s dual priorities in a market setting, it offers important insights into the work of combining financial and social goals (deColle et al., 2014 ). Particularly relevant to the examination of valuation is the literature on motivations for CSR practice. Legitimacy, a key consideration for impact investing, is examined in depth, including the dimensions or qualities of legitimacy as they relate to corporate motivations (Jaber & Oftedal, 2020a , 2020b ; Richards et al., 2017 ). For instance, Palazzo and Scherer ( 2006 ) find that sustainability certifications demonstrate firms’ moral legitimacy, as opposed to cognitive legitimacy (Suchman, 1995 ).

Most germane to this paper is the debate between legitimacy and profit as primary justifications for participating in CSR. Bronn and Vidaver-Cohen ( 2009 ) find mixed results as to whether strategic or moral imperatives dominate, but assert that, of the strategic factors examined, legitimacy is a central one influencing sustainability practice (p. 102). Other studies support the legitimacy-seeking view of how companies deal with sustainability more directly (Cho, 2009 ; Milanés-Montero & Pérez-Calderón, 2011 ). Bringing this debate out of theory and further into practice, Schaltegger and Hörisch ( 2017 ) examine whether profit-seeking or legitimacy rationales dominate with regard to intention, integration, and implementation in sustainability management practices. They find support for both profitseeking and legitimacy, but they too find that legitimacy dominates across categories of implementation. Such examples demonstrate value incorporation in a for-profit setting where legitimacy and profit are central motivations.

The CSR literature suggests that, in practice, multi-valued moral markets must weigh competing priorities including legitimacy and profit. However, these theories may be less appropriate when addressing the various ways value coordination occurs in settings where structures and individuals are interacting and incorporating value in various ways. The literature on hybrid organizations offers insight regarding such tensions (Andre et al., 2016 ; Battilana & Dorado, 2010 ; Mason & Doherty, 2016 ; Santos et al., 2015 ). Nicholls ( 2010 ) proposes a typology of social investors and maps these to investor logics (financial, blended, and social). Most germanely, Pache and Santos ( 2010 , 2013 ) illuminate some of the complexities of value integration that are useful to considerations of impact investing. In their examination of a hybrid organizational context, Pache and Santos ( 2013 ) identify individuals’ varying degrees of adherence and responses to competing institutional logics, and find that whether they are novice , familiar , or identified with an institutional logic indicated their response to it, by either ignoring , complying , defying , compartmentalizing , or combining it with other logics. This contribution both illuminates the varied interpretations of what is valuable (predetermined logics) as well as illuminating the interplay between multiple levels of the organization and the employees. Together, these instances of CSR literature and hybrid organizational contexts offer insight into some of the competing priorities (legitimacy and profit), levels of valuing agents (organization or market and individual level), and diverse ways value incorporation may be claimed. Further, by bringing valuation literature and a marketization framework (Çalışkan & Callon, 2009 , 2010 ) into conversation with the literature on CSR and sustainability practice and hybrid organizations, this study merges the theory for understanding the new market of impact investing with what is known of the practice of value incorporation in similar contexts, thereby contributing to the conversations on value integration in CSR and hybrid organizations as well as impact investing.

A Pragmatic Approach to Impact Investing: Valuation in New Moral Markets

Impact investing is a market, which necessitates an accounting for greater complexity and variation than an organizational context. It also follows that while social and financial priorities are presumed to inform this market, if, how and where each or both are claimed as valuable cannot be structured simply. As such, we take a pragmatic approach (Dewey, 1939 ) to the study of value incorporation, examining accounts and actions as well as design and structure of the market of impact investing. Pragmatist approaches to valuation in sociology offer theoretical tools for contextualizing justifications in market settings (Antal et al., 2015 ; Lamont, 2012 ; Muniesa, 2012 ). Similarly, pragmatist orientations to CSR and sustainability in business ethics (Lorino, 2018 ; Painter et al., 2019 ; Surie & Ashley, 2008 ; Visser, 2019 ) offer insight into how such valuation occurs in practice. We elaborate this approach’s suitability to valuation in new moral markets below.

Central to this study is a lens on markets that concerns their social context as much as the models and technologies that comprise them. Building on Hirschman’s interpretations of market society ( 1982 ), Fourcade and Healy ( 2007 ) conclude that the “social sources of moral ideas” (p. 300) are central to sociological approaches to the study of markets (Fourcade & Healy, 2017 ). However, moral markets, Fourcade and Healy explain, coordinate both social and economic values through exchange. Through the valuation process elaborated below, these moral fabrics are established, changed, and infused into moral markets like impact investing.

Dewey ( 1939 ) claims that value is not in fact intrinsic, but instead is the product of an ongoing social process. He categorizes how people speak of value, particularly in ways that go beyond the primary association of value, in the form of price. Fabian Muniesa ( 2012 ) expands upon Dewey’s theory, drawing attention away from the noun form (value) and toward the action (valuing) implicit in this theory. Such pragmatist scholarship offers tools for understanding investors’ valuations in moral markets by emphasizing how value(s) are established, challenged, negotiated, and assessed in these markets. Instead of presuming moral markets to have a particular moral fabric, pragmatism orients attention to investors’ claims of value and the contexts in which they situate them, to examine where, when, and by whom value is claimed.

Of interest for this study is valuation communicated through evaluation. According to Michele Lamont, in her 2012 piece on (e)valuation:

Indeed, evaluators often valorize the entity they are to assess as they justify to others their assessment. For instance, art critics attribute value to an artwork (“this is path-breaking,” “this is crap”) at the very same time as they may attempt to convince their peers to agree on their evaluation of a particular work (p. 205)

The connection between valuation and evaluation offered in the example above demonstrates the potential power such statements have in market settings, particularly in cases requiring navigation of preferences and/or in new market settings. This also indicates the power influential market actors have on the moral projects of markets through their justifications or claims of value. An economic sociological approach demonstrates how deeply enmeshed markets are with other elements of social organization, like law and politics, such that even the value of nature is conceived of differently from country to country (Fourcade, 2011 ). This scholarship demonstrates that valuation practices directly affect material consequences.

While a pragmatic approach to the new moral market of impact investing permits a wide range of value incorporation, structure is necessary for examining patterns in various valuations. Diverging from earlier studies of multi-valued contexts, we do not categorize valuations but instead align them with categories of the market process, permitting variation within market elements. We argue that this is a particularly fitting approach for a new moral market, in which there may be many different valuations.

Çalışkan and Callon ( 2009 , 2010 ) theorized a general concept of the process of marketization, as an example of a broader theory on economization, or the process by which things come to be economic in nature. They theorize such new markets as socio-technical arrangements—agencements—comprising five framing elements ( pacifying goods, marketizing agents, market encounters, price-setting, and market design and maintenance), which organize behavior, arrange heterogeneous constituents, and delimit a space for confrontation and power struggle ( 2010 , p. 3). These agencements bring relevant goods, actors, and relationships central to market making into view. For impact investing, whether social and financial values are incorporated in the marketization process will demonstrate when and in what ways impact investing meets its objectives.

The literatures on impact investing and corporate social responsibility serve as empirically based complements to the theories of valuation and marketization elaborated above. Current research on impact investing spans description (Emerson, 2003b ), illustration of the market through shared definitions (Höchstädter & Scheck, 2015 ), hindrances to market investment (Lehner & Nicholls, 2014 ; Glänzel & Scheuerle, 2016 ), organizational models of philanthropy (Mair & Hehenberger, 2014 ), and their relationship to judgment devices (Chiapello & Godefroy, 2017 ), as well as how these allow for the measurement of social and/or environmental impact (Cahill, 2010 ; Höchstädter & Scheck, 2015 ). Less scholarship concerns the process of pursuing social and financial objectives jointly (Ormiston, 2015 ) or how the theoretical underpinnings of the market connect to its reality in practice (Hehenberger et al., 2019 ).

In Table 1 , we begin to map extant impact investing literature to the marketization framework to illustrate where current scholarship is focused within these elements.

While the included papers in this mapping are not an exhaustive list, and the studies are not exclusive to only one element of marketization, these studies do appear to cluster around explorations of market design (Millar & Hall, 2013 ; Wood et al., 2013 ; Ebrahim & Rangan, 2014 ; Nicholls et al., 2015 ; Thornley & Dailey, 2010 ), with some others focused on price-setting (Hehenberger & Harling, 2018 ) and specifically how it relates to social impact bonds (Cooper et al., 2016 ; McHugh et al., 2013 ).

With insights from the institutional logics, economic sociological and impact investing literatures, we build upon the existing theory in this field with the pursuit of the following questions:

What can economic sociology contribute to understanding social and financial value incorporation in impact investing?

Is impact investing a moral market, with incorporated social and financial values? If so, how, where, and on what levels of the market does this incorporation happen? Does this incorporation follow the current theory related to institutional logics and hybrid organizations?

Research Method

The objective of this research effort was to study how value is incorporated in impact investing, both at the market level and organizational investor level. The results reported in this paper were part of a larger study of charitable foundation impact investors and how they select, structure, and assess the performance of their investments. Impact investors can be individuals and fund managers, but also corporations and charitable foundations. This paper specifically examines a sample of U.S. charitable foundations, because they are unique investors; they are key actors in the founding and growth of the impact investing market. Indeed, the term ‘impact investing’ was coined in 2007 at the Rockefeller Foundation’s Bellagio Center, during a convening of philanthropy, finance and development organizations, with the intention of building a global industry pursuing investments positioned to create social and environmental impact (Freireich & Fulton, 2009 ; Harji & Jackson, 2012 ; Höchstädter & Scheck, 2015 ).

Further, charitable foundations’ value incorporation is important, because—unlike other corporate (and traditionally socially neutral investors)—they have always been in the business of both making investments for profit and creating social good. Maintaining an endowment through investments in financial markets positions foundations as knowledgeable organizations in the business of maintaining and growing monetary assets. However, they also exist to fulfill a philanthropic mission, often through grantmaking in communities. Their structure and purpose mean foundations have unique experience with social impact—and with considering social impact and finance concurrently (Emerson, 2003a ; Qu & Osili, 2017 ). Also, unlike other investor types, they are not in the business of selling goods and services, which in other cases may introduce additional considerations into the assessment of financial returns.

Despite the ways foundations differ from other investors, they are still sufficiently similar to merit examination. As aforementioned, like other investors and corporate actors, foundation officers are bound by fiduciary duty (Rotman, 2017 ). Accordingly, officers are ethically required to put the best interest of the foundation first. In the United States, recent Internal Revenue Service (IRS) tax regulations permit foundations to invest in consideration of charitable mission, while still following prudent investor rules and broader fiduciary duty stipulated by the Uniform Prudent Management of Institutional Funds Act (UPMIFA), adopted by 49 states as of 2012 (National Conference of Commissioners on Uniform State Laws, 2006 ). However, while legally permissible, each investment case is judged individually, such that there is no obvious or prescribed way in which a foundation can be sure they are investing, particularly their mission-related investments, in a way that will not violate their fiduciary duty to preserve assets in accordance with modern portfolio theory. Fiduciary regulations connect the legal and ethical responsibilities that foundations (like many other investors) are bound to uphold while navigating, investing in, and assessing impact investments.

Sample

This study began with a purposive sample from the Global Impact Investing Network Investors’ Council, composed of organizations which have publicly identified themselves with the advancement of impact investing. The rest of the sample was snowballed from previous respondents who suggested we speak with other foundations making impact investments, as well as a group referred to as ‘field builders’ and ‘intermediaries.’ These individuals are included in the sample because they were mentioned as influential by foundation impact investors.

The respondents in the sample belong to one of the following categories:

Investors in our sample are private foundations or community foundations making direct and/or indirect impact investments as program-related and/or mission-related investments.

Intermediaries include for-profit financial institutions and non-profit organizations like community development finance institutions that take money from individuals, corporations, or foundations and redistribute it to community organizations. By design these intermediaries do much of the due diligence for their investors.

Field Builders are included in the sample. Some create resources for the impact investing market, like rating systems and knowledge (i.e., white papers and resource maps) but do not invest their capital in impact investments. Others are incubators that select and grow—through training and sometimes connecting capital—social enterprises. Through their work selecting social enterprises to support, incubators establish success and failure, delineating the set of social enterprises available for impact investments. These organizations make it easier for investors to find, invest in, and assess their investments. Further, while the investors and intermediaries are also often doing work to promote and facilitate the impact investing marketplace, they are moving capital in the market as well, so they are categorized separately from those who do not.

Data Collection

Data for this project come primarily from 54 in-depth interviews, lasting an average of 59 min each. Nineteen interviews were conducted in person, while 35 interviews were conducted over the phone or via skype, as the most prominent foundations in the United States impact investing landscape are located nationwide in a variety of cities and states. In accordance with the Institutional Review Board regulations for this study, interviews were conducted anonymously, recorded with the permission of respondents and transcribed verbatim into MaxQDA, a qualitative data software. Throughout the study, interviewees are referred to by the initials of their randomly generated assigned pseudonyms. In addition to formal interviews, descriptive organizational data were collected from their websites, publicly available tax forms (Internal Revenue Service Form 990 s), annual reports, and at conferences through informal conversations and introductions. Table 2 sets out the number and type of interviewee by firm and investments made.

The open-ended, semi-structured interview guide was adapted for each respondent, according to publicly available information regarding the organization’s impact investments. Generally, interview schedules addressed (1) the respondent’s and organization’s background and history in impact investing; (2) why they make impact investments and how investments are sourced and assessed; (3) how respondents think about the success, failure, or indeterminacy of their investments; and (4) general thoughts on the impact investing movement/market, including what they find most exciting and concerning.

Conducting semi-structured interviews allowed for comparability, but also for investors to direct the conversation regarding their assessments of impact investments. As the purpose and challenge of the impact investing market is to integrate social and financial value, one must avoid priming prime respondents to tell how they integrate value, but rather, to listen for if they do so, and subsequently, when and/or how, by asking open-ended questions about success and failures. While respondents did discuss social and financial investment successes and failures, they addressed them almost entirely separately and according to very different thresholds. This insight into the valuation and justification processes of investors was only possible due to this open-ended approach. That valuations varied at the market and organizational investor levels, from completely unincorporated to highly integrated, is a finding of this study as opposed to an imposed assumption via the interview guide.

Data Analysis

The data from these interviews and supplementary sources were analyzed using an abductive analytic approach (Tavory & Timmermans, 2014 ). Although initially this project hypothesized identification of concrete resources used when claiming valuations—in the form of people, networks, or technologies/rating systems that would help to determine success or failure—respondents often explained that the work of financial and social valuation was far less concrete. Categorizing these valuations through open and later axial coding (Strauss & Corbin, 1998 ) made it possible to allocate them within elements of the Çalışkan and Callon ( 2009 ; 2010 ) marketization framework. Çalışkan and Callon identify five basic elements, which they refer to as types of framing ( 2010 , p. 5), relevant to the process of marketization. These elements include the following:

Pacifying goods—goods of predictable quality that create stability necessary for the possibility of exchange (p. 5)

Marketizing agencies—the actors that compete to participate in defining goods and valuing them (p. 8)

Market encounters—the meeting of calculating agencies and goods necessary for valuation to take place (p. 14)

Price-setting—the outcome of struggle between agencies trying to impose their mode for measuring good’s value and qualities (Stark, 2009 ) (p. 16)

Market design and maintenance- the dynamics of markets, from design to management and implementation to maintenance (p. 19).

The socio-technical elements of this framework situate market tools, actors, and claims invoked in valuations relative to the broader marketization process, and in so doing, illustrate relationships between these elements as well. For instance, that which investors claim to be stabilizing the market and making it predictable are coded as pacifying goods facilitating a new market for both financial and social ‘returns’. Relatedly, identifying organizational or individual actors (e.g., board of directors, the IRS or beneficiaries) respondents spoke of as wielding the power to set prices and establish certain goods as pacifying goods rather than others further demonstrated the market-making process.

In later phases of coding, these claims (across multiple elements) constituted broader patterns in value incorporation. Coding respondents’ valuation claims also yielded two distinct patterns in valuation—that of the market and that of the organizational investor interviewed. Although the representation of the market herein is limited by sample size, there are sufficient patterns in these claims to categorize valuations by marketization element separately from valuations claimed by investors regarding their investment practices. As a result, we present findings for both market-level valuations and organizational investor-level valuations. Patterns in investors’ valuations converge, enabling the creation of an investor typology. For instance, one investor type is derived from a pattern among investors invoking the same pacifying good marketizing agency and price, indicating that these respondents shared a common understanding and practice of social and financial value incorporation.

Value Incorporation at the Level of the Market

Conversations with investors yield important information about their perception of the priorities of the impact investing market. They often report market norms or valuations while discussing their own, thereby aligning or distinguishing their organizations from the perceived valuation processes inherent in the marketization of impact investing. Market-level valuation claims coalesce in patterns, reflecting different types of social and financial value incorporation by marketization element. These findings are illustrated in Table 3 , and prominent patterns are explained.

‘Market Rate’ Pacifying Goods: Unincorporated Financial Value

Pacifying goods play the role of stabilizing touchstone, or predictable commonly held standard, in a market. Some impact investors expect ‘market-rate’ financial returns for their impact investments while others expect a range or concessionary returns, yet there is consistency in discussion of the impact investing market’s performance standard as financial . Investors specifically point to the financial standard of traditional financial markets, namely the ‘market rate’ that would be expected of any non-social investment:

“Everything that we do, it has to be market rate so we consider returns to be probably the same as what you would get for the same sort of strategy, acknowledging regional risk, but from that we think that they should be compensated. We think that all the opportunities have to be scalable meaning that they can’t be too weird, or yeah, like if you have the scope or privational sort of funds, they’ll never get more money than local money” (CH).

As this example demonstrates, some investors tie their expectations and strategy to the expectations of the broader market that they reference: justifying their market-rate return expectations in relation to the future success of the enterprise, as other market actors would expect market-rate returns and a ‘scalable’ model.

“Market rate allows investors to be catalytic, because getting market rate will draw more regular VC investors into the impact investing space” (AT).

“If you’re going to make something scalable, it also has to generate market-rate returns. Otherwise, the capital isn’t going to come” (OS).

Here again investors indicate that above organizational level expectations are the expectations of “the market,” which respondents connect to next stage funding and scalability, which would ultimately translate to long-term growth.

Other investors claim organizational valuation that differs from their perception of market valuation, but further establish the ‘market-rate’ standard when they do so. One intermediary, through whom foundation dollars are invested in communities, illustrates this through the expectations of many of his investors.

There’s the room of risk reward, but measured in a very market way, but really wanting to be innovative. So you want to do the most innovative thing which in the non-profit sector means it could really fail, and then that’s risky. But because it’s really risky, then [investors] want to put a huge price tag on it. To me, that just means they’re ensuring that it’s going to fail. (PK)

In identifying the disjuncture between ‘market-rate’ returns and risk in impact investing, the intermediary investor claims the relationship to risk is fundamentally different than that of financial markets like the stock market. This explains his frustration with investors’ ‘market-rate’ expectations, even though the social risk makes this threshold ill-fit for impact investing. Yet another respondent defines market valuations as he distinguishes his own, saying that concessionary return investment opportunities are the most exciting because that is where the capital is not going, and it is what is “world changing” (ID). This respondent reinforces the ‘market rate’ as the market’s standard by mentioning concessionary returns—defined as returns below the ‘market-rate’ threshold. He also points out what he perceives to be an inverse relationship between ‘market-rate’ returns and deep social impact. While he is unique among respondents in his views, his claim reinforces others' that explain market-level valuations are primarily financial.

Regardless of whether organizational valuations differed, respondents' reports of market-level expectations singularly prioritize market-rate returns that would also be expected in a non-social impact investment, without modification, and without incorporating social value in any way. In their ubiquity, it becomes clear that ‘market-rate’ returns serve the stabilizing role of pacifying goods in the marketization process of impact investing, which facilitate market growth, standards, and investor ability to understand and act in this new moral market. One might imagine a new term unique to a market created for the pursuit of social and financial value—the lack of such a standard indicates lack of value incorporation in this pacifying goods element of the marketization process.

Marketizing Agencies: Many and Variously Incorporated Valuations

Marketizing agencies are entities that establish the definition and valuation of goods in a market. These agencies include people, organizations, markets and governments, among others. In contrast to pacifying goods, marketizing agencies are many and varied in their incorporation (or lack thereof) of social and financial values. Impact investors mention foundation boards, corporations, the financial market, impact investing associations like the Global Impact Investing Network, among others as agencies at work in impact investing. In fact, sometimes the same marketizing agencies are invoked in opposing ways. For instance, some foundation founders and boards require organizational investors to seek ‘market-rate’ returns for their impact investments (thereby only valuing financial priorities), while others prioritize local impact or impact of a certain quality or range of returns and qualities (thus, incorporating social values with financial values). Yet another prominent example of such an agency is the U.S. tax authority, the Internal Revenue Service (IRS). Two specific topics converge in investors’ discussions of the IRS: legislation on program-related investments (PRI) taken from the minimum grant payout requirement, and clarification of fiduciary duty requirements in UPMIFA.

“I think that the IRS guidelines from what I understand, don’t really help a whole lot because as I understand it, they’re relatively vague. They were supposed to be updated recently at least with regard to PRIs giving examples, but PRIs are interesting because they’re all about intent” (DK).

“That fiduciary rule has been relaxed straight from the IRS in the last two or three years, but it’s taken time to get hold. I think it’s also going to take some cultural change for organizations to say, “hey, wait, actually I think this is okay, I think it’s legit if we were to do it this way.”” (JG)

As both of these quotes demonstrate, while the IRS is influential in its incorporation of social value into certain kinds of investment standards, the interpretation of the regulations is unclear to some investors, further complicating the role of the values promoted by the legislation. These interviewees also indicate that when uncertain, investors revert to older interpretations of the law, which are more financially oriented.

More often than mentioning the IRS, investors reference fiduciary duty, which stems from the IRS and other regulatory bodies. Investors commonly refer to fiduciary duty as requiring the minimization of risk and maximization of financial profits. Yet as noted above with UPMIFA, the IRS clarified that social value can be considered and allowed for in foundation investment decisions. Still, charitable foundation investors understand and interpret this requirement in a variety of ways, demonstrating this agency’s variability at the market level.

Diverging from the singular financial value focus of the pacifying goods in this marketization process, the marketizing agencies most commonly referenced by investors demonstrate an evolving incorporation of social and financial values, albeit varied and conflicting at times.

Price-Setting: Value Incorporation and Integration in Impact Investing

Unsurprisingly, investors most frequently discuss ‘market-rate’ as the predominant outcome of price-setting in the market-level marketization process. However, some investors discuss concessionary returns, which convey financial value falling below the ‘market-rate’ price and are also often understood to refer to a social correlate. In this way, social and financial values remain separate, if considered in relation to one another in the context of market-level price-setting .

“Many other philanthropy organizations think that PRIs are a concessionary return, and I think that is part of the spectrum of how we think about PRIs. Going back to my point, it doesn’t have to be one thing, it can be many, right? The way I see it is we take uncompensated risks because of the impact that it creates and catalyzes. Again, it’s been an interesting conversation. I’ll talk about this from an impact perspective. I said, it’s an impact risk, we can be [bold], and some of our staff members are like, we can’t take impact risks. I go, you just said you want to be catalytic, innovative, change the way capital flows, inherent in those words are, these are things that have never been done before and if these are things that have never been done before, we inherently are taking impact risks, one, and two, if we don’t take impact risks are we actually changing systems?” (ML).

Here concessionary returns (i.e., ‘uncompensated risk’) are equated to a type of impact they create and catalyze, bringing social and financial values into the same conversation. This example also indicates how concepts like ‘risk’ are predominantly considered at the market level regarding financial, not social value. This organizational investor’s approach distinguishes their perception regarding price-setting from that of the markets while upholding the ‘market-rate’ price as the understood standard of performance (as concessionary definitions are by definition, concessionary to the ‘market-rate’).

One notable investor rejects traditional market price-setting because it does not consider social value.

Impact investing it is not an asset class it is a philosophy, a strategy, a lens applied over. And what impact investors are doing now is it used to be at a thirty-thousand-foot level but as the market is maturing and as we are getting better at seeing what is the impact options that are out there and there are more options to be considered. Before we would say ok if we’re going to go into fixed income then we want to compare ourselves. We would pick a benchmark that is based on non-impact, non-impact benchmark to compare ourselves. Now we are saying well you know what we’re discerning and we’re willing to seek out an appropriate return for a particular path of impact that is on us. So now all of a sudden...[we and other investors] are beginning to get more discerning, want deeper impact in their portfolios, are willing to adjust and do an appropriate return, which basically says I don’t want to compare my portfolio to a traditional benchmark because they are not even considering their externalities so how can you compare performance of a company that is actually improving the environment to one that’s damaging the environment. If we were to do true costing here where if we were to add in the externalities the hit that the one that has for practices has and we looked at return holistically then it would be a whole different conversation. (LH)

This example indicates that at the market level, the accepted standard for price-setting is the ‘market-rate’. This investor contrasts their approach, at, explaining non-impact investments are overlooking relevant externalities that wouldmight make that threshold a suitable standard to measure impact investments against or point out its insufficiency generally. This also demonstrates that an emerging group of investors is beginning to challenge the predominant, unincorporated market approach with integrated (inextricably linked) approaches to price-setting.

One interview shared a case of an investment barely qualifying as an impact investment by their foundation, because while it performs well financially, its social valuation is complicated. In this case social value was considered at the market level, in that the investment represented a best-in-class agricultural practice, but the product (tobacco) also had a social cost. All the aforementioned examples demonstrate that impact investing’s price is set at the traditional ‘market rate’. However, while some investors are comfortable with this price, there are other qualities and standards, including company practices and the consideration of externalities, that a growing subset of investors cite as reason to challenge this price’s acceptability. This indicates a range in market-level price-setting , from the most predominant financially oriented market-rate returns, to some, albeit less-widely accepted instances of value incorporation (particularly regarding concessionary returns and their social correlates).

Market Design and Maintenance

Some market design valuations consider financial value, and others social value, though they are most often considered separately. Market design elements, which represent market dynamics, prioritize financial values including the emphasis on scalability (i.e., an investment’s readiness for quick growth). As one charitable foundation founder claimed, “capitalism holds you accountable for having a viable, scalable model” (BK); they suggest that not impact investing, but the broader capital markets legitimate investees, implying that if the model cannot be grown, it will not survive. Yet another respondent claims that “if you’re going to make something scalable, it also has to generate market-rate returns. Otherwise, the capital isn’t going to come” (OS). In both responses, the market’s position on design emphasizes growth and expansion. These examples also both invoke the role of capitalism or socially neutral capital as central to the design of impact investing. A smaller group of investors discuss the application or adaptation of philanthropic approaches to incorporating social value, including theories of change or logic models to plan and assess social performance, suggesting they are accepted and used, if less predominantly so, at the market level.

A few investors explain the market’s attempt to incorporate values through market design, in the form of metrics including the IRIS + system or GIIRS fund ratings, that represent social value in conjunction with financial value. These mentions were surprisingly infrequent, however, indicating that an incorporated or integrated approach to valuation at the market level is not nearly as predominant as claims of unincorporated market design.

Taken together, investors’ explanations of market-level valuations can be mapped onto marketization framework elements, suggesting patterns in value incorporation (or lack thereof) in impact investing. Market encounters were not represented in the data, so we cannot interpret their value integration, though other impact investing literature (e.g., Hehenberger et al., 2019 ) addresses these encounters’ influence on the field seeding this market, suggesting that social value is secondary in the field ideology emerging from such encounters as well. Most notably, the pacifying goods of this market are in the form of ‘market-rate’ returns, which are entirely socially neutral, by definition. This contrasts with the diversity of valuation evident in the marketizing agencies . Although price-setting most commonly aligns with the ‘market-rate’ threshold, some less prominent incorporated and integrated approaches to valuation are explained. Finally, market design most centrally considers investments’ ability to grow and attract more money, also prioritizing financial value. Despite a range of valuations across elements, the prioritization of financial value over social value is evident in the ubiquity of ‘market-rate’ returns as pacifying goods , the price set on these returns and the predominance of growth and scale in market design at the market level.

Value Integration at the Organizational Investor Level

The prior section drew on patterns in organizational investors’ and intermediaries’ claims of market-level valuations. Interviewees also had much to say about their own organization’s valuations, whether in alignment with or departing from market-level valuations. In Table 4 , we present a typology of investors, based upon their approaches to incorporating social and financial value. An explanation of each investor type follows.

Traditionalist impact investors are characterized as more financially conservative than their peers. This group of investors, intermediaries, and field builders expect ‘market-rate’ returns and feel they act in prudent and responsible ways with their funds (see additional quotes in the section on ‘market-rate’ pacifying goods above, as they offer organizational level insight as well as market level), most often considering social value only secondarily. Further, when social value is considered, it is often referred to generally, as a social impact goal or by a broad-level reference to social impact, such as a geographic place (PF) or technology like FinTech (AS) or EdTech (AT). This demonstrates that while this group identifies as impact investors, social value is secondary to—and contingent upon—financial valuation. These are some of the foundations making primarily mission-related investments (MRI), and those intermediaries trying to attract both foundation and private investor capital. This approach is best summarized by an investor in another category (Spectrum Investor) as they explain MRIs and their social valuations.

“An example...you could imagine that [redacted] Foundation, is all about supporting health and healthcare and access to healthcare. They could make a PRI to an organization that was helping to finance federally qualified health centers in low income neighborhoods. That would be a PRI, if they were making it at 1% or whatever. But if they made a stock investment in Starbucks, that happens to provide benefits to its employees, regardless of whether they are full-time or part-time. That is advancing their mission, but they are, if they’re just buying stock, it’s a market-rate investment, so they would be able to consider that an MRI, which doesn’t mean anything for IRS purposes, it’s more just for packaging. So some foundations will do both. And it just means that they want to, when they call it an MRI, it just means they’re trying to align their general investing strategy with their mission” (MW).

Here, the respondent explains that the social value of the MRI is the provision of employee benefits at the investee level (i.e., ‘aligning general investing strategy with mission’). Social valuation in this category is often difficult to claim definitively, because other socially neutral investors may be invested in the same investments just for the financial returns, nor is it necessarily true that the organization’s total impact (through supply chains or environmental policies) is even positive. In this way the small group of traditionalist investors strictly prioritize financial value, while invoking social valuation in a loose and often indeterminate way. They indicate that they are limited in their pursuits as prudent investors, and as such feel restricted in their suitable options.

Creative conformists , like traditionalists, require market-rate returns to participate in impact investing. However, their social valuation is notably different. Creative conformists often seek a more specific social impact and realize that they need to do extra work to meet their social and financial value expectations.

“If you're really talking about market-rate investments, there really wasn't anything in the middle of the target. [It] wasn't until a couple years ago [when] we made this shift which was if we're going to be a deal taker, we're never really going to get to the middle of the target. We can wait around for the right thing to come our way and might have a few positive attributes, but it's never going to be exactly what we want” (CH).

This investor’s organization conducted a capital scan in their ecosystem prior to investing, allowing them to locate market-rate opportunities in places—and with targeted undercapitalized groups—that they would not have otherwise known about. Where they could not find market rate opportunities, they created them, taking a more active role in the ecosystem.

Yet another investor—the only to offer an actual number for the ‘market rate’ return pursued—explains that their team sets six percent as their expected market-rate return but acknowledges that they have constructed this number (DK). They explain that the risk is actually much higher than what six percent indicates, because the investments are direct and local. They further explain that finding market-rate opportunities that correspond to the foundation’s programmatic priorities is more difficult for some programs than for others, because market-rate agricultural opportunities are easier to fund in their area than local educational initiatives, for instance. Creative conformists like those mentioned here, do much more work to source investments that yield market-rate opportunities (perhaps also realizing that risk should alter that number even if it does not) while articulating a specific social correlate. Creative conformists, therefore, incorporate some social value into primary considerations of financial value, setting them apart from traditionalists.

Spectrum investors are the group of organizational investors, intermediaries, and field builders in this study that advocate for a broader approach to impact investing. For some investments in their portfolio, these investors seek market-rate returns, while for other investments they seek below-market returns. Relatedly, the amount or quality of expected social impact often varies in direct relation to the financial valuation of the investment. In this way, spectrum investors’ approach is different than the traditionalists and creative conformists, because they discuss financial and social valuation in relation to one another (i.e. an incorporated way).

The spectrum investor can be characterized by a foundation investor who says that for foundations, seeking market-rate returns is not an excuse to forgo impact investing because, they explain, foundations have a full range of tools available to them (AP). They claim that not using all their tools is a “breach of the social contract of the foundation, which has a privilege of being tax exempt presumably because we’re doing something good with the money” (AP). This statement does not problematize market-rate returns, but it positions a range of financial tools as all being in service of the creation of social impact. This rare statement positions financial returns for foundations—no matter what rate—as clearly secondary to the most important ‘return’ for foundations: social impact. Such thinking, while still referencing another market, attempts to integrate financial and social returns, such that they are not just both considered, but considered in relation to one another.

Another spectrum investor explains their foundation’s range of investments and expectations in accordance with the specific constellation of financial and social aspects of the investment (LH). Another investor from a foundation that has made an MRI and has a robust PRI program discusses different priorities for and expectations of these investments. The MRI investment was motivated by the desire to attract more money to a blended-capital deal. Further, for some of the investor’s PRIs, the resultant organizational learning (social value) outweighed the financial returns which were repaid at varying rates across the borrowers (MW). Like creative conformists, spectrum investors like the aforementioned also participate in innovative approaches to deal-sourcing that yield their desired social and financial returns. This group is most importantly categorized by its portfolio-based approach, to investments seeing both financial and social value as existing on a spectrum, and in relation to one another. While it is impossible to determine whether ‘more or less’ financial value is directly correlated to ‘less or more’ social value, it is clear that these investors think of these valuations in an incorporated or often integrated way.

Social capitalists are a small group of foundation PRI investors, intermediaries, and field builders characterized by seeking concessionary returns with high expectations of social impact. As noted earlier, one respondent said that the concessionary return investment opportunities are the most exciting because that is where the capital is not going, and it is what is “world changing” (ID). In a prior section, this quote was used to elaborate market-level norms, and here we use it to articulate this organization’s approach to valuation. The respondent positions financial returns and social impact as inversely related and invokes social impact above monetary returns. Relatedly, two intermediaries say that if market-rate returns were available where social impact is most needed, the market would already be there, so the two are often at odds with one another (TP, PK). Similarly, the intermediary who says that risk and innovation are also at odds with price, expresses frustration that some investors want huge financial returns for that social risk, because they explain that “that’s not how it works in the world of nonprofits and enterprises” they lend to (TP). In this claim, they differentiate general investor types from the expectations his organization perceives to be reasonable, because they consider the relationship between social and financial values of the investment. Specifically, the intermediary positions their high social value as correlating to lower financial valuation, contrary to market-level expectations.

Social capitalists in this category still seek a financial return for investments; while their investments are clearly not grants, they do prioritize social value above financial value. What is more, social capitalists always integrate social and financial values, positioning them as inversely related. By prioritizing social value over financial value, social capitalists serve as a direct opposite to traditionalist investors. They are not equal opposites on everything, however, because traditionalists take no position on the relationship between social and financial value and thus would not see a conflict, tension, or potential failure of the market, whereas social capitalists often infer a conflict due to their integrated approach to valuation.

These investor types are not perfectly defined, nor are valuations static and permanent, and as such investors may shift typology by investment strategy or behavior. However, mapping to these categories brings into view the different ways investors incorporate social and financial value in their impact investments. This typology also allows organizational investor placement within the marketization framework.

Mapping Investor Typology onto Marketization Elements and Comparing Market- and Investor-Level Valuations

In previous sections, we detailed examples of how social and financial valuation are claimed by respondents, but it is also fruitful to allocate the investor types within the marketization elements (Çalışkan & Callon, 2010 ). Table 5 brings to bear differences relative to the marketization process. For instance, three of the four investor types invoke ‘market-rate’ financial returns within the pacifying goods category. The one group that does not accept the ‘market-rate’ threshold (social capitalists) also, importantly, does not offer a social equivalent of a pacifying good. This suggests that the market-level valuation regarding pacifying goods is a powerful influence on organizational investors. This finding is most meaningfully contrasted with the incorporated or integrated approach to market design employed by three of the four types. As market design is not as prominent in field level valuations, to incorporate (much less integrate) social and financial values, organizational investors must find or create new deals. Overlaying market and investor-level valuations demonstrates that the market strongly influences investors’ expectations, potentially pushing them to search through market design for a way to incorporate or integrate social value without rejecting widely accepted financial standards.

Examining the table across value categories, traditionalist types dominate the financial value category from their talk of pacifying goods to marketizing agencies and price-setting . This is unsurprising in light of the patterns that suggest that ‘market-rate' returns, which are the pacifying goods but also set the price in this market, are justified by fiduciary responsibility bestowed by the influential marketizing agent of the IRS. This can be contrasted with spectrum investors who are most predominant in the incorporated/integrated value track. They permit for wider price-setting as appropriate to a portfolio-based approach to impact investing, which would be supported by integrated metrics created and advanced by marketizing agencies like the Global Impact Investing Network and executed through bespoke deals created in the market design element.

Finally, comparing market-level valuation to that of the investor typology, two primary findings emerge. First, the traditionalist investors most represent the valuations articulated at the market level, as both emphasize the primary role of financially valued pacifying goods (i.e., ‘market-rate’ returns). Neither the market nor traditionalists seem to problematize the current price (set at the ‘market-rate’) and while there is variation in investors’ interpretations of IRS requirements, both the market and traditionalists emphasize prudent investment as required by fiduciary duty. Secondly, the valuations of the social capitalist and spectrum investors are most different from market-level valuations. The social capitalists are most interested in altering the price, positioning financial value as secondary to social value. However, perhaps more meaningfully, spectrum investors depart from market-level valuation in their incorporation or integration of financial and social value, most evident in their emphasis on market design . These investors design portfolios with a range of financial and social value expectations, seemingly despite predominant market-level examples. While they do not necessarily challenge market-rate returns and prices as illegitimate, they do not reject social value on that basis either. These investors do the most work to incorporate or integrate social and financial values in meaningful ways.

Discussion

Through conversations with impact investors, a clearer picture of valuation in impact investing comes into view. At the outset of this study, we asked whether the market of impact investing coordinates social and financial values in accordance with its claimed moral market (Fourcade & Healy, 2007 ) identity and, if so, how, where, and on what levels of the market the coordination happens. Mapping investor perspectives of the market onto a marketization framework (Çalışkan & Callon, 2010 ) demonstrates that the answer varies by element ( pacifying goods, marketizing agencies, price-setting, and market design and maintenance) , but that overwhelmingly, at the level of the market, financial value predominates over incorporation with social value. This is evident in the ubiquitous and socially neutral ‘market-rate’ returns that serve the role of pacifying goods , represent the price upon which this market is set, and are interpreted as a requirement of the powerful marketizing agency of the Internal Revenue Service (IRS).

Taken together, these trends indicate that the market of impact investing—as perceived by organizational investors—falls short of the value incorporation it purports to embody, often behaving more like a traditional market than a moral market (Fourcade & Healy, 2007 ). Through a pragmatic (Dewey, 1939 ; Lorino, 2018 ) lens on these findings, it is evident that financial value prioritization is not the result of a pernicious desire to ‘impact wash’ the market, but rather, a comfort with and incorporation of socially neutral financial value and a desire to adhere to perceived requirements of the law. This is all the more interesting in the U.S. context due to the fact that nearly one decade ago the IRS clarified that their regulations allow for social value consideration in investing practices. It indicates that there is either misunderstanding of the law, or sufficient power in other marketizing agencies like financial markets, to continue to invoke fiduciary duty even though it is no longer an obstacle to value incorporation. This contribution to the ethical considerations (Visser, 2019 ) of impact investing should be further explored in future research.

Our finding that ‘market-rate’ financial returns, which serve as a signal of legitimate fiduciary behavior, are an expectation also contributes to the literature on legitimacy and profit in the CSR and sustainability research. By taking a constitutive approach to the study of valuation in impact investing, we expand understanding of the relationship between legitimacy and profit in multi-valued contexts. Mapping to marketization elements demonstrates that rather than legitimacy and profit being separable and opposed as some CSR studies demonstrate (Cho, 2009 ; Milanés-Montero & Pérez-Calderón, 2011 ; Schaltegger & Hörisch, 2017 ), in the impact investing market, legitimacy and profit are deeply intertwined. Specifically, the acquisition of profit legitimates the impact investment, as impact investors invoke the requirements of fiduciary duty. The frequency of this justification also demonstrates that, whether or not it legally requires market-rate financial returns, the IRS is perceived as a key agency in investors’ considerations.

This brings us to our second level of analysis, regarding how investors incorporate value, and whether this value incorporation is similar to or distinct from predominant valuation at the market level. Organizing investors’ valuations within a typology demonstrates overlap with market-level valuations as represented by the traditionalist and creative conformist investor types who also firmly value ‘market-rate’ returns and prices as requirements of their impact investments. As such, they represent no ( traditionalists) or little ( creative conformists) value incorporation, particularly relative to other investor types. Spectrum investors and social capitalists , however, did incorporate (i.e., considering both social and financial values) or even integrate (i.e., conceiving of a relationship between the social and financial values claimed) values in the market, representing a departure from perceived market-level valuation. It is a key finding that these investor types incorporate or integrate values not by directly contradicting the pacifying goods or marketizing agencies that prioritize financial value, but by instead or also prioritizing market design and maintenance . Where the market level does not emphasize the importance of market design and maintenance—instead prioritizing pacifying goods, agencies and price-setting —the spectrum investors and social capitalists create (often bespoke) mechanisms (Schramade, 2019 ) such as new deal structures, that allow them to incorporate or integrate social and financial value as they see fit. For spectrum investors this may look like a range of valuations within a portfolio, which incorporate or integrate values distinctly depending on the investment. For social capitalists this looks like below-market financial value because the social value necessitates or is of a depth/quality that off-sets financial value forgone.

Further, the same foundation may act as a different type of investor, depending on factors such as the money being invested, the audience considered and the desired ‘returns.’ For instance, if a foundation is using endowment funds to make a mission-related impact investment, they may behave as a traditionalist , seeking ‘market-rate’ financial returns, to the de-prioritization of social impact, if they are concerned about being perceived as a legitimate fiduciary of the foundation assets. However, if the same foundation is making a program-related investment prioritizing social impact over financial returns, they may act as a social capitalist or spectrum investor . As spectrum investors, foundations may prioritize social impact for some investments and financial returns from other investments in their portfolio, thus relying on portfolio and market design to facilitate a more holistic approach to value incorporation and prioritization. These myriad approaches demonstrate the range of potential relationships between social and financial value in impact investing. The many examples of investments offered in this study demonstrate that at times there is no relationship between social and financial value, while at other times, these values are incorporated or even integrated.

The investor typology developed here contributes to the impact investing literature, demonstrating that even within a subset of investors as narrow as charitable foundations, there exists a spectrum of value incorporation. Some investors claim value in a similar way to perceived market valuation, whereas others incorporate or integrate social value more predominantly, locating the opportunity to do so in the design of deal structures, portfolios, and emphasis on the social need pursued through investment. Despite this variation, it is evident that impact investing more often lives up to the value incorporation it pursues at the investor level, as compared to that of the market.

Where prior studies and theories of impact investing presumed a duality or triality of logics (Nicholls, 2010 ), this study for the first time (Crane et al., 2016 ) explores whether the market incorporates social and financial goals and produces ‘returns’ of both types through market exchange. The range of findings regarding valuation in the marketization process of impact investing elaborated above are possible only because of the constitutive, elemental approach taken to valuation. Further, this study builds upon Pache and Santos’ ( 2013 ) valuable example comparing two levels of analysis (for them the organization and individual, and for us the market and organizational investor) by allowing for findings beyond two distinct logics and a selected set of potential individual responses, uncovering the creative and non-standard ways individuals respond to multi-valued environments. The marketization structure also provides for the possibility of unveiling relationships between that which populates the elements themselves. In a hybrid logics example, this may allow for a deeper understanding of the relationship between social and financial logics, as opposed to presuming their relationship to exist primarily as distinct and opposing approaches. In this way, our study contributes to the hybrid organizations literature, elaborating an example of a diversely incorporated multi-valued environment. For impact investing specifically, we demonstrate that what appears from the outside to be a field dealing with two logics actually accommodates a multiplicity of enactments depending on the audience ( marketizing agency ) investors see as legitimizing behavior, the design of the deal and the market ( market design and maintenance ), and other factors.

This leads to our final contribution, which is to the marketization framework and related theory proposed by Çalışkan and Callon ( 2010 ). We found that together, the marketization elements and their relationship to one another provide a relatively exhaustive structure within which to categorize objects, people, deals, technologies, influences, and more. Overlaying data in the framework demonstrates that value incorporation represents rather than presumes social and financial logics, by virtue of the marketization elements. However, we found the current marketization framework did not provide a clear place to allocate the social impact central to impact investing. Because this framework was created to explain the process of a previously unmarketized good becoming economic or marketized, it seems important that there would be an element to characterize the ‘goods’ that sit opposite pacifying goods . To that end, we propose a new element in the marketization framework—that of ambiguous goods (Stark, 2009 ). Where it stands to reason that pacifying goods play an integral role in a new market, by making investors feel ‘safe’ and able to predict some outcomes, all goods must not fall into this category, or there would be no marketization process to follow. As such, we imagine that the social goods of the moral market of impact investing, or the newly marketized goods of another market, should be allocated elsewhere. Adding this element will make it possible to draw out important relationships between this element ( ambiguous goods ) and others, such as are evident between pacifying goods, marketizing agencies , and prices in the impact investing market. Future research should test the addition of this element, and/or propose others, in impact investing or other new moral markets.

This study is limited in various ways, stemming most specifically from the context and age of the market segment studied. First, as some of the findings pertain to the Uniform Prudent Management of Institutional Funds Act and the fiduciary duties outlined by the United States’ government, similar research in other country contexts would be beneficial. That the sample for this study is from the United States only limits its generalizability. Another limitation of the study lies in the lack of standardization in the field. This made identifying some foundation investors difficult; for instance, some foundations investing for monetary and social priorities do not identify with the impact investing label. Further, investment structures range widely, and foundation impact investing programs are staffed by professionals with various backgrounds ranging from finance to grantmaking. Thus, even this narrow subset of investors is relatively diverse. The market has further developed even since these data were gathered, and a more homogenous sample may now be easier to construct. Finally, this research may be limited by social desirability. Investors were asked to consider instances of success, failure, or indeterminacy for their investments, and some may have been reticent to share failures or indeterminacy as readily as successes.

This study suggests several directions for future research on impact investing. Future research might investigate related financial valuation, including hurdle rates. Also, social impact should be more deeply investigated, including what elements of market design—possibly including bespoke investment deals—incorporate or even integrate social and financial value. It is possible that employing our proposed marketization framework element of ambiguous goods may help to make sense and build a relational understanding of social value within this market. Finally, other unexplored impact investing concepts like additionality, which represent some market actors’ orientation to creating integrated value, merit investigation. Such research will further demonstrate if and how impact investing addresses the tension of coordinating multiple values.

02 May 2025

A Correction to this paper has been published: https://doi.org/10.1007/s10551-025-06006-9

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Acknowledgements

The authors are grateful to Professor Saurabh Lall for their suggestions and feedback on this paper.

Conflict of interest

The authors declare no conflict of interest.

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