Compensation being linked to impact… Finally!

More impact investment fund managers are tying compensation to the positive social and environmental change they create, according to new research from the nonprofit ImpactAssets.

Many firms that take this approach will tie half their “carried interest”—or the  percentage of profits made from their investments—to the impact metric they’ve defined and half to their financial performance, says Sandy Osborne Kartt, deputy chief investment officer at ImpactAssets Capital Partners in Bethesda, Md. A private-market funds’ carried interest is typically equal to about 20% of its profits. 

ImpactAssets offers a donor advised fund, where assets are invested for impact before being distributed as nonprofit grants; it also runs ImpactAssets Capital Partners, which works with institutional investors focused on impact. 

For the 13th year, the firm has compiled the IA 50, a free, searchable database of impact investing funds that makes it easier for a wide array of investors to find credible firms investing for positive social and/or environmental outcomes. It includes funds investing across the world, utilizing various asset classes—from venture capital to private debt—and those that have an impact on a wide range of causes.

All funds must be part of organizations that are committed “to moving 100% of the firm’s assets to ESG or impact,” Osborne Kartt says, referring to funds that integrate environmental, social, and governance factors into their investing. 

ImpactAssets’ criteria eliminates large, often US$1 billion-plus impact funds that are part of big conventional investment firms, such as KKR Global Impact and TPG’s the Rise Fund.