Press Release

New Study by Morrison & Foerster and Impact Capital Managers Details Variety of Legal Tools and Processes Used by Private Capital Investors to Protect and Enhance Impact Investments

22 Apr 2021

Report highlights diverse strategies pursued by impact investors to substantiate their goals; identifies new set of innovative legal tools; and examines how investors have responded to the COVID-19 pandemic and renewed urgency to advance racial equity.

April 22, New York, NY and San Francisco, CA — Morrison & Foerster, a leading global law firm, and Impact Capital Managers (ICM), a nonprofit membership association for North America-based private capital funds investing for positive impact and seeking superior returns, today marked Earth Day by releasing a new report detailing the ways in which private capital fund managers are using legal tools and processes to enhance and protect impact during the lifecycle of an investment. The “Legal Innovation in Impact Investing” report is the culmination of a comprehensive research initiative conducted over the last year by ICM Fellow Daniel Irvin of Stanford Law School, under the direction of Susan Mac Cormac of Morrison & Foerster. The study draws on quantitative and qualitative data provided by members of Impact Capital Managers.

Mirroring the growth and diversity of funds in today’s marketplace, the report finds that impact investors are pursuing diverse strategies to substantiate their impact goals and using a range of impact provisions to support these goals. The report also points to a new set of innovative and frontier-pushing legal tools being deployed by managers, including:

  • Structuring carried interest and other forms of compensation to be contingent on impact performance;
  • Providing options for extending a fund’s term if needed to meet impact goals; and
  • Building in features to attract philanthropic capital without sacrificing the market-returns orientation of the fund.

“There is a fair amount of speculation in the impact investing industry about who is actually using which legal tools and for what purposes,” said Marieke Spence, ICM Executive Director. “How do fund managers approach B-Corps and alternative corporate forms? Who is incorporating impact outcomes into compensation mechanics? This new report with Morrison & Foerster directly addresses these and other questions that are top of mind for both veteran fund managers and, perhaps especially, those who are building their first impact investing vehicle.”

The study covers how the fund structure itself can be designed to further impact, including in terms of duration, economics, Limited Partners (LP) participation, and other key features. It also explores how capital can be deployed in a manner that maximizes impact—from the initial investment into a company, to management of the company while in the fund portfolio, to sale of the company. In addition, the report examines how private capital investors have responded to the COVID-19 pandemic and the renewed urgency to advance racial equity through investing:

  • Several respondents described how they have used term sheets to require both diversity and inclusion reporting and a commitment to certain diversity and inclusion goals from portfolio companies. Further, numerous respondents reported requests for commitments from LPs on diversity issues, including institutional investors; and
  • About a quarter of respondents reported that they have used legal tools intended to specifically respond to the pandemic and resulting economic pressures, including setting up employee assistance funds for portfolio company employees, helping companies apply for Paycheck Protection Program loans, developing support programs for portfolio company workers, and engaging with portfolio companies on social issues.

“Although the increasing interest in impact investing is encouraging, concerns regarding ‘greenwashing’ remain. For this reason, it is important that general partners and limited partners alike give careful thought as to which tools will best support their impact objectives and align incentives,” said Susan Mac Cormac, a San Francisco-based corporate partner at Morrison & Foerster and chair of the firm’s Energy and Social Enterprise and Impact Investing practices. “There is a variety of legal and operational tools available to impact investors, but there is no one-size-fits-all. The combination of tools that a particular impact fund should utilize to best accomplish its goals will depend, among other things, on the sector in which it invests, its definition of impact, and the risk tolerances of its investors.”

The report builds on existing open-source resources, including the Toniic Impact Terms Project, by sharing fresh examples, innovative applications of existing tools, and emerging best practices from venture capital and private equity investors currently active in the impact investing field. The report is free and available for download on the ICM website. Morrison & Foerster, ICM, and Toniic held a special event previewing the report findings with stakeholders on the eve of Earth Day 2021.

Methodology: The data is drawn from a survey of ICM’s members and in-depth interviews with select members and impact investors. Respondents to the survey were asked to answer questions on a broad range of topics for one fund managed by their firm. The underlying funds range from venture capital funds focused on seed funding to private equity funds focused on leveraged buyouts of mature companies, and the target LP commitments of these funds range from $50 million to $600 million. To supplement the survey, investors were interviewed for more in-depth conversations about the legal tools their funds have implemented. All respondents and interviewees pursue market-rate returns alongside impact goals.

About Impact Capital Managers

The Impact Capital Managers mission is to accelerate the performance of our members and to scale the private capital impact investing marketplace with integrity and authenticity. We do this through our membership association of 66 impact funds and through field-building research and partnerships. Today, ICM members represent over $12 billion in impact-focused private capital at work across North America. The managers in our community share a passion for supporting entrepreneurs and scaling businesses that will realize a more equitable, resilient, and sustainable future, and the knowledge that skillful impact investing can achieve superior returns. ICM is proud to be a founding member of the Racial Equity Investing Coalition and The Board Challenge, and a signatory to the White House Initiative on Inclusive Economic Growth. As part of our commitment to grow the marketplace with integrity, members must meet certain criteria—including our standards on impact management and measurement—and admission is by invitation only. For more information, visit



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