Equalising Deal Terms project
Commencing in 2022, the Equalising Deal Terms (EDT) project has been investigating and seeking to address the (sometimes inadvertent) power imbalances between investor and investee during the investment process. The main outcome of the first phase of this project has been a set of recommendations for changes to current practices relating to investment terms, legal processes and documents to champion more equitable relationships between investors and investees: Equalising Deal Terms Investor Key Principles. Alongside these recommendations, the project also produced a publication on Investee Perceptions of Power Dynamics in Legal Processes that presents the key findings from a series of nine interviews conducted by Bates Wells with a range of investee organisations in 2023, which informed the development of the EDT Principles.
Deep dive into the EDT Principles
Launch event: EDT (Equalising Deal Terms) - Introducing the EDT Principles
Explore the 5 EDT Principles in depth and hear from a community at the forefront of rebalancing power between investors and investees. Please use this passcode: 4+3HsB7= to access video below.
Why revisit investment terms?
The EDT project is a partnership between EIIP and Bales Wells - initiated by Sung-Hyui Park of Bates Wells - after attending EIIP’s inaugural training course. Sung-Hyui realised both the need and opportunity for re-imagining and revisiting key investment terms, processes and legal documentation with an ‘EII lens’, so that the models, tools and documents used within impact investing can be better aligned to work in the service of underlying principles of equality.
With support from the Connect Fund, the project launched in 2022 to explore potential practical solutions and ‘best practices’ already being implemented within the impact investor community, with the intention of co-producing new guidance, provisions and options reflecting EII principles, that can then be integrated into investor and investee practice.
Investors & investees collaborate on practical solutions
The first stage of the project was to understand the ways that impact investment terms reproduce inequality – engaging directly with both investors and investees to hear their views and experiences. To this end, the project convened a Reference Group to explore the issues in-depth and co-develop practical responses to address it. The group comprised of:
Bonnie Chiu (The Social Investment Consultancy / Pathway Fund)
Seb Elsworth (Access – the Foundation for Social Investment)
Kevin Osborne (Create Equity / MeWe360)
Hazel Peck (Guys & St Thomas’ Foundation)
Naomi Sander (United Green / GAIL (Global Alliance of Impact Lawyers, UK regional board))
Danyal Sattar (Big Issue Invest)
Matt Smith (Key Fund)
John White (Big Society Capital)
What are the EDT Principles?
The Equalising Deal Terms Investor Key Principles (EDT Principles) are intended to be a tool to support impact investors, investees and their legal advisers towards increasing equality and equity in their legal processes and practices.
The EDT Principles aim to respond to growing concerns in the impact investment, grant-making and international development sector that despite the rapid growth of impact investment in the last decade, there has to date been insufficient scrutiny into the role that investment terms, legal processes and legal documents can – often inadvertently – play in perpetuating and deepening power imbalances between investors and investees.
The EDT Principles re-conceptualise risk by analysing key investment terms, processes and legal documentation through an in-depth EII lens. Addressing five elements of power imbalance between investor and investee, they set out specific practical actions that wholesale funders, impact investors, investee change-making organisations and legal advisers can take to rebalance power between funders and the change-making enterprises and organisations that receive such funding.
How do investees experience power dynamics in legal processes?
The Investee Perceptions of Power Dynamics in Legal Processes report presents findings from a series of nine structured interviews with investee organisations in early 2023. These organisations had all received social investment loans and most also grants, with their turnover ranging from £20K to £30m. Geographically, the scope of these investees’ activities ranged from regional to global; some were front-line organisations, and some also had a role as investors. The project aimed to understand investees’ experiences and views of how investment terms, legal documents and processes are reproducing inequality.
The interviews with investees covered their overall experiences of social investment and the challenges faced in relation to power imbalances in three areas: social investment application processes; legal documentation; and relationships with social investors during the investment period. Interviewees also shared a wide range of ideas for overcoming some of the key challenges brought about by power imbalances between social investors and investees.
These, as well as all the insights shared by both the interviewees and the Reference Group members, combined with extensive desk research and incorporation of EIIP’s and Bates Well’s deep experience of the equalities and legal fields respectively, have all been instrumental to informing the recommendations of the project.
How do the EDT reports advance the EII field?
Stephen Muers, CEO, Big Society Capital, said:
“Big Society Capital is committed to reducing inequalities and building a better society. We welcome the Equalising Deal Terms project putting a spotlight on how investment decisions are made and the need to bring more equity to legal processes. It is vital that the way we negotiate and document our deals contributes to our mission and does not detract from it.
“The EDT reports highlight the power imbalance and the challenges that many investees face in the legal process, with practical recommendations to work towards better outcomes when documenting investments. We hope that this project can contribute to more equitable investment documents and efficient processes; meaning impact-led organisations can devote more time and resource to their missions and creating social impact.”
Bonnie Chiu, Co-Founder of the Pathway Fund and Managing Director of The Social Investment Consultancy (TSIC), said:
“For impact investing to achieve positive impact, it’s important to consider not only what it invests in, but how it invests. When we partnered with EIIP to deliver the inaugural training course, we really focused on the investment process, in particular this hidden aspect of power. We are really glad that this resonated with participants such as Sung-Hyui, who has taken this idea forward – on a co-leading basis with Rana Zincir Celal from the EIIP team - to create the Equalising Deal Terms project.
“The investment process is often characterised by objectively worded clauses in legal documents and neat, quantifiable KPIs in spreadsheets. But within impact investing, we must hold ourselves to higher account to see the people within the investment process, and relationships they hold with each other.
“The EDT Principles are so important because they challenge fundamentally the assumptions we hold about investment processes. I also believe they will create practical change, as understanding power imbalances will not be second nature to investors, but the principles provide a step-by-step guide on how they can begin to actively create more equality impact through how they invest. As a consultant to impact investors, a field builder within impact investing, I can see myself actively supporting our clients to adopt these principles, as well as building on the best practices of this aspect of EII.”
Seb Elsworth, Chief Executive, Access - the Foundation for Social Investment, said:
“Making social investments has always been about partnership. We call them “deals” for a reason – i.e. both investor and investee offer something and receive some benefit. But the legal documentation and process tends not reflect the nature of this partnership and favours those with the money. That can flow right through the system, and we are aware of the role we play in that flow. The EDT reports are useful for how they highlight these dynamics and challenges, and we hope that the EDT project will help us to further understand how we can mitigate this power imbalance through our agreements with social investment providers, enabling them to realise that mutual partnership with the charities and social enterprises they are supporting.”
Sarah Faber, Co-Lead of the Growth Impact Fund and Investment Director at Big Issue Invest, said:
“Big Issue Invest and the Growth Impact Fund are committed to better supporting social entrepreneurs and removing barriers to those from under-represented communities. The EDT reports helped us crystallise some of the difficulties and power imbalances we were already struggling with during the legal process.
“The useful framework provided has been of huge practical relevance, helping us to implement real change in our organisations to improve the experience of the social entrepreneurs and the lawyers we work with. The EDT Principles in particular help us to articulate what we are aiming for and have helped us all to get onto the same page.”
Kevin Osborne, Founder and Executive Chair of Create Equity and MeWe360, said:
“As ‘pen holders’, lawyers wield considerable power when it comes to how investments are made.
“The EDT Principles and Interviews Report are important because they highlight the often-unspoken power dynamics in the legal process which prevent equitable relationships and outcomes between impact investors and investees.
“If 'the pen is mightier than the sword but the tongue is mightier than them both'; then these documents’ most practical outcome is their call to action for impact investors to better manage their legal processes for more equitable outcomes; and giving a voice to investees when this does not happen.”
Charlotte Newman, CEO, Carefree, said:
“The EDT principles (and the accompany EDT investees interviews report) provide a clear and powerful basis for small charities like ours to collaborate in designing social investment agreements that are responsive, reasonable, and built to protect both parties' interests in achieving their shared impact goals.”
Keya Advani, Director of Programmes and Policy, Global Alliance of Impact Lawyers (GAIL), said:
“The Equalising Deal Terms project helps to shine a light on the role of lawyers and the significance of legal documentation in determining power dynamics between investors and investees. As a network of impact lawyers, GAIL understands the pivotal role lawyers play in shaping investment processes. The EDT report on Investee Perceptions of Power Dynamics in Legal Processes in particular provides nuanced insights into the challenges faced by investees when engaging with legal documents. It emphasises the need for legal professionals to prioritise clarity, allocate risk fairly, employ pragmatism when taking security and imposing reporting obligations, and enable all parties to navigate investment documents effectively.
“The EDT project prompts an important critical examination of lawyers' roles in investment processes and advocates for practices that promote fairness and collaboration, supporting the creation of more equitable investment agreements. Crucially, it does this by drawing on the experiences and feedback of investees, through interviews and a wider consultation process. By embracing an investee-led approach to improving investment documentation, the EDT project provides a useful guide showing how lawyers can play a pivotal role in advancing the objectives of impact investing and fostering positive outcomes for all stakeholders.”
Matt Smith, CEO of Key Fund, said:
“As part of its core mission Key Fund is committed to ensuring that its investments reach the most disadvantaged places and marginalised communities. Whilst it is understood that a large overlap exists between the two, and over nearly 25 years the fund has achieved a great deal in ensuring money flows in to the former, we know that much more can be done on the latter, to ensure that the most marginalised groups are supported.
“This is the only way that we can really achieve our vision to make communities truly successful, building sustainable organisations that all people feel able to shape and participate in.
“As such, we welcome the EDT reports and their recommendations for future focus and we have been really pleased to participate in the project to date. It flags many important challenges that continue to block progress, and so we look forward to working with partners in the future to develop solutions. We are committed to this and invite others to join us in this important work.”
We welcome further feedback, comments and ideas for the future development of the EDT Principles and their practical implementation. Please do reach out to us by emailing EIIP and Bates Wells.