Tackling power imbalance between funders and the change-makers they support, one deal term at a time
The Equality Impact Investing Project (EIIP) and leading UK impact law firm Bates Wells are delighted to announce today's launch of the Equalising Deal Terms Investor Key Principles (the EDT Principles), as well as an accompanying report Investee Perceptions of Power Dynamics in Legal Processes.
Investor Key Principles
The EDT Principles aim to address (the sometimes inadvertent) power imbalances between impact investors and investees, especially those arising from current practices in investment deal terms, documents and legal processes. They are a tool to support impact investors, investees and their legal advisers to step towards increasing equality and equity in their legal processes and practices.
The two-year Equalising Deal Terms project, supported by the Connect Fund, was undertaken by Bates Wells (with the leadership of Sung-Hyui Park) and EIIP (led by Rana Zincir Celal) with the invaluable collective guidance of an EDT Reference Group.
Investee Perceptions of Power Dynamics in Legal Processes
The EDT project included a 12-month consultation process with our wider funder networks as well as the change-making organisations who receive impact investing funding. The accompanying report, Investee Perceptions of Power Dynamics in Legal Processes, presents the key findings from interviews conducted by Bates Wells with a range of change-making investee organisations in 2023, which contributed towards the development of the EDT Principles. This report reveals how investees experience and view the way investment terms, legal documents and processes are reproducing inequality.
Sung-Hyui Park, Partner, Bates Wells, said:
“From an impact investing perspective, there are increasing concerns that despite the rapid growth of impact investment since 2011, there is 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. In developing the EDT Principles we were particularly keen to examine and re-conceptualise risk in investment processes as a primary means to reform power imbalance embedded in investment deal terms and legal processes.”
Rana Zincir Celal, Director, EIIP, said:
“The EDT Principles respond to a growing momentum on global conversations that are happening around power, privilege, equity, re-conceptualising risk and the need to reform power imbalances between funders and the change-making enterprises and organisations that receive such funding. We applied an in-depth EII lens to analyse key investment terms, processes and legal documentation, and set out specific practical actions that wholesale funders, impact investors, investees and legal advisers can take to rebalance power between funders and the change-making organisations they support.”
At today’s launch of the EDT Principles and Investee Perceptions Report, EIIP and Bates Wells are hugely grateful for the tremendous support, encouragement and wise counsel provided by the EDT Reference Group, the Connect Fund as funder, change-maker interviewees and everyone else who has provided such valuable input during the consultation process. They hope that these EDT reports will mobilise and encourage further reflection, conversations (and most importantly, action!) within – and between – funders, change-makers, legal advisers and others in our sectors and communities.
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.”