Tying Compensation to Impact - Small Group Discussion Summary
How do investors tie compensation to impact and where is the field moving?
To serve Project Frame (Frame) members that express an interest in covering topics outside of GHG Impact, Frame held its first-ever small group discussion on tying compensation to impact on January 19, 2023.
Eleven investors took part in the discussion including AENU, Azolla Ventures, Conduit Capital Partners, Closed Loop Partners, Galvanize Climate Solutions, Just Climate, Nysnø Climate Investments, OGCI Climate Investments, Prime Coalition, Wollemi, and World Fund.
We were energized by the enthusiasm, willingness to share, and eagerness to evolve. Much was discussed during the 75-minute session, but more needs to be done before consensus is reached on best practices for the broader community.
Key Takeaways
Impact-based performance metrics and financial incentives are increasing among the climate investing community.
Although field leaders, like the European Investment Fund, invest in many dozens of funds linking carry to impact, the practice remains largely nascent amongst the broader global community.
It was agreed that employee buy-in and knowledge sharing across firms are critical to developing best practices and successful models.
Different countries may operate under different regulatory requirements salient to compensation of investment managers, and we must take those into consideration when deciding how to structure impact-linked performance incentives.
There is currently no one-size-fits-all model.
Publicly Available Resources
View Prime Coalition's recent presentation (14:14) and meeting slides on lessons learned in the development of impact-linked carry to GHG impact milestones for Prime Impact Fund and Azolla Ventures
Next Steps
Several representatives from this conversation will provide inputs to support the ongoing Impact-linked Compensation (ILC) research by The ImPact, The Tipping Point Fund, Oxford University, and other research contributors for their forthcoming article on impact-linked financial incentives. Scheduled for release in late 2023.
