Abstract
The impact investing asset class is gaining popularity among investors. However, it is not well understood what mechanisms are optimal for investment. We propose that investors who choose investments in social projects purchase Social Impact Guarantees (SIGs). SIGs are debt-like securities with par values endogenously determined by realized social output. The repayment design aligns the incentives of commercial and socially-conscious investors, allowing joint investment in social projects. SIGs create a social market within standard market frameworks and exploit well-established market mechanisms to increase social investment efficiency. Furthermore, the pricing of SIGs and residual claims provide valuable information to decision makers.
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