ESG-linked carried interest: A new impact-based financial incentive?

Carried interest has, to date, only been a measure of fund financial performance. In the field of impact investing, it is being discussed and some impact fund sponsors are proposing a link between carried interest and the contribution of the fund to its impact objectives. To date, one can find sponsors that have made up to 50% of the amount of carried interest that they would otherwise, conditional on achieving ESG or impact goals. The benefit of linking carried interest to the achievement of impact goals remains questionable. It is argued that it is artificial and even dangerous to ...