Why Impact Investors Should Go ‘Deeper’ In Their Impact

New white paper introduces 'socially equitable investing'

“Social change is not for the faint of heart,” Katherine Pease says. “As philanthropy has found out, it is much more difficult to take the time to understand root causes, to think through what it actually takes to do it, and to be patient in trying to deal with complex issues. And we are an impatient society. Investment is an impatient arena. And I worry that we will not have the stamina to be able to do what has to be done.”

Hours before this year’s Social Capital Markets Conference kicked off Sept. 13 on the shores of the San Francisco Bay, one veteran impact investor had a message for her fellow do-gooders converging from around the world: Dig deeper. “If you have a series of interventions that have a net positive for the world but don’t fundamentally change the underlying equation of inequality, are we getting to the real opportunity that impact investing proffers?” Katherine Pease posited to We See Genius during an interview at Impact Hub San Francisco. “I would argue that we have more opportunities out there and we have an obligation, if we really want to make the world a fundamentally better place, to ask those questions and to look at what that means.”

Pease, the principal and founder of Denver-based KP Advisors, co-authored a 58-page white paper published yesterday (September 14) titled “In Pursuit of Deeper Impact.” In it, she and Sarah Thomas, also of KP, propose a new kind of impact investing — socially equitable investing. “In socially equitable investing,” their paper reads, “the investments are driven by the attainment of outcomes (defined as something that happens as a result of an activity or process) that result in fair access to livelihood, education, and resources; full participation in the political, economic, and cultural life of the community; and self-determination in meeting the fundamental needs of the beneficiary community.”

Drawing on decades of work in philanthropy and social equality — in particular, the LGBT rights movement — Pease says a lot of impact investing so far has been done with a “scattershot approach”: that is, investments tackling one part of a problem at a time. Positive change has occurred that way, she says, but impact investing has not reached its fullest potential of holistic and systemic societal change. “When you really start to unpack what’s going on in society around income inequality or racial justice, what you start to understand is, the way in which you attack these issues is by having a holistic approach,” Pease says. And that, she adds, happens through leveraging different types of interconnected interventions.

Katherine Pease. Courtesy photo

Katherine Pease. Courtesy photo


Pease encourages a new approach. As she and Thomas write, it begins by rethinking three practical and familiar categories: time horizon, risk, and return. They acknowledge that what they propose is counterintuitive to current investment beliefs. But they say the rewards are potentially huge.

First, Pease says, comes the importance of knowing the people receiving investments and the problems the nonprofit or social enterprise is trying to solve. Once again, that means knowing them in a deeper way. Pease says researching the needs of farmers in West Africa, for example, should involve more than Internet research if millions of dollars are going to help that population. Investors should visit and talk to the farmers. They should understand them and their families and lives.

“At the same time, people with greater access to resources historically do not relate well to those who have lesser access to resources because their knowledge of the experience of people who are different from them is often uninformed,” Pease and Thomas write. “Yet, an unconscious assumption often exists among those with access to capital that they understand the perspectives of those who have limited access to capital.”

And because the vast majority of those currently deploying capital are white and male, the thoughts and beliefs behind impact dollars can be equally homogenous.

“When you look at the field,” Pease tells We See Genius, “you can see who are the investment advisers and the broader investment community. The vast majority are still white and male. And when you look at foundation CEOs, the vast majority are white and male.” Still, she adds, race, class, or gender are secondary to engagement and understanding. “I’m not pointing the finger at any particular race, class, or gender, but it’s very difficult for those who have access to resources to understand the other.” After all, she explains, one of the biggest failures on the part of traditional philanthropy is disengagement between givers and receivers.

“For the most part, people have a very difficult time extrapolating from their own experiences and pretending they know what is happening on the ground,” Pease says. “If you don’t really understand what’s going on on the ground, then as people have seen time and again in the international development field, investments can go awry very quickly.”


Pease and Thomas write that closing the “chasm” between investors and beneficiaries is a necessary step toward adhering to the new views of time horizon, risk, and return. With mitigating that chasm (or potential chasm) in mind, Pease and Thomas urge investors to re-think potential returns on their investment. But that doesn’t mean to not expect returns. Financial terms should be expected in socially equitable investing, they write — but social returns should be valued the same or more.

And outperforming financial benchmarks shouldn’t necessarily be the goal — at least not right away.

“At what point can or should an investor expect that within at least a percent of part of their portfolio they are going to be looking at the possibility of lower returns?” Pease asks, acknowledging that impact investment returns can and do equate to benchmark returns. But at what cost? “The question is, is that portfolio construction and that expectation that in the end you’re going to continue to make money on the markets while trying to do social change for an infinite period of time — is that a realistic thing? Or is it the right thing?

“There are still a billion people who live on a dollar a day,” Pease continues. “And at the same time, we are saying, ‘We should continue to become wealthier and wealthier.’ Those two things are tension points we have to wrestle with.”

Instead of focusing solely on output, Pease proposes thinking about outcomes. “If what you’re trying to do is make systemic or transformational change in the world, sometimes you might have to look at investments that are not at the output level but at the outcome level,” she says.


This, of course, takes time and patience. And time and patience, Pease says, are things many investors don’t have a lot of. “Social change is not for the faint of heart,” she says. “As philanthropy has found out, it is much more difficult to take the time to understand root causes, to think through what it actually takes to do it, and to be patient in trying to deal with complex issues. And we are an impatient society. Investment is an impatient arena. And I worry that we will not have the stamina to be able to do what has to be done.”

Investors must rethink expectations around timeframe, Pease says. And they must learn to commit. Focusing on quarterly returns only, she says, is anathema to social change. “We have to be in it for the long haul,” Pease asserts. “We have to be pre-development as well as the actual investment piece.”

Finally, she says, socially equitable investing calls for “risk sharing.” Instead of off-loading risk, Pease says to spread it out. “At the end of the day, even though it may be invisible, risk doesn’t actually go away,” she says. “It always exists somewhere. So if the investor is managing themselves out of having more risk, oftentimes that means the risk is going onto the investee.”

And that’s bad.

“If you put the risk on them, they’re the least able to absorb the risk if the investment fails,” Pease continues. “So I think it’s incumbent on people with a conscience to ask themselves some very difficult questions about that risk management structure they’re involved in.”


Despite authoring and publishing a paper calling for her colleagues to do more, Katherine Pease is pleased with where the deployment of private capital is heading.

“We’re not suggesting that what is happening is bad,” she says. “I think we just need to continue to understand what the sum of the parts really add up to, and whether or not it’s going to be sufficient for addressing some of the real change that I think many investors are hungering for.”

And the field is ready to push further, she believes.

“The field is full of people who really genuinely care about making the world a better place and who are willing to ask themselves and each other the hard questions — and who are excited about continuing to push. And they’re not resting on their laurels.”

Note: In Pursuit of Deeper Impact may be downloaded in entirety here.