Investees, alignment, evidence, strategy & theories of change | Dr Jodi York, Kilara Capital

This is a transcript of my recent interview with Dr. Jodi York, as the final contributor conversation in our report No More Greenwashing – Driving evidence-based practice in ESG & Impact Investing.

You can also listen to both parts of the interview on all good podcasts via this link, or watch it on YouTube.

Transcript follows

Philip Bateman:

Thanks for tuning in. It’s Philip Bateman here with Dr. Jodi York, who is the Chief Impact Officer for Kilara Capital. And we’re talking about “Driving evidence-based practice in ESG and impact investing”. Jodi, real pleasure to have you here. Thanks so much for joining us.

Jodi York:

Lovely to be here, Philip, thank you.


Your contribution in the whitepaper is quite significant, as I see you as one of the world leaders in impact measurement with the work you’re doing at Kilara. And I wanted to check for you what constitutes a successful “theory of change”?


The beauty of a theory of change is it actually underpins really everything you’re doing. And so it serves as the foundation. It’s the groundwork of good impact management, because I can’t tell you what to measure if you don’t know what you’re trying to do and how it’s going to happen. So a good theory of change actually then gives you a roadmap.

I mean, it is a roadmap in a sense. It tells you where you’re going, what you expect to see along the way. How do you know if you’re on the right path. And it gives you information you can share with your various stakeholders at those stages to help them understand the journey that they’re on and where they’re at within that journey to manage expectations, to indicate what should be measured, what’s actually material.

The other thing I really like about it: a well done theory of change will also surface the assumptions that underpin the relationships between A and B. And obviously, if your theory of change is somewhat complex, there’s a lot more than A and B. So the assumptions under which those things should be true, being able to articulate those really allows you to demonstrate with your stakeholders internally and externally, what has to hold for that to be true.

And so it allows you to surface risks as well as look at what evidence would be material and why.


And so what’s the difference between an investment thesis and a theory of change in your experience? Pretty sure everybody’s got a good investment thesis. That’s why they’re doing their thing.


So a theory of change is an evidence-based map of the relationships between the steps you’re going to go through along the way to a destination. So it’s based on evidence of how change happens in the world rather than underpants, gnomes and “Step 4: Profit”.


And you think that applies to a lot of investment theses? Underpants, gnomes and profit?


Yes. But that’s okay. You know, there’s lots of ways to make money.


So is it a mechanism and a process to take an investment thesis and extrapolate it into a theory of change? Is that operationally how you would then create a structure through which you deploy capital and then test it in the market, if you will?


Personally I’d start with the theory of change first. Figure out what you want to change in the world, what you want to achieve in the world, and then allow that to dictate what appropriate resources are for that. Maybe that some asset classes are more appropriate than others. The bridge between the investment thesis and the theory of change is a term we don’t use very often.

But you can think about that as a theory of action, which is.. theory of change is on the evidence of how things change in the world. So if we want to help have better outcomes in the social space for people with disabilities, one of the things we need is housing, right?

Here’s a bunch of evidence, rigorous, peer-reviewed, of why that is true, so that you know when things aren’t working out according to your theory of change, that either you have a bad assumption, bad evidence, or bad execution. And the execution piece, that’s actually the theory of action. How do we as a particular set of investors with a particular set of resources, work that theory of change?

How do you implement it, how do we operationalise it? And that then bridges to the investment thesis. So we are going to invest X amount of money in Y types of instruments for Z types of outcomes.


So my understanding is we’ve just sort of kicked over globally a trillion dollars in impact, if you will, compared to 120 trillion in the overall market. So there’s quite a lot more room for this.. Though, for the people in 98% of the market, are they looking for ways to make money and it will better serve them considering the sort of shifting tides of social license to operate and UN sustainability goals and essentially the environmental collapse facing society if we don’t do better things from a circular economic perspective, and just generally look at the sort of unchecked capitalism growing eternally.. I might be getting a bit deep there.. So do those people go and try and apply a theory of change to their existing funds to get in line with all of that? Or do they really need to pull way back and be like, “Okay, with the power vested in us, what are we actually going to do with our wealth, with our money?”


I think it’s more the latter. Generally you wouldn’t look at an investment portfolio and say, “I’m going to slap a theory of change on top of this”, because the relationship goes the other way around. But if you have things you want to change in the world or even if you want to.. You look at the evidence and say, “Well, actually it’s good business to be behaving in a more sustainable and more impactful way”.

There’s a lot of benefits to it. There’s also a lot of risk avoidance associated with it. So I think sometimes people who don’t operate in the impact space think of it as risky or non-lucrative. That’s generally because they’re not engaging with evidence. That’s a very outdated assumption unless what you’re comparing it to are some of the things that are causing some pretty hideous environmental and social harms, in which case that is what you’re buying with your dollars.

And I guess it’s personal choice to say whether or not you’re okay with that, whether or not your investors are okay with that. But those things are also.. there is unpriced risk in those things. As our sense of social license to operate changes, and those things can change pretty hard.

And in a world of increased transparency, that can bite really quickly.


Yeah, that is sort of the core of what I’m sort of presenting here in this work, with this research paper we’re doing, around the regulatory change across Australia, the UK and Europe that’s coming to really clamp down on this kind of thing because skeletons in the closet in an age of transparency is not where you want to be, and potentially you can turn around to your clients and say, “Hey, what areas are important to you?

Because we look after all of your money”. The idea that people are getting 10% of everybody’s wages every month, or every week, and need to do something with it.. There’s a point to be made there about finding out what those people would like you to be doing with their money.


Yeah, I mean, the most influential decisions you will make are decisions that most people don’t actually make, they just sort of happen, which is where your money is invested.

And so as we talk about impact, what should people understand about the power of impact measurement?

Even as a measurement professional, I’m just not interested in measurement for measurement’s sake. We could be here all day with those things. That becomes how many angels dance on the head of a pin? What I want to know is, is it material, and is it decision worthy? So if you’re not measuring things that will make a difference to decisions, then you probably need to rethink measurement.

But this is also true in financial information. PB: And business execution. JY: Exactly. If it’s not decision worthy, don’t do it. So impact performance information is just performance information, like any other kind of performance information. And right now, if an organisation is not doing it and making decisions, what are you making that decision on the basis of? You’re obviously making it on the basis of something.

Is it a hunch? Is it the “vibe”?


Is it preferences for working in the space you know, so you think less is going to go wrong?


Yes. And as we know, past performance is not an indication of future performance. Things can go badly really quickly.


How does one do it properly? At the top level, it’s great if you do it and don’t measure stuff you don’t need to measure. But how do you do it properly?


So thinking through a theory of change will actually give you a blueprint of most of the things that you will want to measure, to figure out whether you’re, on a short, medium and long term, actually getting the results that you want to get. The other things that matter are things that your stakeholders need.

So whether that’s regulatory stakeholders, whether that’s your investors, other key stakeholders.. That’s the exception to, if you’re not using it to make a decision, is somebody else using it to make a decision or is someone just collecting it, that has power over you? But then within that, figure out what you can measure well, and it’s okay, be realistic.

It’s okay to say, “I’d really like to understand..” For instance, I’ve got an investment in some Internet of Things device, a company making Internet of Things devices that help monitor electricity. Now, what I would really like to know as an investment manager is how many people receiving energy monitoring information are then able to have net zero energy use.

That’s what I want. I can’t have that because they don’t have that data. Maybe in the future we’ll help them build out that data. But figure out what ideally you’d like and then be able to back up from that and say, “Well, what is a reasonable proxy and why do I think it’s a reasonable proxy?

What’s realistic to measure? How frequently do I need to measure?” There’s some things I measure quarterly and there’s some things I measure annually, because the fact is they don’t change that quickly.


And do these factors bolt on top of how you would measure an investment from a perspective of profitability and sustainability and growth?


They enhance that measurement actually because they surface opportunities for expanding in different customer segments or different products. They also identify risks that you might not have on strictly a financial basis. One of my colleagues talks about the “Harvey Weinstein effect”, and launching the MeToo movement, it talks about that in terms of risks that were already on the balance sheet.

If that was a bad asset that needed to be written off, you’d have that change on your balance sheet. But the social risk in that case, lots of people knew it was there, nobody was pricing it in. So having that impact information allows you to identify risks and opportunities that can affect your financial performance as well.

So we could think of those as kind of double materiality, so it’s both the financial affects the impact, but also the impact affects the financial.


And as the CIO of Kilara, when you come to investees, do you say to them “Right, you guys all need to do this, this and this if you want to play with us”? Or do you say, “Right, we’re going to turn up and do this, this and this with you to help you go this way”? Where’s the burden of.. not the burden of compliance.. but where does the extra effort and hours come from?


It’s somewhere in the middle between those. There are certain things.. We do a fairly extensive getting to know you process with a potential investee, in which we try to ascertain their.. We want a founder that is strongly aligned, and even if they don’t have evidence, believe in evidence and have the capacity within their organisation, and the drive to develop evidence if they don’t already have it.

There are a few things. We are a climate focused investment manager and there are things that we are specifically interested in measuring from the perspective of our own strategy. But after that, it’s looking at, where do you have measurement currently, how is it being used in decision making? How can we help you make better decisions, use evidence better, measure things that are more material, strategise and prioritise which additions you want to make.

So really working with how impact information fits into your business strategy and helps you deliver better, because then everybody wins. And the fact is, you’ve come to an investor with significant impact expertise so you don’t have to flounder around in the dark because there is somebody you can call. I’m not going to necessarily sit down with you and rewrite your systems.

Although we probably know somebody who could do that. But we can talk about what.. Actually, if you’d have a ratio of that number to that number, it would be a strong indication of these particular outcomes, for instance. Just ways of using information that you might not be familiar with.


And so as far as I’m aware, there’s a real lack of people who can do this sort of work in the broader industry, who could do impact measurement and verification and things. There are people providing the service, though, when I think about that 98% of the market whose people may be clamouring for investments that are more “ethically aligned” for want of a better nomenclature; how do these people go about finding the resources and capacities to do it?

Because I think there’s this real push-pull with the greenwashing idea, in that people are trying to respond to a market force but at the same time don’t have the capacities to actually do it. And this comes down to we were talking before this about intention versus simply ignorance when it comes to greenwashing. So do you have any thoughts on that?


So the lack of skilled labour, if you will, the lack of skills and capacity in the field, has been identified year after year, in the GIIN investor surveys, the Global Impact Investment Network, as a real limitation. And I can say that the University that I sometimes teach for has just last year put up a class in sustainable investing. That is the first offering in the finance department that has to do with this.

So in the institutions there’s going to be a lag. But the institutions that are generating this, you’re seeing a lot of demand from the student side and institutions are now starting to respond to this because unfortunately, a fresh graduate with some of that knowledge is maybe better. They may not have the nous and field-tested quantitative reasoning that a senior analyst would have.

But they’ve got the domain knowledge. And so I’m hoping that one of things we’re going to see in more organisations is a bit of almost reverse shadowing, where you bring in someone that has the specific knowledge, if not the the career placement, and actually using those to cross-train each other.


And to cut straight to it for those watching, if you don’t have a theory of change and you’re not doing impact measurement and you don’t have the resources and the labour perspective to do this effectively, the easiest way not to greenwash is not to make claims that are greenwashing. That’s kind of the point of what we’re talking about here.

So is the easiest way to not be in trouble is to not make stuff up that could be potentially misleading. That isn’t evidence-based. Which brings us to impact verification, such as BlueMark and Tideline’s work. Could you talk on verification for me?


So obviously in conventional finance third party verification is an important part of credibility, and just being able to play at a certain level. Of course your accounts are audited. Now, the capacity limitations that we’re seeing in other parts of the fields, getting in-house measurement done, is also true for for auditing and verification.

So right now, there’s limited verification available in the field, which basically says “We don’t think you did anything actively wrong..” Which is not the same as a higher standard of verification, which is that we’ve gone in and double-checked your figures, and your math and we can say with our hand on our heart that we believe this is true.

Which is easier in an area where you’ve got fungible outcomes. So you’ve got school kids. How many completions was that? If we imagine that one is mostly like another, that’s somewhat easier than some of the really bespoke stuff that happens in the social space. How do you get women out of domestic violence situations and re-embedded in the community, for instance, or returning prisoners.

Same question. Those things are very complex, very personal. Now in conventional finance verification is a really important form of credibility. And the theory from the folks who have come into the impact space out of that part is that in order to move more capital.. And boy, do we need to move a lot more capital to impact.. In order to move more capital, in order to open the doors for institutional investors at scale, we need to have verification. That that is the expected form of credibility, particularly at a distance and at speed.

We use certifications and verifications as a as a heuristic for who we can and can’t trust for particular things. So that’s an emerging part of the field. It’s not that common yet.


Last two questions. You have just read through the entirety of the report that you are contributing to. And I was wondering what’s your take on it for people out there?


I think it is a very readable and condensed version of what greenwashing is, what’s available out there on the market, what the regulatory and statutory changes are that are happening in various domains. And even if you’re not.. For instance, I’m an investor in Australia, but if I want to bring in European capital, I need to know what’s going on in the EU.

And they’re driving a lot of changes that have had a real effect on the market and trying to strip out greenwashing. Australia’s a little further behind that, but I think the report is illuminating and confidence inspiring. You feel like you are up to the state of play in a variety of aspects.

There’s a clear understanding of what are the material things to think about if I was going down this path, and why it’s valuable to do so, and the role of organisations like Bravo Charlie in making that possible.


Great, thanks. And last question. What’s something you’ve changed your mind about recently?


I don’t know how long your definition of recent is, but I was writing something this morning around circular economy and waste, and I was reflecting at the time – and it wasn’t that long ago – that I thought of waste as an aesthetic issue that was localised rather than the “real work” that we have to do to slow climate change, when in fact waste is a big piece of the real work broadly defined and throughout the whole value chain.

Minimising waste would make a big difference to a whole lot of things.


Great. Thank you so much.



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