PSC vs
Impact Investing
Impact investing pioneered the idea that capital can do good while generating returns. PSC asks a different question: what if returns flowed forward to beneficiaries instead of back to investors?
What Impact Investing Got Right
Before we compare, let's acknowledge the breakthrough.
Impact investing challenged a false dichotomy: that capital must choose between doing good and generating returns. The $1.16 trillion impact investing market proved that investors would accept different terms when social outcomes mattered.
This was revolutionary. It unlocked institutional capital for social purposes and created sophisticated measurement frameworks for non-financial outcomes. PSC builds on these insights.
The Structural Gap PSC Addresses
Impact investing solves for dual returns. PSC solves for perpetual beneficiary value.
Impact Investing
Deploy capital into enterprises that generate both financial returns and social impact. Returns flow back to the investor to be redeployed—or not.
Capital Flow
Perpetual Social Capital
Deploy capital as gifts to beneficiaries. When they succeed, they pay forward to the next cohort. Returns flow forward to future beneficiaries, not back to donors.
Capital Flow
An Evolution, Not a Replacement
Each model solved a real problem. PSC addresses a gap the others couldn't.
Traditional Charity
Give money → It's spent → Impact ends
Terminal: capital consumed
Impact Investing
Invest → Get returns → Reinvest (maybe)
Returns flow back to investor, not forward to beneficiaries
Perpetual Social Capital
Deploy → Beneficiaries succeed → Pay forward → Repeat
Requires contexts where beneficiaries can pay forward
The Trouble With Blended Motivations
Neuroscience suggests that mixing financial returns into philanthropic propositions may actually reduce participation—not increase it.
The Swiss Nuclear Waste Paradox
In a landmark 1997 study, economists Bruno Frey and Felix Oberholzer-Gee asked Swiss townspeople to accept a nuclear waste facility nearby. When appealing purely to civic duty and national interest, 50.8% agreed—a surprisingly high acceptance rate for a NIMBY proposition.
Then researchers offered compensation: $2,200 per person per year. The rational expectation was that support would increase—same altruistic motivation plus financial incentive.
What actually happened:
Support fell by half. Even increasing the payment to $4,350, then $6,525 didn't change minds—only one person switched.
Source: Frey & Oberholzer-Gee (1997), "The Cost of Price Incentives: An Empirical Analysis of Motivation Crowding-Out," American Economic Review
Why? The Brain Centers Are Mutually Exclusive
This finding is part of a broader literature on "motivation crowding-out." As Daniel Pink documents in Drive, monetary incentives can actually decrease motivation and performance—contradicting basic economic assumptions that more money equals more effort.
Nucleus Accumbens
The brain's "pleasure center"—activated by financial gains, gambling, and reward. Associated with dopamine and addictive behaviour requiring ever-more stimulation.
Posterior Superior Temporal Sulcus
The brain's "altruism center"—activated by social bonding, helping others, and watching charitable giving. Even observing others' generosity lights it up.
The Key Finding
These brain centers are mutually exclusive—they can't both be active simultaneously. When you introduce financial returns into an altruistic proposition, the brain switches from the altruism center to the pleasure center. And it costs a lot more to satisfy the pleasure center.
What This Means for Impact Capital
Impact investing's value proposition is "do good and make money." But if the brain can only process one motivation at a time, donors may actually be evaluating the proposition through their pleasure center—where the returns look inadequate compared to pure financial investments.
"There's only one bottom line. It ought to be impact."
— Kevin Starr, Mulago Foundation
PSC sidesteps this problem entirely. By offering no financial returns, it keeps donors squarely in their altruism center—where the value proposition is purely about impact. The 50.8% who agreed on civic duty alone were more committed than those lured by payment.
30-Year Social Value Comparison
Assuming $100K deployed and 50% of impact investing returns reinvested.
Impact Investing: 7% returns, 50% reinvested | PSC: R=0.9, 3-year cycles
Feature Comparison
| Feature | Impact Investing | PSC |
|---|---|---|
| Primary Goal | Financial returns + impact | Maximum system value for beneficiaries |
| Return Destination | Back to investor | Forward to next beneficiary |
| Impact Measurement | Often secondary metrics | Built into core mechanics (R factor) |
| 30-Year Social Value | $570K (5.7×) | $3.29M (32.9×) |
| Investor Returns | Yes (6-8% typical) | No financial returns |
| Capital Sustainability | Requires new deals | Self-regenerating |
| Beneficiary Agency | Recipients of investment | Active participants in system |
| Tax Treatment | Investment (taxable returns) | Donation (tax-deductible) |
The Real Choice
These aren't competing approaches. They serve different purposes.
Choose Impact Investing When:
- •You need/want financial returns
- •Deploying institutional capital with fiduciary duty
- •Working with for-profit social enterprises
- •Market discipline is essential to the intervention
Choose PSC When:
- •Maximum social value is the only goal
- •Beneficiaries can pay forward when they succeed
- •Building community is part of the mission
- •Tax-deductible donation is preferred
The Portfolio View
Many foundations and donors use both: impact investing for deployments that need market validation and financial sustainability, PSC for programs where maximum beneficiary impact is the sole objective. They're complementary tools.
The Theoretical Foundation
The Regenerative Capital Theory paper explains the structural difference: impact investing maintains an extractive relationship between capital and social purpose—value is generated, then partially extracted as investor returns. PSC creates a regenerative relationship—100% of value flows forward to beneficiaries, who become contributors to the next cycle. Same starting capital, fundamentally different destination.
Read the RCT PaperExplore Regenerative Capital
Whether you're an impact investor exploring new models or a foundation considering PSC, our tools can help you understand the mechanics.