You may not have noticed it, but there is a revolution going on.
It is not a revolution of the kind that fills the streets with barricades and the air with bricks and fireworks, overthrows governments, and deposes kings.
But it will shift colossal money streams, relocate the tectonic plates which our societies stand on, and reprogram the future of our planet.
The upheaval I’m talking about is called The Impact Revolution.
It is not I who has come up with that term. It’s Sir Ronald Cohen, an Egyptian-born businessman who grew up in England, where in 2001 he was knighted for his role in the creation and development of venture capital.
Now, in 2022, he is the foremost proponent of The Impact Revolution. And he is convinced that we are in the middle of a transition that will leave deep imprints on the times to come.
“The Impact Revolution will drive investment away from polluting and socially harmful sectors. And it will prompt governments to fund outcomes rather than activities. The Impact Revolution will transform almost every aspect of our economies,” Sir Ronald Cohen says.
Please call me Ronnie
I have to admit that I’m a little out of my comfort zone when it comes to interviewing Sir Ronald Cohen. How, for example, do you address a man who has been knighted and advises governments in the entire world?
He quickly eradicates this doubt.
“Please call me Ronnie,” Ronald Mourad Cohen says over the Zoom connection.
On the whole, there is nothing stilted about the white-haired, 76-year-old Godfather of Impact Investing. Casually dressed in a dark blue shirt with rolled-up sleeves and with a smile that is constantly lurking, he seems more like a short-haired Dumbledore than a Che Guevara who has to explain to a journalist what kind of a revolt he is leading.
“I call it a revolution because it reminds me a lot of the tech revolution. It came in stages – to begin with as a new way of thinking. And many people thought it would only affect the computer industry. But we have seen that it has affected all types of industry and completely changed the way we do business. And the same will happen with The Impact Revolution,” says Sir Ronald Cohen:
“The tech revolution created the layer of water upon which every ship sails today. And now The Impact Revolution is putting a new layer on top that on which tomorrow’s ships must sail.”
A pioneer in venture capital
What kind of change of weather, the societal barometer shows, we will return to. First, we need to dwell a little on the man in the blue shirt to understand why it is worth listening when he speaks.
Ronald Mourad Cohen was born in Egypt on August 1, 1945 as the son of a Syrian banker and an English mother.
After Gamal Abdel Nasser’s takeover, life in Egypt became difficult for Jews, and the family left the country. In 1956, Sir Ronald Cohen arrived in England with his collection of Egyptian stamps under his arm.
He excelled quickly in school, attending Oxford and Harvard, and at the age of 26 he co-founded Apax Partners, one of the pioneers in venture capital.
The company became large and global, and when Sir Ronald Cohen retired in 2005, the company had made more than 500 investments of more than 12 billion Euros in total.
The social turning point
But as early as 2000, the successful venture capitalist had begun a turnaround.
“I went into venture capital because it was going to create jobs, and it did that. But I also realised as I progressed that the gaps between rich and poor were getting bigger through entrepreneurship. It wasn’t dealing with the issue of those who were left behind,” he said in an interview with Thompson Reuters.
Sir Ronald Cohen was asked to chair a task force that would take a look at how the British government was dealing with the issue of poverty.
“It was a real turning point in my life,” he told Forbes Magazine.
What Sir Ronald Cohen saw was a social sector in dire need of innovation. And it struck him that by using the very same financial instruments which he had sharpened during 30 years in Apax Partners – as well as quite a few new ones, he could be an agent of change.
The world’s first social impact bond
In the following years, Sir Ronald Cohen founded a number of organizations that created social change in various ways through financial means – among them, the asset manager Bridges Fund Management, which deals in sustainable and impact investment, and the Portland Trust, which works for peace in the Middle East through economic development.
And in 2007, with the strong backing of then-Prime Minister Gordon Brown, he founded the company Social Finance, which invented The Peterborough Social Impact Bond.
The financial instrument, which we in Denmark call a social impact investment, was to lower the recidivism rate for prisoners who were released from prison in Peterborough.
The principle was simple: Private investors put money into an effort led by a coalition of NGOs. The effort was to help released prisoners back into the community. If the recidivism rate were reduced, the state would save money, and a fall of at least 10 percent would trigger a payment from the Department of Justice to investors. The same was true if the recidivism rate among the prisoners three years later was 7.5 percent lower than normal.
And it worked. The relapse was reduced by 8.4 percent, and the world’s first social impact bond was proclaimed a success by the Rockefeller Foundation.
Today, there are over 200 worldwide – 13 of these in Denmark.
End the tyranny of profit
Last year, Sir Ronald Cohen published “Impact – Reshaping Capitalism to Drive Real Change” – a book of approximately 250 pages, which can almost be described as the manifesto of The Impact Revolution. In it he deals with capitalism as we know it.
“I’m talking about overthrowing the tyranny of profit – a tyranny that has driven us into economies that do more social and environmental damage than even governments are capable of dealing with. By equating impact with the other management mechanisms in investment – risk and return – we overthrow tyranny and ensure that profit thinking does not lead us to extremes,” says Sir Ronald Cohen.
The timeline of the Impact Revolution
The tech revolution came gradually. The Impact Revolution will move forward step by step in the same way.
The first important steps were taken by young people who 10-15 years ago began to demand sustainability, climate considerations and purpose in their working lives, explains Sir Ronald Cohen.
And investors were not late in capturing the marked shift in values. Cash flows gradually began to change direction, and demands for transparency in investments were put forward with ever-increasing convictions.
Now that is no longer enough. Shareholders and investors are demanding more and more precise answers from companies on how they affect society – both positively and negatively – and standardized measurement methods are under rapid development, says Sir Ronald Cohen, referring among other things to the work that takes place in IFRS, The International Financial Reporting Standards Foundation, and at Harvard University.
“The next step will be the valuation of impact,” says Sir Ronald Cohen, continuing:
“Today we calculate one thing in tonnes, another in liters and diversity in percent. But once you start having standardized impact targets, you can incorporate the numbers into your calculations of a company’s value, put impact in relation to the company’s growth and profitability, and compare which firms deliver the most impact for the money. It is a huge step.”
And that does not stop there, says Sir Ronald Cohen.
“Once that data is available, governments will make it mandatory for companies to publish their impact data. And when that happens, you will really see our economies change course from creating problems to producing solutions,” he says.
Is the revolution train running fast enough?
The revolutionary locomotive, which was pushed into operation many years ago by impatient young people, is thus on its way to pick up speed, and more carriages are arriving for each station it reaches. But does it have an end station, or is The Impact Revolution an endless journey?
“I think it will be an ongoing process because The Impact Revolution will begin to create new role models – like Tesla, for example – that others will want to emulate. So, I think it will be a process in the same way as the tech revolution and the development of venture capital.”
Is the revolution going fast enough for you?
“It took us ten years to arrive at a concept of measuring impact and linking financial returns with the impact created. That came with the first social impact bond in 2010. If you had told me at that time that it would generate sustainability-linked loans and bonds for $ 2.5 trillion, I would have said: ‘Well done’,” says Sir Ronald Cohen and continues:
“In our report for The Social Impact Investment Taskforce during the G8 In 2014, we had a chapter called ‘The First Trillion’. Our assumption was that it would take a good while to reach that goal, but it only took seven years. So, I think the revolution is moving very fast now and it will accelerate towards the crucial moment when it becomes mandatory to publish accounts that contain impact. And I think it will happen by 2025.”
Millions of seeds in the soil
But when I look around, I can see impact startups looking for capital and big investors saying, ‘We cannot find enough to invest in’. It strikes me as a paradox?
“Yes, what is missing at the moment are the intermediaries – basically fund managers – who are stepping in. They do not see the potential because they are too big to handle small investments. So, the whole field of intermediaries needs to grow significantly – but it’s actually happening at the moment. Pensioners today are concerned about the environment and, for example, do not want their money to go to fossil fuel companies, and this puts pressure on investors and managers,” says Sir Ronald Cohen.
At the start of any new wave of investment, large, institutional investors will typically sit on their hands and observe how the market develops, he believes. But there will be a few frontrunners who are ready to take the early risk.
“In the early stages of venture capital, it was the AT&T Pension Fund that said, ‘We cannot prove that this works, but we believe in it.’ And then they poured a ton of money into venture capital. Over time, other pension funds began to regard it as smart money, and venture capital gradually gained momentum. The same thing has started to happen in impact now,” says Sir Ronald Cohen.
Do you see enough successful investments in ventures?
“We can see a new generation of ventures measuring their impact and coming up with new solutions to societal problems. And we are seeing new business models in telemedicine and tele education. You’re starting to see models where students pay for their education to coders once they get a job. We still have not seen an Apple or a Microsoft in health or education, but it is coming,” says Sir Ronald Cohen.
So, one cannot assess the development by looking backwards?
“It’s like planting a field. When you look at it, there is nothing to see, but down in the soil are millions of seeds. It took Amazon 20 years to get to the stage the company is at today. And it will take 10-20 years before we see the Amazons of impact. But they will be visible before then, and they will start attracting capital.”
The revolution is unstoppable
What do people from the business world say to you when you talk about The Impact Revolution?
“Big business generally does not want transparency on impact, because it is a new way of measuring their performance. They have been running their business in a different way for years, so many of them will be found lagging. Those who are in favor of The Impact Revolution are the companies that have realized that this development cannot be stopped and want to be at the forefront,” says Sir Ronald Cohen.
The vanguard will be small, just as only a few big corporations joined the vanguard of the tech revolution.
“The status quo is hard to fight,” said Sir Ronald Cohen.
But it will happen because of the pressure that the shareholders of the big companies will put, he believes.
“When Exxon Mobile throws out three members of their board and inserts three they did not want, you know something has changed. And when the shareholders of Proctor & Gamble demand that the board of directors present data on deforestation due to the use of palm oil, one knows that times are changing. That kind of pressure will speed up the process,” says Sir Ronald Cohen.
Do you ever have moments when you doubt whether the revolution can be stopped?
“I think it’s unstoppable. For it is our economic system that creates the climate crisis and the social inequality that puts so much pressure on our society. Those problems do not go away. And there is no other way to solve them than to change our economic system so that it produces solutions instead of problems,” says Sir Ronald Cohen.
“The longer we wait, the bigger the problems will grow, and the stronger the pressure to get to the finish line. So for me, the revolution is unstoppable.”
