Edition: April/June 2019
There’s a revolution to be embraced. Sir Ronald Cohen* urges that the
|Cohen . . . world authority|
The millennial generation is different from its forebears. Millennials want to do more than collect their pay. They genuinely care about doing good. They want to shop, work, launch companies and invest in ways that express their values. And investors, including large asset managers and pension funds, are moving in the same direction. Businesses are taking note. There isn’t a boardroom on the planet where the subject of social impact hasn’t come up.
If impact investing is our rocket-ship to social change, impact investing is our navigation system. We need to rethink it. For too long we have measured social impact in ways that are imprecise, inconsistent and incomparable.
Many people dismiss impact measurement as impossible. The truth is, we can measure social impact with greater accuracy and vigour than we do financial risk. We just need to be serious about doing it. The absence of measurement leads to a huge failure of our system to deliver social and environmental improvement, at great cost to the world.
Over the past 20 years, we have seen numerous initiatives to establish a standard for impact measurement. One of the most promising, advanced by the Global Steering Group for Impact Investment and the Impact Management Project, is to weight conventional financial accounts for impact. It involves applying coefficients to sales, employment costs, costs of goods sold – all the way down to the profit line – and doing the same for the balance sheet.
Impact-weighted financial accounts will allow for financial measurement and comparison by investors. When every company publishes impact-weighted accounts alongside financial ones, impact will have assumed its place in investment and business decision-making.
We are seeing promising changes. Investors and businesses are becoming socially and environmentally conscious; impact entrepreneurs are gaining access to capital they need to bring brilliant, life-improving ideas to scale; governments are seeing the value in harnessing the innovation of the private sector, channelling its talent and capital to find better solutions to society’s challenges; philanthropists are beginning to fund the delivery of measured outcomes.
It is time to accelerate these changes, and demand more.
The G20 leaders committed in their declaration to “endeavour to further create enabling conditions for resource mobilisation from public, private and multilateral resources, including innovative financial mechanisms and partnerships, such as impact investment”.
Impact investing means evolving capitalist systems to build a better world, one that values social impact just as highly as profits. It means exposing the myth that social good comes at the expense of profit, and the accompanying myth that impact cannot be reliably measured and compared.
Ending the plight of billions of lives and the decline of our planet depends on our urgent, collective action. There is a way. There has never been a greater need or a better time than now.
* Cohen, a venture capitalist and first chairman of independent social-investment bank ‘Big Society Capital’, is widely published abroad. A prominent philanthropist, he is author of ‘On Impact: A Guide for the Impact Revolution’ and has advised the UK government.
Comments from Mabatho Seeiso, a professional trustee:
I heard Sir Ronald Cohen speak at a forum of the Industrial Development Corporation last November. In my opinion, he was the most powerful speaker of the day.
He gave me hope that we can fix the challenges we face in the SA economy, and the continent in general, if we integrate impact investing into our decision-making. On pension funds’ boards the argument is too often heard that, as fiduciaries, we cannot expose our members to the risks of impact investing.
|Seeiso . . . highly
It helps to hear from someone like Sir Ronald, who has decades of experience across different continents, attest to impact investing not necessarily meaning lower returns. In fact, it can generate enhanced returns. Let us do the real work to understand impact investments rather than rely on generalisations that are often uninformed.
Innovation is required in our financial-engineering solutions. Many of our pension-fund members have given us a clear message that they want us to engage in impact investing in the interests of themselves and their children. We must invest in the real economy to stimulate growth, to develop an economy based on social justice.
I entirely agree that the new model of investment should be based on three pillars: risk, return and impact.