Yale School of Management

Program on Social Enterprise

Harnessing business skills and markets to achieve social objectives.

Sir Ronald Cohen on “How Impact Investment and Entrepreneurship Are Reshaping Capitalism”

“I can sense the winds of change blowing quite strongly now, relative to even a couple of years ago.” This optimistic opening remark set the tone for the conversation when Sir Ronald Cohen joined Yale SOM’s Social Impact Lab to discuss his new book, IMPACT: Reshaping Capitalism to Drive Real Change. Often referred to as both ‘the father of British venture capital’ and ‘the father of social investment,’ just a few of Sir Ronald’s achievements over his storied career include founding and growing Apax Partners into a firm that today manages over $50 billion in assets and more recently founding Social Finance, a pioneering nonprofit that has worked for over a decade to promote outcome-based finance in the UK, the US, and Israel.

Over the course of a wide-ranging discussion with students and faculty, Sir Ronald returned time and again to a single concept that he believes will revolutionize how we define success for businesses and investors in the future: “impact-weighted financial accounts.” The premise is simple: Why don’t we ascribe a dollar value to the social and environmental costs or benefits of a company’s operations? Making this idea a reality, however, has proven to be a less straightforward proposition.

That’s why Sir Ronald is so excited about Harvard University’s Impact-Weighted Accounts Project, which he said has successfully developed a feasible and cross-comparable approach for dollar-term impact assessment. To illustrate the potential magnitude of this approach’s adoption on business analysis, he shared that a recent survey by the Impact-Weighted Accounts Project of 1,800 leading global companies revealed that over 250 firms were consistently delivering a larger dollar amount of negative environmental impact than they were delivering in profits.

Asking the audience to cast their minds forward to a near future where such information is readily available to investors, employees, and customers, Sir Ronald challenged us to imagine the dynamics of a market where each stakeholder was capable of making decisions based on this more complete picture of a company’s financial results. Whose share price would benefit? What policies would this encourage in terms of supply chain management and corporate culture?

But, Sir Ronald contended, impact-weighted financial accounts are just the first piece in the much larger puzzle of reimagining capitalism. In order for investors to be able to fully act on this new information, the rules of investing need to change. Today pension funds and charitable endowments are obligated to restrict their investment decision-making solely to considerations of financial return. In a recent open letter in Barron’s, Sir Ronald and a host of other investment professionals called for legislative changes that would provide these investors, who collectively manage trillions in capital, with the latitude “to base their decisions on return and impact.” Such seismic changes to the financial industry will obviously not happen overnight, Sir Ronald conceded – great care should be taken to get this right, since it’s our parents’ and grandparents’ pension funds we’re talking about after all – but he argued that with recent advances in quantifying the dollar value of social and environmental impacts the time is right to start the conversation in earnest.

The final piece of the puzzle, Sir Ronald proposed, was the consumer. While plenty of good can come from shareholder advocacy, it’s just as important that we arrive at a place where negative social and environmental practices directly affect a firm’s financial bottom line. It’s not hard to imagine or even access quantitative data on the negative externalities of some sectors such as fossil fuels, but for most others the story is more opaque and will remain so without a radical reimagining of consumers’ right to transparency. “For example, Twinings Tea delivers more environmental damage than it does profit,” said Sir Ronald, eliciting a host of worried looks in the Zoom gallery as many of us glanced down at our mugs.

Even if the information is out there, though, it is often not easy for consumers to make the right decisions. Here, again, Sir Ronald is optimistic – with increased social and regulatory pressure on companies to provide transparent environmental as well as financial data to consumers, and the advent of technologies such as QR codes that can provide consumers quick access to such detailed information, he sees a path forward. Furthermore, he argued that consumers should hold their pension funds and wealth managers accountable to their values. Circling back to impact-weighted financial accounts, Sir Ronald suggested that it will soon be easier than ever for individuals to advocate for concrete shifts in how their money is managed.

In closing, Sir Ronald pointed to the myriad ways in which the impact lens will soon be woven into the fabric of business, exhorting “each and every one of you to make this happen. The way is now clear! Basically, whatever you do, do it in a place where the door is open to your way of thinking.”

By Alex Healey MBA/MEM 2023