Sir Ronald Cohen on Impact Investing
I attended a Harvard Business School alumni event this week where Sir Ronald Cohen was setting out the case for impact investing. Impact investing is where one makes an investment decision not only on the grounds of risk and return but also on the social impact it generates. Ronald is arguably the father of social investing in the UK and also the father of venture cap investing (he started Apax Partners in 1972).
Sir Ronald pioneered the first social impact bond in the UK. A social impact bond is a contract with the public sector (or foundation) where a commitment is made for an improved social outcome that result in public sector savings. It is not really a ‘bond’ in the financial sense as its payoff is more equity based. Sir Ronald was explaining that this type of financial innovation can potentially solve a social problem, by putting a framework around success or failure (of the social problem), which one can therefore price, this creates a risk and reward dynamic and can attract private investors. The challenge with these type of structures comes in the measurement of success and failure and the significant amount of work needed to go into the design and structuring of each transaction.
Sir Ronald went on to explain that foundations and charities have significant amounts of capital invested in cash and cash equivalents and now the market is opening up with regards impact investments across the capital structure. No matter your individual tolerances there will be impact equity, impact debt, impact alternatives and impact absolute return. Further, that Fiduciaries of clients capital and trustees should be awakened to this extra dynamic of investor requirements that go beyond risk and return and that the market is at a tipping point and investors should be weighing up the social impact their investments when considering their risk and return.
For trustees of charities and personal foundations consider the social impact one is generating through the tax breaks available on charitable contributions coupled with making investment decisions that have significant social impact. The amount of capital that could be channelled for social change and at the same time deliver a capital return is very significant.
Sir Ronald finally went on to note that B Corporations are coming to the UK. He asked the audience if anyone had heard of a B corporation, I declined to comment that we are the first financial services B corporation in the UK. For more details on our B corporation status click here.
For more detail on Sir Ronald Cohen and the quite remarkable work he is doing in the UK click here.