The Impact Revolution

The Impact Revolution

“The world must change but we cannot change it by throwing money at old ideas that no longer work. To change the world, we must change how we do business, starting with where and how we invest our money” says impact investing pioneer Sir Ronald Cohen.

On the back cover of Sir Ronald’s latest book Impact: Reshaping Capitalism to Drive Real Change, U2 frontman Bono takes a clear stance when he says that “Capitalism isn’t immoral; it’s amoral. It’s a wild beast that needs to be led”.

As a long-term philanthropist and impact investor, I take a less harsh perspective than Bono and find myself in agreement with Sir Ronald. Bono probably does too, which is why he also describes Sir Ronald’s tome as a core operating manual for anyone seeking to “do good while also doing well”.

It’s also why the U2 singer co-founded The Rise Fund, an impact investment fund with the goal of achieving social progress.

Inside ESG’s Russian Doll

Bono is by no means alone. UBS, the investment bank which raised $325m for The Rise Fund, has set a target of raising $5bn in impact investing to advance the United Nations’ Sustainable Development Goals.

As I have noted here, the worldwide impact investment market is now valued at $715bn. This new segment is in turn part of the wider market for environmental sustainable governance (ESG) investments, which has grown from $22 trillion to $31trillion — 15% of the world’s investable assets — over the past two years, according to the GSI Alliance.

It has the potential to be much larger still, with The International Finance Corporation estimating that investor demand for impact investments alone amounts to $26 trillion — 50 times the size of this market in 2018.

Even before it reaches that size, impact investing already has the power to solve issues that are often beyond governments. Indeed, I am convinced that impact investing is one of the best ways of funding the technology-led changes that the world urgently needs in order to solve some of our seemingly intractable human problems.

The Impact Revolution

Sir Ronald believes that an “impact revolution” that reshapes our economic system, society, the environment and the distribution of opportunity can be “as innovative and disruptive as the Tech Revolution that preceded it”.

He sees ESG investments converting into impact investments and exceeding $40 trillion — 20% of the world’s investable assets — by 2030 as pension funds (currently managing $38.3 trillion) and asset managers (presently in charge of $85 trillion) add their weight.

How do we get there? Sir Ronald fundamentally believes that this revolution is inevitable because impact investments are simply better investments, in addition to their social return than the current alternatives.

However, he also wants to embed impact as a key measurement in business alongside cash flow, debt-equity ratios, and earnings per share, with companies having “impact-weighted accounts”.

He sees philanthropy shifting to a model based on achieving outcomes and calls on governments to mandate impact reporting, publish the costs of social issues and appoint a cabinet-level impact minister.

A Role for Technology

An early investor in Apple and AOL as well as the company that produced the world’s first cloned sheep, Sir Ronald believes the impact revolution can mark the 21st Century as much as the tech revolution marketed the 20th.

He also relates the story of Amnon Shashua and Ziv Aviram, who co-founded Mobileye, a technology company that pioneered using cameras and artificial intelligence to replace the human eye in driverless cars.

Mobileye was sold to Intel for $15bn in 2017 but Sir Ronald believes the duo’s next innovation, MyEye2, can be much more valuable. Developed by their current company, OrCam, it gives visually-impaired people the ability to read the printed text and recognise faces, products, barcodes, and banknotes.

When a wearer of the finger-sized wireless device points towards any of these, the invention relays what it sees into a wearer’s ear.

OrCam is now valued at more than $1bn but Sir Ronald sees its technology potentially having an even greater impact. Imagine, he says, if this technology was also applied to help the world’s 780 million illiterate people — nearly 15% of the world’s population.

That’s impact investment. As a believer in human nature, I don’t see capitalism having to be forced to see the potential in that idea.

As Sir Ronald concludes the book: “There is a will. There is a way. And there has never been a greater need or a better time than right now.”