Titans of Finance – Sir Ronald Cohen on Impact Investing

07:59 – Sir Ronald’s personal definition of impact investing:

Creating positive impact

Measuring theimpact

08:55 – How does corporation or family office track ROI for impact investing?

Look at multiples of the invested dollars – similar to venture capital

Also using big data to measure impact through: employee, operations and product; expressed in financial terms

11:15 – Wall of money flowing into impact

Environmental, social and government (ESG) objectives 

$40 trillion of investment dollars uses impact in it’s decision making

13:25 – Wealth Gap

The lack of diversity in corporate workforce and environmental damage is ignored

Bring transparency to impacts that companies create

He chairs program at Harvard Business School that publishes the environmental impact of 1,800 companies – Harvard Business School Impact Weighted Accounts initiative

1,800 companies that create $3 trillion worth of environmental damage each year

350 of the companies create more damage than they create profit each year

Correlation to lower stock market prices relative to competitors

If companies want to maintain their value on stock market, they need to adjust their behavior

A cost can be ascribed to a lack of diversity and each company is scored on diversity, pay gaps, gender pay gaps and advancement of different types of employees

20:50 – Role of media and press in telling the story

Press coverage of negligent acts allows shareholders to become advocates of changing the behavior of companies

That aside, more disclosure is needed both positive and negative about impacts on people and environment, expressed in audited financial terms

Government spends tax money to clean up negligence from corporations and there’s a better way if we can measure upfront in a preventative manner

26:15 – Amending Tax Code

Imagine a world where corporations get taxed on profit minus the positive impact they created or plus the negative impact they created; charge companies directly for the damage they caused

27:20 – Bono endorses the book ≠ “Money isn’t immoral, it’s amoral – and needs to be led. 

Capitalism can’t search only for profits in this day and age

Companies should get judged by investors by both profit and impact

Positive impact is a better way of doing business and investing in these companies is a better way of investing

Companies must deliver both impact and profit

29:26 – Economic theory & Adam Smith – Invisible Hand to Invisible Heart

Adam Smith’s Wealth of Nations book to his Theory of Moral Sentiments book discusses the Invisible hand of markets

The wild beast is the invisible hand of markets…Sir Ronald brings in the invisible heart of markets to lead

30:32 – Moving the invisible hand in the right direction

Business leaders taking the lead and influencing

Investors also influencing

Consumers are deserting companies they don’t respect 

Millenials don’t have the ambition to go to work for a fossil fuel company; they want to to work at impact-forward companies such as Tesla

33:25 – His early childhood in Egypt

Left Egypt at age 11 during Suez Crisis

Family arrived in UK as refugees, father lost his business in Egypt

Had tutors who helped him get into Oxford and ultimately a scholarship to Harvard Business School

34:30 – Discovering Venture Capital

While at HBS learned about industry

Joined Apax Partners  in 1975

First fund was $15m; now Apax recently raised an $11B fund

Impact they both have had on entire industries and thousands of entrepreneurs 

Brought the field of VC back to the UK and was knighted for it

Got into VC to back people who came from nothing just like he did and he wanted to create jobs in the UK at a time when 3m people were unemployed

He got a hand up and wanted to do same for others

Left Apax at age 60 to focus exclusively on social issues

More than just making money: Do you really want your headstone to say: “He delivered 30% IRR (Internal Rate of Return)?”

41:35 – Transparency on what business does is a human right

Right to know what’s in our products and ethics of companies that we buy from

There are now ways to measure

3-5 years away from having an app on our phone that points to box of tea and gives us all the info we need about company, environmental damage, etc.

44:20 – Biden Administration & Government’s role in Impact Investing

Biden similar to Roosevelt – must deal with inequality and environmental damage

Biden can bring companies and investors alongside his administration to help solve these problems with transparency 

Mandate that companies must publish impact-weighted financial accounts starting three years from now

Companies need to worry about diversity, equal pay, living wage, polluting environment 

This provides a solution at scale

Transparency on profit that companies make was why SEC was formed under Roosevelt

Take page out of same book relating to impact investing

Optimizing risk/return impact is good for all companies

51:45 – Contrarian View that Sir Ronald holds to be sure

Doing good as a company can help you do better

Companies that do it well have higher net promoter scores, have real fans, are more revered than competitors

54:00 – Sir Ronald’s go-to sources for information

Reads Axios daily based on recommendation by Alan Patricof

Reads print newspapers: NYT, WSJ, Washington Post, FT

Loves music – big fan of Spotify: Classical, U2, Beatles, Simon & Garfunkel, and opera