“I can feel the winds of change blowing pretty strong now, just a few years ago.” This upbeat opening speech 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. Referred to only as the “father of UK venture capital” and the “father of social investment”, some of Sir Ronald’s successes in his career include founding and growing Apax Partners into a company that now has assets of over US $ 50 billion. Dollar manages and more recently founded Social Finance, a pioneering nonprofit that has worked for over a decade to promote results-oriented finance in the UK, US and Israel.
In the course of extensive discussions with students and faculty, Sir Ronald repeatedly returned to a single concept that he believes will revolutionize the definition of success for companies and investors in the future: “Impact-Weighted Financial Accounts”. The premise is simple: why don’t we attribute a dollar value to the social and environmental costs or benefits of running a company? However, making this idea a reality has proven less straightforward.
This is why Sir Ronald is so excited about Harvard University’s Impact-Weighted Accounts Project, which has successfully developed a workable and comparable approach to impact assessment in US dollars. To illustrate the potential extent to which this approach is being adopted in business analysis, he said a recent survey of 1,800 leading global companies conducted by the Impact-Weighted Accounts Project found that over 250 companies consistently have a greater amount of negative environmental impacts in U.S. Deliver dollars when they make profits.
Sir Ronald urged the audience to focus on a near future where such information would be available to investors, employees and customers, and urged us to envision the dynamics of a market where any stakeholder was able to Use this basis to make broader decisions about a company’s financial results. Whose share price would it benefit? What guidelines would this encourage in terms of supply chain management and corporate culture?
However, Sir Ronald claimed that impact-weighted financial accounts were only the first piece in the much larger puzzle of redefining capitalism. In order for investors to be able to take full advantage of this new information, investment rules must change. Today, pension funds and charitable foundations are required to limit their investment decisions solely to considerations of financial return. In a recent open letter published in Barron, Sir Ronald and a number of other investment professionals called for legislative changes that would allow these investors, who collectively manage trillions of capital, “to base their decisions on return and impact.” Such seismic changes in the financial industry are obviously not going to happen overnight, Sir Ronald conceded – great care should be taken to get this right, since these are our parents ‘and grandparents’ retirement funds, after all – but he argued with it Recent advances in quantifying the dollar’s social and environmental impact are the right time to start the conversation in earnest.
The final piece of the puzzle, Sir Ronald suggested, was the consumer. While shareholder advocacy can bring much good, it is just as important that we arrive at a place where negative social and environmental practices directly affect a company’s bottom line financial results. It’s not difficult to imagine, or even access, quantitative data on the negative externalities of some sectors such as fossil fuels, but for most others history is and will remain more opaque without radically redefining consumers’ right to transparency . “For example, Twinings Tea causes more environmental damage than profit,” said Sir Ronald, triggering a series of worried looks in the Zoom Gallery as many of us looked down at their cups.
Even when the information is out there, it is often difficult for consumers to make the right decisions. Here, too, Sir Ronald is optimistic – between increasing social and regulatory pressures on companies to provide transparent environmental and financial data for consumers, and the emergence of technologies like QR codes that allow consumers to quickly access such detailed information, he sees one Way forward. In addition, he argued that consumers should hold their pension funds and asset managers accountable for their values. Sir Ronald returned to impact-weighted financial accounts, suggesting that it will soon be easier than ever for individuals to advocate concrete changes in the way they manage their money.
In closing, Sir Ronald pointed out the myriad of ways in which the folding lens will soon be woven into the business world and exhorted “each and every one of you to achieve this. The way is clear now! Whatever you do, do it in a place where the door is open to your way of thinking. “
By Alex Healey MBA / MEM 2023