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  • Hello, everyone. I'm Asheem Singh, I'm Director of Economics here at the RSA. It's my great

  • pleasure to welcome you to the latest event in our Bridges to the Future Series, where

  • we're exploring ideas to shape change in the post-COVID worldwhenever we actually

  • get to that point. Today, I am delighted to be joined by Sir Ronald Cohen, Chairman of

  • the Global Steering Group for Impact Investment, Chairman of the Portland Trust, author, raconteur,

  • pioneering philanthropist, venture capitalist, private equity investor, and social innovator.

  • For nearly two decades, his initiatives have catalyzed a global movement, I think it's

  • fair to call it, to drive private capital to serve social environmental good. We're

  • going to get right into that over the course of this talk. He's joined us today to discuss

  • a new book he's written. It's called Impact: Reshaping Capitalism to Drive Real Change.

  • Here it is. Very handsome it is too. I would refer to it as a whistle-stop tour of more

  • than a decade of global development catalyzed by what many of his own initiatives in the

  • global impact investment market. Purists note, Sir Ronald has very graciously encouraged

  • me to call him Ronnie, which, Ronnie, I will be taking you up on that. Thank you very much.

  • Thank you also, it's a real privilege to be here with you, especially if I may say is,

  • I also wrote a book along these lines a couple of years back that I called The Moral Marketplace.

  • We covered some of the same ground. Interestingly, I think it's fair to say I was maybe a hair

  • more skeptical about some of the areas than perhaps it comes over in your very fine text.

  • Over the next 30 minutes or so, we'd like to get into some of these arguments, surface

  • what the book is saying. Also, a few of these points of difference as well and really get

  • into the meat of some of these huge issues. Let's get into it.

  • Ronnie, you acknowledged in the foreword to the book that it emerges in a world transformed

  • by the pandemic, something you couldn't possibly have foreseen when you set out to write it.

  • Our economy is a mess. The V-shaped recovery that we were promised by the Panglossians

  • and the commentariat is a sham, inequality seems destined to grow. The world is aflame

  • with cries of racial and gender injustice. Into this vale of tears, strides the impact

  • revolution. What is it? Why is it so important? How can it possibly help us at this our darkest

  • hour? Asheem, it's very nice to be here with you

  • and with all the members of the RSA to talk about impact, both the book and the movement.

  • There are echoes of 1929 in the air, Asheem. In 1929 after the Great Crash, investors sat

  • up and said, "Have we really been investing in companies without measuring properly the

  • profit they make?" Of course, it led to the generally accepted accounting principles four

  • years later when legislation was passed in the United States, which was then followed

  • across the world and to the use of independent auditors.

  • And I think today, investors who are channelling more than $30 trillion to environmental, social,

  • and governance investments, and more than $700 billion into impact investment, where

  • the impact is measured. Unlike ESG, impact investment as you well know, has not only

  • the intention to create impact, but also, the measurement of it. With more than $30

  • trillion, about a third of professionally managed assets in the world going to companies,

  • investors are sitting up and saying, this time, “we're only investing in companies

  • on the basis of the profit they make with no transparency on the impact companies are

  • creating." I believe that COVID-19 will accelerate now

  • a move to transparency on the impact that our whole economic system creates, which is

  • of course, comprised primarily of companies and of investors. As we're going to see governments

  • emerge from this crisis with higher level of debt than we have seen in decades, perhaps

  • since the Great Depression and the similarly high levels of unemployment, we're going to

  • need to bring impact investment and companies to provide solutions to the great social and

  • the environmental challenges we face. I see COVID-19 as an accelerator of this transition

  • to impact economies. That's really interesting. For you, impact

  • is a very practical thing. It makes sense. It's not just from an idea. If a tree falls

  • in a forest and no one is there to hear it, does it really make an impact? It's not a

  • philosophical idea or approach. It's actually a series of practices that cut across all

  • institutions in society and that can transform or make a difference to all of them. Is that

  • the argument here? Yes, indeed. I think what's been happening

  • in the world over the last couple of decades is an evolution in thinking and the revolution

  • in the means we use to tackle social and the environmental issues. The revolution in thinking

  • has been around the notion that we can't just worry about profit and not worry about the

  • huge damage, environmental, and social, that companies are creating and then rely on our

  • governments to tax us all in order to try to remedy them. The system is self-defeating

  • and we have to change it. I think COVID has heightened the sense of disquiet and increased

  • the questioning of capitalism. That's the evolution in thinking.

  • The revolution means comes from realizing that consumer preferences and talent preferences

  • in terms of employment and investor preferences have been shifting away from making decisions

  • on the basis of risk and return alone to making decisions on the basis of risk, return and

  • impact. If we measure impact in a similar way that we measure profit and risk, which

  • is we are perfectly capable of doing today and I could give you a database where all

  • our viewers can go to look at the information on the impacts of companies.

  • If we're going to bring impact to the center of our economic system, then we have to measure

  • it in a similar way to profit and risk. Since we can do this now, the revolution in means

  • is that by optimizing risk, return and impact, we bring all of our investments and all of

  • our components to create solutions to the challenges we face instead of creating problems.

  • Ronnie, there is so much in what you've just said. It's an incredibly rich answer. What

  • I'll try and do is I'll try and unpick bits of that and different questions as we go.

  • Let's start with the first thing that you said, which is really interesting, which is

  • about the way that we solve social problems. The way that we marshal society's resources

  • to deal with endemic social issues. You begin the book actually with a story that I think

  • RSA fellows who work in the charity sector, who work in social enterprise, who work in

  • government, even, will be familiar or at least incidentally at the margins. That's the story

  • of the social impact bond, the certain kind of impact investment instrument that

  • It seems for you, it exemplifies, it's a touchstone of this revolution of means or practice of

  • impact, of an efficiency that you're talking about. It's otherwise, it's known variously

  • as a social impact bond or payment on success bond, I think in other places, in the development

  • space, its known as a development impact bond, with some variations. You're a champion of

  • it. For you, it's ground zero. The Archimedean point of the wave of innovation of the last

  • decade. Can you explain, first of all, before we get into some analysis of that, just what

  • exactly an SIB is and why they're so important as you argue they are?

  • Absolutely. The purpose of the social impact bond is to provide the investment initially

  • to a nonprofit, but today more widely to a nonprofit and purpose-driven businesses in

  • addressing social issues and environmental issues as well. For the first time, this way

  • of investing links the return of capital and the financial return on investment to the

  • achievement of a social or environmental goal. The first bond, the Peterborough Bond sought

  • to reduce the number of young people who go back to jail after they're released. As you

  • know Asheem, more than 60% go back to jail within 18 months of release. The first bond

  • involved raising 5 million pounds to fund nonprofits working with these prisoners and

  • because we achieved the reduction ofpercent in the number going back over a period of

  • five years, the Ministry of Justice in the UK repaid the 5 million pounds and the annual

  • return of 3.1%, to the foundations that had put the money up. Now it's broadened to be

  • a much broader tool than we did initially envisage. As you were saying, it's being used

  • in emerging markets in the form of development impact bonds.

  • There are a couple of hundred social and development impact bonds across the world. They involve

  • outcome payments of a billion dollars or more investment of about half of that, they tackle

  • 15 different social issues across 30 countries. What is really significant about the social

  • impact bond as you are suggesting, and which I do see in the book as really the start of

  • this whole impact economy effort if you like, is that they optimize not just risk and return,

  • but risk-return and impact. Actually the social impact bond and all forms

  • of impact investments, which involve traditional asset classes like venture capital, private

  • equity, investment in public stocks, investments in bonds, where there is a measurement of

  • impact, all of those forms of investment optimize risk-return and impact which the social impact

  • bond did for the first time. Fascinating, and you referred to this in the

  • book as a new frontier of efficiency when it comes to tackling social problems, which

  • is a wonderful, exhilarating image. I remember when I first-- As a lowly researcher in 2008,

  • when I first came across the plans for social impact bond, that your team at Social Finance

  • put together, Toby Eccles and Emily Bolton, and I remember taking this to my boss at the

  • time and saying, "We've got to get into this. This is really interesting. We've got to understand

  • this a bit better." Over the years I've come to understand it

  • a bit better. Just for the sake of our viewers, I want to really spell out what's going on

  • here. You've got investors investing, providing upfront capital, in Peterborough it wasn't

  • the private sector but it was a pilot, so that makes sense. You've got government paying

  • from public funds. You've got the charity is delivering. There's a delivery group. There's

  • also a control group, isn't there? You can see whether the delivery group is

  • doing, it's doing a better job than if the intervention hadn't happened at all in terms

  • of reducing re-offending, and therefore the cost on the state. You've got a bunch of smart

  • people working out how much everyone gets in the event of a successful outcome, but

  • also what a successful outcome looks like. It is quantifying, measuring, and putting

  • all the data together to do that. Then for every success an investor would receive a

  • quantum of public funds by way of returns for initial investment they put in. That's

  • the basic idea I think there's to it. Yes, absolutely, and today we're finding philanthropists

  • stepping in alongside government and the aid organizations stepping in alongside government

  • and huge increase in scale. The Global Steering Group for Impact Investment which I chair

  • is capitalizing a billion-dollar outcomes fund which will collect contributions from

  • eight organizations like DFID, from philanthropists and from local governments to improve the

  • education of 10 million children in Africa and the Middle East. I think it's a tool which

  • has gone through its proof of concept which is now ready for scaling.

  • These numbers are exhilarating and vast. Your book is filled with these fantastic examples

  • of this large-scale impact being driven by its instruments, but I suppose there's a challenge

  • in this, isn't there because people may well ask for all of this complication and it is

  • a complicated seeming instrument. Can't better outcomes or these just these outcomes be achieved

  • by simply taxing more and using the extra funds that you received to deliver more or

  • better services? Why are we taking money out of tax and putting it into the hands of private

  • investors? The reason is that if you use entrepreneurship

  • and open the door to innovation which is not government's forte, you begin to develop very,

  • very powerful solutions. I remember in the days of venture capital when I got into the

  • nascent field, I was 26 years old. I remember- [crosstalk]

  • I was in the pub when I was 26. I think you were a bit more conscientious than I was.

  • Well, I was also in the pub, but [laughs]

  • the whole concept of venture capital led people to say similar things. It's so much more complicated

  • to have an investment agreement with a company which is unquoted and so it doesn't give you

  • the ability to sell your stake and backing young people who haven't really proven themselves.

  • It's so much easier just to buy a share on the stock market. But it's not the same thing.

  • You're comparing apples and oranges. Venture capital brought us the tech revolution.

  • The stock market wouldn't have brought that. It was a combination of expertise and patient

  • capital and people who are experts at looking at products and markets and management and

  • competition and growth trends. Similarly with impact investment and social impact bonds

  • is one aspect of it. Of course, it involves effort to measure impact if you're not just

  • going to invest on the basis of risk and return. But our system is going to improve many more

  • lives and improve our planet instead of digging ourselves into a deeper and deeper hole as

  • we're doing now. The complications as happened with venture

  • capital-- Venture capital and private equity is today at $7 trillion pool or at least 5$

  • trillion to 7$ trillion pool, is you standardize the agreements around social impact bonds.

  • You create big outcomes funds, so you don't have to go around looking for outcome funding

  • for every bond. You know where you can go. The investors don't have to be found every

  • time you go to a social impact bond or a development impact bond fund and so, you begin to reduce

  • the time, reduce the complexity and increase the scale.

  • We'll come back to measurements. The question of whose measurements or what are we measuring,

  • I think it's a really interesting, practical and philosophical point. But just one final

  • thing about Peterborough. You referred to it as a success. You said the concept has

  • been proven, government tried it, everyone did well, everyone who needed to make money

  • for their foundations, that they made money. These are all good outcomes, it seems to me,

  • based on what we're trying to achieve there and yet government hasn't followed up. They're

  • not doing it anymore. What happened there? Is it that your analysis is flawed or is it

  • that the government are flawed and they've completely dropped the ball there?

  • Well, the answer is Brexit for the UK. [laughs]

  • When Ian Duncan Smith and David Cameron left office who were great proponents of this,

  • the governments after that were preoccupied with Brexit. Now, it's interesting, Central

  • Government hasn't pushed but local government has. There are now 60 social impact bonds

  • in the UK, about a third of the world total and another 60 in the pipeline. We have two

  • social impact bond funds managed by Bridges Ventures.

  • I hope the government now with COVID creating such huge challenges for economic recovery,

  • the government will grasp with both hands the opportunity created by outcomes funds.

  • We should have billions of dollars going into outcomes funds to reskill the unemployed.

  • The unemployed, many of them, will not find the old jobs they had. We have to face the

  • fact they're going to be employed by smaller companies, more entrepreneurial companies,

  • rather than big companies because big companies coming out of this crisis, have learned to

  • operate on a slimmed-down basis and they're going to try and hold on to these productivity

  • gains. We're going to have a major challenge of reskilling

  • people for new jobs in new companies. Now, government should grasp this with both hands.

  • Look at what we've done in the UK with the apprenticeship scheme, we've raised billions

  • of pounds which has not been expended. Let us put those billions into an outcomes fund

  • that pays for those who can successfully train apprentices and get them into jobs.

  • Interesting. I suppose a further question, but this again this speaks to the management,

  • the measurement sorry issues. There's jobs, and there's good jobs isn't there and can

  • an instrument like a social impact bond be sensitive enough to filter for say, getting

  • people into good jobs, long-term jobs, jobs that are good for mental health rather than

  • simply getting into jobs, or will such funds always because of exigencies and difficulties

  • of measurement, find some compromise position that is, on one level, on an individualistic

  • level, somewhat harmful? Asheem, you've raised a very important point,

  • the great thing about impact bonds is their flexibility. You can have a five-year bond,

  • and if it doesn't work out, unlike a government program, which would continue for another

  • 15 years, it comes to an end. At the end of five years, if you want to launch another

  • bond, you've learned about the metrics that need to be set so that you channel the effort

  • to the population you want to help, and so you redesign the metrics for the second bond.

  • It is a very flexible instrument, and the key thing about it, and it applies to philanthropists

  • as well as governments. The key thing about it is we're not spending

  • money prescribing to those who are going to help vulnerable populations be they not for

  • profits or purpose-driven businesses, you're going to have to do the following. You're

  • going to visit every prisoner three times a month or four times a month, or whatever

  • it is. We're giving money to these organizations and saying your goal is to reduce the number

  • of prisoners going back to jail by more than 7½% over a period of time. If you achieve

  • that, you get your money back, and you get a return that increases with your success.

  • So, the delivery organizations become like businesses, even if they're nonprofits. They

  • have investment capital, they can define what innovation they want to use to achieve their

  • targets. What other ways they want to achieve to help a greater number of people. At the

  • end of the day, they know that if they deliver a return to their investors, which is sufficiently

  • attractive, they'd be able to raise twice as much money, and so you give the key to

  • the capital markets, to nonprofits and to social entrepreneurs leading purpose-driven

  • businesses as well. That's a fantastic