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 world – whenever 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 of 9½ percent 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