Every now and then a book comes along at just the right time. Impact by Sir Ronald Cohen is one of those books. It was written before Covid (there’s an inserted page at the beginning that references as much) but everything that has happened in 2020 just goes to strengthen the argument.

Ronnie starts by telling a little of the history of impact investing – how it had many beginnings but really gathered momentum after the term was coined at a meeting in 2008. But part of the story is also about ‘social investing’ – a term that goes back to the 90s – and ‘ESG investing’ which really started back in the 80s with activist investors attempting to get funds to divest from stocks that they felt were harmful to the planet or whose ethics they disagreed with. Sir Ronnie has been involved in many aspects of this history from helping to create the first social impact bond to chairing government task forces on the topic and as founding chair of Big Society Capital. He’s certainly made his mark on many of the important building blocks of the impact investing world.

But I think it’s the logic and argument of the book that really resonates right now. Lots of people feel that our current form of capitalism is destroying itself and that the relationship between government, finance and social and environmental progress needs to change.

For investors the idea of measuring returns is obvious. From ancient times, the idea of lending or investing capital in order to gain a return has been one of the foundations of our economic system. Businesses raise money, put it to work, and then pay back their investors with a return. 

In the 20th century, the concept of risk became much better understood – how can we measure the risk to the return that is being promised by taking into account volatility, political issues and so on. The financial services industry got better and better at measuring the risks of various types of investment so helping them to make better decisions.

In the 21st century, Cohen argues, impact will be added to the equation. All investment decisions will take into account return, risk and impact. He argues that technology has enabled us to calculate and assess all of these much more accurately and impact is in many ways easier to measure than risk. 

I was lucky enough to interview Ronnie a couple of weeks ago for our Practical Optimist newsletter. You can see that interview below.