Exclusive: ‘New Riches’ – Ellie Hazelton, Fintech Finance in “The Paytech Magazine”

Investor Sir Ronald Cohen believes risk + return + impact is the only sum that adds up in a new, post-capitalist world. Ellie Hazelton finds it hard to disagree.

Any book that can unite a Nobel prize winner, a Harvard professor, the managing director of the  International Monetary Fund  and Bono in admiration has to  be worth picking up, right?  From curiosity, if nothing else.

But Impact: Reshaping Capitalism To Drive Real Change is then hard to put down. It wears its heart on its sleeve  – you can’t mistake the sermonising message in the title – but the content  is engaging and powerful, and the central message hard to disagree with.

The author is Sir Ronald Cohen, a philanthropist, venture capitalist,  private equity investor, social innovator and leading member of the Impact Revolution, a global movement that is reshaping the way the world thinks about the financial system – specifically, how and why we invest and how our approach could and should be recalculated to produce tangible, sustainable, long-term social and environmental change.

The book starts with a history lesson  – how capitalism got to where it is, i.e. the world’s pre-eminent economic system, based on the private ownership of the means of production and their operation to profit individuals. It then analyses some of the perverse and damaging effects  the unbridled application of this model has had on justice, health, the wealth gap, education and the environment.

At its core, says Cohen, is the bankrupt, two-legged stool model of risk and return; risk being the likelihood of adverse outcomes that could cost investors  money; return being the payback they  get from taking such a risk. What Cohen explores is how to make that stool more stable by adding a third leg: a new model of risk+return+impact. This rests on the same capitalist principles, but focusses
on investments that gain from positive social and environmental impacts. It’s a subtle but potentially life-changing shift for millions across the globe.

The key takeaway is this: redefine the narrative so that moral decisions become business decisions.

Cohen doesn’t deny that there are already businesses trying to implement  a version of this model, including  well-known brands. One is IKEA. Its ‘people and planet positive’ sustainability strategy, focussing on ‘healthy and sustainable living’, ‘circular and climate positive’, and creating a ‘fair and equal society’, is one of them. IKEA has put circularity at the heart of its production  of flat-packed goods: it means designing products from the outset to be repurposed, repaired, reused, resold and recycled. It’s the antithesis of built-in obsolescence. IKEA is currently aiming to reduce its carbon footprint by 15 per cent through achieving 100 per cent circularity by 2030.

It will be interesting to see if and how far other multi-national companies similarly adapt their business models. There are some big numbers involved here if they do. Cohen highlights an impact comparison between PepsiCo and Coca-Cola. In 2018, PepsiCo’s sales of $64.7billion were double that of Coca-Cola’s at $31.8billion. However, PepsiCo’s environmental cost came in at £1.8billion, whereas  Coca-Cola’s tally was $3.7billion. Cohen’s argument is that such figures should be used in impact-weighted accounting, with companies required to show impact integrity as well as financial integrity.

In terms of outcomes, changing the  way return is calculated could have a dramatic effect on organisations working to rebuild society, too. Non-governmental organisations (NGOs) rely heavily on donations and are, therefore, inevitably spread too thin. ‘Caring capitalism’ could help address that shortfall: indeed, there are emerging mechanisms for doing  so with social impact bonds (SIBs) and,  in developing countries, development impact bonds (DIBs), but both are still relatively new.

Cohen’s parting shot? Focus not only  on minimising harm, but on doing good. His book strives to demonstrate that, by doing so, every one of us, including investors, is so much the richer.

Impact: Reshaping Capitalism To Drive Real Change

by Sir Ronald Cohen, is published by Ebury Press in hardback and  Kindle editions.

Great for: A post-pandemic reset

Best read: Before your next investment portfolio review

Good read rating: ★★★★★

This article was published in The Paytech Magazine: Issue #06, Page 90