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AUG 11, 2020

How Promoting the Invisible Heart Will Bring the Investment Impact Revolution

By Takeshi Igarashi
iStock/ipopba

In the nineteenth century, business leaders and investors focused on returns. In the twentieth century, they shifted to a risk-return measurement model. Now, on the brink of the Impact Revolution, it’s time for us to adopt a new paradigm of risk-return-impact.

The value of impact investment can be found by asking ourselves a simple question: “What kind of world do we want to live in?”

“That’s the question confronting all of us today,” says Sir Ronald Cohen in his book Impact: Reshaping Capitalism to Drive Real Change. “Envision a world where inequality is shrinking, where natural resources are regenerated, and people can unlock their full potential and benefit from shared prosperity.”

This, he says, is the world we can achieve with the Impact Revolution.

The way to the Impact Revolution will be paved by impact capitalism, an ecosystem which is driven not by profit alone, but by impact and profit together. When a company pursues impact investment, it does so with the intention to achieve positive social/environmental outcomes, in addition to financial return.

Sir Ronald Cohen: The Father of Impact Capitalism

A pioneering philanthropist, venture capitalist, private equity investor, and social innovator, Sir Ronald Cohen is a driving force in the global Impact Revolution.

He also has an extraordinary life story.

When he was 11, he and his family were forced to flee Egypt during the Suez Crisis and settle in the UK as refugees. With virtually no English language skills, Cohen was dropped into a British school, and his family struggled to survive in poverty. Despite all this, he managed to rise to the top of his class, earn a scholarship, and graduate from Oxford University. He then went on to get an MBA at Harvard Business School.

Cohen was drawn to venture capitalism because he wanted to help people. When he was 26, he cofounded Apax Partners. This would not only become the first venture capital firm in Europe, but also the leading firm in the region.

Over the course of his career, Cohen worked closely with the British prime minister, the G8 Social Investment Impact Taskforce, and other individuals who would go on to become key players in the impact investment industry.

All of these efforts led him to a simple conclusion: capitalism is no longer answering the needs of our planet. We need a new way forward.

That way, he determined, is impact capitalism.

Sir Ronald Cohen giving a speech before a lectern in an ornate old building
Sir Ronald Cohen speaking at an event for the UK Cabinet Office | flickr/Cabinet Office

Beyond Theory, Impact Promises Solutions

Impact: Reshaping Capitalism to Drive Real Change describes the journey of the Impact Revolution over the past twenty years and the roles of the principal players. The book is organized into seven chapters, each with a clear message. Here are a few:

We must shift impact to the center of our consciousness.

It is possible to do well and do good at the same time.

There is a will, there is a way, and now is the time to act.

Through diverse case studies and concrete solutions, the book is an Impact Revolution roadmap for all.

One of the most notable solutions is impact-weighted accounts. These are financial accounts (represented by profit and loss statements and balance sheets) that reflect both the financial performance of a company and the impact that company creates on people and the planet through products, employment, and operations.

With COVID-19, the need for such innovations in accounting is more critical than ever.

After the Wall Street crash of 1929, generally accepted accounting principles (GAAP) were created. Similarly, with the COVID-19 crisis, Cohen proposes that we need generally accepted impact principles (GAIP) going forward. COVID-19 has shaken our values and called us to question capitalism. We have an opportunity to rethink capitalism and transform our economy and society.

Adam Smith introduced the concept of the “invisible hand” of markets in his book, The Wealth of Nations. Essentially, he proposes that competition generated between individual traders in a free market scenario with no government control will lead the market in a positive direction.

Impact-weighted accounts would enable us to measure and manage impact so that we can bring the “invisible heart” to the market, as well.

What will be your role?

In Japan, a rapidly aging society and increasing fiscal deficits make it difficult for the government alone to manage social issues. Largely for this reason, and at Sir Ronald Cohen’s request, GLOBIS launched the KIBOW Impact Investment Fund in 2015. KIBOW invests in entrepreneurs who can solve social issues and generate a new flow of funds for social good.

But whether you are an entrepreneur, an investor, a politician or just a curious consumer or employee, everyone has a role to play.

Entrepreneurs can develop innovative businesses that deliver and measure positive impact.

Business leaders can set measurable impact objectives alongside financial ones and report their achievements.

Governments can focus on preventing costly social problems through pay-for-success strategies.

And, of course, customers can purchase products and services that help improve our lives and the planet. As Sir Ronald Cohen so eloquently puts it, “The story of the Impact Revolution will be written by you.”