Will the traditional risk and return model of investing solely for profit one day be outdated?


The father of impact investing, Sir Ronald Cohen, would certainly say yes.

By Alice Skipton

The shift to impact investing is already well underway among the world’s wealthiest investors and philanthropists. Daily headlines chart the progress and partnerships by such leaders as Pierre Omidyar, the Ford Foundation, Jeff Skoll, and Priscilla Chan and Mark Zuckerberg.

Sir Ronald Cohen, current chair of the Global Steering Group for Impact Investment, sees that shift picking up momentum. “With the transfer of wealth taking place now, we can expect thirty years from now that most family offices will be responding to a group of people that is very interested in balancing risk, return and impact with the best examples of portfolios that successfully do the same.” 

Co-founder of Apax Partners Worldwide, Cohen has spent much of his life successfully navigating the worlds of investment, venture capitalism, innovation, and philanthropy. He was knighted in 2000 and has generally continued doing work deserving of the Nobel Peace Prize since then.

Given where we are today, Cohen sees a chain reaction ofimpact that will transform the way we both invest and innovate to solve the world’s problems. "On the investment side," says Cohen, “it begins with a powerful intention and a great focus on the measurement of outcomes.” On the innovation side, it’s much like the tech revolution but with a larger pool of experts and innovators.
This chain reaction is already in motion across all the essential sectors. “Big corporations have become very interested in Sustainable Development Goals type of investing,” says Cohen.
In philanthropy, foundations are complementing grants with outcome funds and using endowments to achieve impact alongside financial return.
As for entrepreneurs, we can expect more interest in change agents like Elon Musk. “In the future,” says Cohen, “those who create negative impact will find it increasingly difficult to raise money, while those with positive impact will find it increasingly easier.”
Based on progress today, we can also expect changes in government. "Thirty years from now," says Cohen, "government will be paying for success, such as fewer released prisoners returning to prison, rather than paying an organization for the number of prison visits it undertakes."
Refined measurement tools, such as a database that quantifies the cost of 600 social issues, and better accounting for the liabilities of failing to address social and environmental issues, will also allow us to compare the potential of impact investments alongside traditional investments. “We’ll see [impact] investment opportunities that deliver a 10 percent financial return, a 25 percent social return, and a 25 percent environmental return for the same risk as a similar [traditional] investment yielding the same amount of money,” says Cohen.
For those ready to get started, Cohen recommends that wealthy families put younger family members in charge of 10 percent of assets, work with smart managers, and invest those assets for impact.
“And if you can encourage families to make that allocation today,” says Cohen, “follow the lead of the Ford Foundation at a time when the opportunity set is increasing significantly, they really will do good and do well at the same time.”
Follow Sir Ronald Cohen and Global Steering Group on Twitter at @GSGimpinv. For more information, check out www.gsgii.org and www.ronaldcohen.org.