Yes, October already. I've had a break during September, although I hosted two panel events for York Environment Week during the month. You can find links to the recordings on YouTube below. 

York Environment Week

My first forum was about Sustainability for SMEs,

when four entrepreneurs from York spoke about how their businesses were making their sustainability journey. The second looked at ways of decarbonising York using district energy and district heating. It's a system widely used across North America and Europe, but largely ignored in the UK. Watch the video and find out why we should give it serious consideration.


While I've been away the list of sustainability stories has grown and grown. I'm going to have to be selective and I shall start next week with my review of what's going on and what’s to come, notably COP26.

IMPACT - Interview with Sir Ronald Cohen

Today though, I have an interview with Sir Ronald Cohen, who explains the role of social impact bonds and impact accounting in meeting the challenges of the climate crisis. If we can make organisations accountable not merely for their handling of risk and profit but also for their impact on the environment, investors and consumers can support those having a net beneficial effect and reject those which do more harm than good.

Here’s our conversation.

Anthony Day: My guest today is Sir Ronald Cohen, and thank you very much for agreeing to talk to the Sustainable Futures Report. Welcome.

Ronnie Cohen: It's a great pleasure to be with you, Anthony.

Anthony Day: Ronnie, you've been described as the father of British venture capitalism, and separately you've been described as the father of social investment. Now, I think a lot of people would say that those are extremes on a very wide continuum. You've written a book called Impact: Reshaping Capitalism to Drive Real Change. Now, let's start with impact investment. Is that what draws these two extremes together?

Ronnie Cohen: Yes. Impact investment is, in a way, what venture capital was for tech entrepreneurs, but it is that for those who want to improve lives and the planet. So its aim is to deliver profit add improvement, measurable improvement, in people's lives and the, now, environment.

Anthony Day: So in your book, it describes impact investment as a departure from simple calculation of risk and reward, but adding in the extra factor of impact, impact from a social point of view and impact on the environment. And that in turn- Yeah?

Ronnie Cohen: Yeah.

Social Impact Bond

Anthony Day: That, in turn, has led on to the development of the social impact bonds, not only in this country, but in Australia, US, the Middle East and other countries. Would you like to just take us through how these social impact bonds have worked and the sort of things that they support?

Ronnie Cohen: Yes. Anthony, in many ways the social impact bond symbolizes what is happening in the world. Why do I say that? It's a security where the return depends on an improvement in the social or an environmental challenge. So the first social impact bond, the Peterborough Bond for example, was a case where 5 million pounds was put up by investors to fund charitable organizations working with young prisoners to reduce the percentage going back to jail within 18 months. And the Ministry of Justice signed an agreement with the investors saying, if you succeed in reducing the number going back to jail, which saves us, the government, money from taking these young people through the law courts and then putting them in prison, then we will be happy to pay the money back with a return which rises with your degree of success. And in the event, Anthony, we reduced the number going back to jail by 9.7% and the government repaid the 5 million pounds with a return of 3.1% a year.

Now, in itself, that is a hugely innovative way to fund those who, through charitable organizations or through businesses, want to improve lives and the planet. But it also epitomizes this balance you were talking about between risk return and impact. And we can see our whole economy shifting today to optimize these three dimensions instead of the traditional capitalistic dimensions of risk and return.

Climate Crisis

Anthony Day: Right. Since the Peterborough initiative there have been a number of different projects with things like rough sleepers and so on. I haven't seen anything which necessarily impacts directly on the environment. Because we have a climate crisis, it is going to cost money to solve, or to at least face up to, the climate crisis and is a social impact bond away forward there?

Ronnie Cohen: So there have been some, Anthony. There was quite a big one in Washington, DC about recovering rainwater and using it. But there haven't been as many as I would like to see. I think the environmental movement, and here you're very well placed to have a conversation with me about it, has tended to talk at government level. The impact movement that's been focused on social issues started bottom-up with social impact bonds with impact private equity and impact venture capital with the measurement of the impacts of public companies. And it's time these two came together. Al Gore came to speak to the Global Steering Group summit in Delhi in 2018, this is the group I chair which tries to drive the impact movement forward across 33 countries now, and that was an attempt to say to these two communities, look, "Let's link up now. We can't solve these two simultaneous equations separately. If we go for solving just the environmental dimension, then we get what happened in France with the gilets jaunes. We get social backlash. So let's focus on both at the same time and let's use the top-down approach of speaking to governments and so on. And the bottom-up approach."

The bottom-up approach is making big inroads now into mainstream finance, addressing both social and environmental issues. So I don't know how many of the participants in your webinars, for instance, know that there's one and a half trillion dollars today of green social and sustainable bonds. And of those, 10% are pay-for-success, actually. So Enel has launched $7 billion of pay-for-success bonds, where the rate of interest on its bonds falls if they achieve certain environmental targets. And they intend to go to another 20 billion plus. And so we're beginning to see mainstream finance guide investment through measurable impact. And with COP26 coming up, we have a big opportunity together to create this link within the impact movement between the environmental and the social side.


Anthony Day: Okay. Well, a number of points there. I think you spoke about the gilets jaunes and the unrest in France. I think inequality has to be addressed because, it's not my phrase, but somebody said, "If you've got people who are more concerned about the end of the month than the end of the world, then you will not get them onside. And we will not achieve anything towards saving the world or addressing the climate crisis." As I understand it, a social impact bond has got three parties. It's got the investors, it's got the charity or other organization that actually delivers the service, but then it's got the government, which in the end of the day is the paymaster. So surely this is actually a very political situation. And it will depend very much on the governments that are in power and their philosophies for us to be able to approach social and environmental problems using this mechanism.

Ronnie Cohen: You're right. We are finding, though, that philanthropists are prepared to step in and spur governments to action by agreeing to pay some of the money that would be due if the objectives were met. So it's a combination of philanthropy and government money.


Anthony Day: Well, that's good. I don't know how the scale of philanthropic resources matches the scale of government resources and I'm concerned that there are some people who have immense wealth and no real interest in using it for social or environmental reasons. I mean the obvious examples are Jeff Bezos, Elon Musk, Richard Branson, who've made lots of money and they're burning it off into space, which will not benefit very many people at all. On the other hand, of course, you've got Bill Gates who has decided to set up the Gates Foundation and has done a tremendous amount of work for a tremendous number of people. I'm just concerned that the system, which allows both of those groups to operate perfectly legally in what they do, but it allows a very large proportion of the world's resources not to be developed or devoted to the population at large.

Ronnie Cohen: I want to make a distinction, Anthony, between philanthropy of the Bill Gates kind and impact investment of the Elon Musk variety. So why did Elon Musk get involved in the automobile industry? He didn't get involved just because he thought it was a very easy industry to enter, right? A hundred year old plus industry, huge companies dominating it. He had another purpose. He wanted to shift this away from the polluting combustion engine. And he thought, through technology, that he could build a successful car company in the process. His impact has been to shift the whole of the industry in the direction of hybrid and totally electric vehicles. Now that's more like what I'm trying to achieve. I think our whole economic system should be bringing solutions rather than creating problems.

Impact Weighted Accounting - Harvard Business School

Let me explain what I mean. The work we've been doing at the Harvard Business School, on bringing impact accounting into being, we have published, and I don't know if you've seen it, but the environmental impact from the operations of 3000 companies across the world. If I say to you, Anthony, that 450 of these 3000 companies create more environmental damage in dollar terms than profit, you begin to see where I'm heading. A thousand of these companies create damage equivalent to a quarter or more of that profit. Two-thirds create damage of less than a quarter of that profit and so can transition more easily. The total damage created by just 3000 companies is $4 trillion a year.

Now, what's interesting, though, is that the analysis we've done correlating stock market values and levels of pollution shows that the companies that pollute more are worth less than their competitors. So the $40 trillion of investment today, environmental social and governance investment which is seeking to deliver some impact as well as profit, it doesn't matter the impact, which is what we're trying to bring to those 40 trillions today, transparency on the impacts they create, but it has the intention to create impact as well as profit. Anthony, that's equivalent to half of all professionally managed money in the world that doesn't seek profit only today, half of all professionally they manage money and the world seats impact as well as profit. It's a huge thing in financial markets. It reflects a huge change in values. And I think the breakthrough for us all is just around the corner, within the next three to five years. And it's going to be the transparency on the impacts, environmental and social, that each and every company creates. Measuring it, tons of CO2, gallons of water, and translating it into dollar terms. Measuring diversity and differences in advancement. Translating it again in dollar terms. So we can begin to compare environmental impact, social impact, and profit in the same unit of measurement, which is money.

Corporate Transparency

If we can get that transparency, you can get companies which are creating the damage, governments aren't creating the damage companies are creating the damage, to change their behavior under pressure from investors. You've seen the rebellion at ExxonMobil where three directors were kicked off the board because shareholder pressures and three new directors who understand more about environmental issues were forced onto the board. So we're into a different era now. We have the intent to create impact as well as profit, but we don't have the transparency on impact. And it is feasible to achieve it, as the work I'm involved with at Harvard has shown.

Anthony Day: Right, so impact accounting, if you like, the analysis of corporate impact, goes a lot further than carbon accounting and that delivers transparency. And you're saying that that transparency makes it clear to investors, the underlying weaknesses of certain organizations. At the same time, it will give the grounds for governments, if necessary, to bring in regulation to alter the damage which is being carried out. And it also affects the market value. And as you say, investors will fight back. I think the accountancy profession is behind on this. I don't know, but I don't think at this stage there are any accountancy standards or any obligations under the Companies Act and reporting requirements and so on to produce impact reports. But maybe that's the role of the government to make sure that every organization is transparent in this way.

Crash of '29

Ronnie Cohen: Absolutely, Anthony. You're absolutely right. We are at a similar crossroads to that our forebears were at after the crash of '29, when they woke up to the fact that they didn't have transparency on the profits that companies made. Because each company could pick its own accounting principles and there were no auditors to verify the numbers. In fact, Anthony, a company could shift part of its profit into hidden reserves without telling shareholders. So shareholders woke up and the US led the way. The Roosevelt administration famously introduced gap accounting, generally accepted accounting principles, and the use of auditors. And people screamed at the time that it would be impossible to have a single accounting system for every company, irrespective of size and sector and that if it proved possible, it would spell the end of American capitalism.

And we're hearing similar noises today. But the situation today is $40 trillion is seeking to achieve impact with very little transparency on the impact created. And we have to bring governments now to take both steps in bringing this transparency about. Now you look at IOSCO which groups together the world regulators, they're looking at impact transparency. IFRS, which is responsible for financial accounting across the world apart from the US, is looking at impact transparency. The SEC, responsible for the U S financial accounting system, looking at it as well.

So I'm hopeful that, just as the 1929 crash and the economic crisis it engendered created the circumstances for a bold step forward, that Corona with the pressures that it creates around social and environmental issues will create an environment for either the American Biden administration or the EU or the British government or some other government in Europe, or in Australasia, to mandate the publication of impact-weighted financial accounts starting three years from now.

Changing Company Behavous

And then you will see the behavior of companies change. They will begin to measure their impacts now because they know that they're going to be exposed three years from now. And they'll begin to manage that impact. I believe, and I come from the investment world as you know, that optimizing risk-return and impact today delivers better financial returns than just trying to make money and not worrying about what you do to the environment and people. Because consumers don't want your products, talent doesn't want to work for you, investors aren't interested in investing in you and governments are going to regulate and tax you. We're already talking of a carbon tax.

Goverment Opportunity

And so governments have the opportunity now to change the behavior of companies and bring them to their sides in dealing with the higher unemployment and with all the climate issues we face, the droughts, the fires and so on that we see almost every day on our television screens. Governments have the opportunity today to bring businesses and investors to their side in finding solutions for these huge challenges. And it's not about just persuading governments to talk to each other and to agree on a way forward. It's simply saying to them, "Transparency on social and the environmental impact is a human right. We have the right to know what's good and what harm companies are doing. Investors are demanding this, $40 trillion worth of them."

Anthony Day: Some investors, though, are taking essentially a short-term view. There are still people investing, or planning to invest, in a new coal mine in the north of England, in a new oil field off Scotland. And that's totally counter-intuitive if we've got to cut emissions.

Long Term/Short Term

Ronnie Cohen: One thing I've learnt, as a venture capitalist, is the old way of doing things, the old technology, as we called it, fights back. You don't get everybody to switch on a different life. There are some people who continue to believe that this is all the flash in the pan. Let them buy coal mines, and let's see what the value of their coal mines will be a few years from now.

Now those who have bought coal mines 10 years ago are crying now. And the same is going to happen with fossil fuels. We have new technologies coming in, alongside this change in values we've been talking about, artificial intelligence, machine learning, augmented reality, the genome and computing coming together and many other technologies that enable us to deliver environmental and social impact in ways humanity could never contemplate previously. Even 10 years ago, we couldn't have contemplated it happening.

So you have a change in values, you have leaps in technology and you have transparency on the impacts of companies coming together. And so you shift the goalposts for businesses, because if investors are looking for businesses that know how to deliver impact and profit, that's where the money's going to go. And the money is going to go out of the coal mines and fossil fuels. And there'll be some contrarians who will refuse to believe it, but they will be like those who refused to believe the arrival of the technology presaged a massive change. They maintained, some of them for a long time, that technology would only change the computer industry. And look where we've got to.

Quickly Enough?

Anthony Day: Absolutely, absolutely. If we can overcome these denialists and we can implement these changes, are we going to be able to change the world quickly enough to the challenges?

Ronnie Cohen: So I think the acceleration is going to come from technology. When the money begins to flow to those who are devising new, clean sources of energy, ways of storing solar energy in water and so on. And then it accelerates, and you get converting technologies coming together. And you get what happened with the tech revolution, except this time it's an impact revolution. And I think those who make projections about how quickly the combustion engine can decline, how quickly coal-fired power stations can decline, and come back saying, Well, nothing's going to change over the 40 years," are very much like those who were projecting the continuation of the status quo when the microchip was invented and the PC came along and then the cellular phone and then the internet. And many of them still believed this wasn't going to affect their business models. So they don't take technology to account. And we're living through a period of unbelievable technological innovation.

At the end of the 19th century, we had the discovery of electricity, the telephone, the radio, the motorcar and the airplane. It powered the growth of the 20th century. But the technological leaps that we have made with the microchip, the PC, the cellular phone, the internet, artificial intelligence, machine learning, augmented reality and so on are going to power the 21st century even faster. So we have to accept that if we can create mechanisms today for investment to flow to those who are trying to achieve the objectives that you and I, and everybody on this webinar espouses, then we give ourselves a chance to have a massive impact revolution, which is what my book is about.

Social Change

Anthony Day: We are on the threshold, then, of a second, or even a third, industrial revolution. And we're going to see disruption unlike, I think, any we have seen in the previous revolutions. And that's going to have a social problem, isn't it?

Ronnie Cohen: Totally.

Anthony Day: And unless we can take the mass of people with us, then it won't happen. Or if it does happen, they will be dispossessed. So it's  difficult.

Tech Revolution

Ronnie Cohen: Totally. Totally. So in the tech revolution, 50 million jobs were lost in smokestack industries and 60 million were created the new tech businesses. And some people lost out. They couldn't shift from one to the other and they stayed on employed for the rest of their lives. We're going to have a shift. I hear a number of 18 million people in fossil fuels, declining employment, and shifting to other industries. They need to be re-skilled. We have to improve our ability to reach skilled people and government needs to devote resources to it because these disruptions have huge social consequences.

Anthony Day: Well, arguably, when we moved away from coal in the UK, we devastated communities across parts of the British Isles and the government there did not do enough to re-skill, retrain or plant industries in those areas. That was a fundamental mistake. And the consequences of that still playing out, probably, 40 years on.

Ronnie Cohen: Totally.

Anthony Day: I mean looking, again from the UK, I didn't see a government which is likely to act any differently from the Thatcher era.

Government Reponsibilty

Ronnie Cohen: So let me give you an insight into what the government should be doing in the UK. The government has an apprenticeship levy, which raises a couple of billion pounds a year. That money is supposed to be available for companies to take on apprentices, but they're not doing it. And the money is being deflected to the treasury's general coffers. We've been saying to the government, create an outcomes fund, what you were saying earlier, to pay for improvements in re-skilling or skilling apprentices and getting them into jobs. You only pay when it's been successful. Investors will bring the money to the charitable organizations and the businesses that are skilling and re-skilling these people. And then you begin to get something like the tech, venture capital dynamic. Investors bring rigor, scalability, focus on the objectives. Government pays only if the objectives are achieved. And so there are billions of pounds floating around in that system that could be devoted if our governments became more aware of the power of these new impact tools.

Extinction Rebellion XR

Anthony Day: Well, this is very interesting because what you're basically saying is that the power of capitalism could be harnessed to dealing, not only with the social problems, but with the environmental problems that we're facing. All of this, going a bit to one side, do you see the relevance? Do you see a relevance for organizations like Extinction Rebellion and their aim at getting the government to take this more seriously?

Ronnie Cohen: I think when you get societal forces so distressed by what is happening that they're prepared to go to the extent of Extinction Rebellion. And, in a smaller way, the militancy of shareholder meetings now, initially around the environmental issues. Who would have thought, even two years ago, that two thirds of the shareholders of Procter and Gamble would censure management because of the deforestation P&G creates through its use of palm oil? But it happened. And that militancy heightens the sensitivity of governments to the political dimension of these issues. So you have companies, on the one hand, hundreds of which are espousing these new ways of thinking and accounting, but most of which really would rather not have to deal with this, as we know. Despite the fact many of them are making worthy declarations of intent.

On the other side, you have investors pushing hard for this, you have consumers, you have talent and you have activists. And government is in the middle. And my view it's obvious who is going to win here. It's going to be the consumers and the talent and the investors and so on. Partly because the political power is there. At the end of the day, it's going to translate into political votes. But we need the transparency so that governments and investors and consumers add people like yourself and other thought leaders and commentators can have the real facts about the situation, can identify, as we've done at Harvard, the 450 companies out of 3000, that deliver more damage than profit each year. And show them numbers and show where the damages is. Is it in CO2? Is it in water? Is it in solid degradation? Break it down.

Similarly, with social, we're just about to publish 2,500 companies' employment impact, measuring lack of diversity, differences in advancement between gender groups and ethnic groups and so on and so forth. You can look at a company like Apple which has a $10 billion wage bill. It still has a $2.7 billion negative count because of lack of diversity and unequal advancement. And you can compare it with Intel and say, "Well, Apple does a better job than Intel because Intel has a fraction of the sales and a $2 billion count." And if you compare it with Costco, which employs twice as many people as Apple, Costco has a billion dollar negative count so it's doing a better job of diversity. And I think, Anthony, if there's something that you and the people who follow you and listen to you could do, is just to get people to go to the Harvard Business School site, IWA impact weighted accounts, and realize that this impact accounting is feasible and valuable.

Anthony Day: Well, this has been a fascinating discussion. As we draw it to a close let me ask you, are you optimistic about the future?

The Future

Ronnie Cohen: I am. I am. I believe that we have the makings, with these three forces we've talked about, changing values and the direction of creating impact, leaps in technology that help us to deliver impact locally more powerfully than ever before, transparency on the impact individual companies create. We can actually bring the invisible heart of the markets to guide their invisible hand, to take Adam Smith's phrase. You can see it in financial markets. You can see it in 40 trillion of ESG money, one a half trillion of green, sustainable and social bonds, 159 billion of pay for success environmental and social bonds. Let's get on with it. Let's let the politicians chat about like global views about climate change. Let's ask one thing of them, impact transparency and we will get there.

Anthony Day: Ronnie, thank you very much for sharing your ideas with the Sustainable Futures Report. Thank you very much.

Ronnie Cohen: Great pleasure. Wonderful to meet you, Anthony. Thank you for everything you're doing.


Sir Ronald Cohen. His book, IMPACT, Reshaping Capitalism to Drive Real Change, is available at all good bookshops.

Ronnie Cohen mentioned the work being done at Harvard Business School on Impact Weighted Accounting. There’s a link to the research website below.

And that’s it. 

Until next week when I’ll review some of September’s stories and look ahead, as far as possible, to COP26. And in these dark and difficult times I’ll look for something positive.

I’m Anthony Day.

That was the Sustainable Futures Report.

Until next time.




Harvard Business School 

York Environment Week


Sustainable Business

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