The Future Of Impact Investing Keynote Address With Sir Ronald Cohen

In a world where wealth and opportunity seem to flow like a river, it's easy to forget those left stranded on the riverbanks of poverty. But when I received that fateful call from the UK Treasury in 2000, I was reminded of the persistent gap between the rich and the poor, a gap that seemed to grow wider despite an era that championed "equality of opportunity."

The quest to bridge this divide led me down a path I could never have predicted. I had spent many years in the world of finance and entrepreneurship, rubbing shoulders with the British government, offering advice on how to foster a spirit of enterprise. Little did I know that my journey would soon take me into the realm of impact investment, a transformative field that aimed to change the lives of those on society's fringes.

The Rise of Philanthropy

Throughout history, philanthropy had been a driving force for change, a beacon of hope for the less fortunate. Generations of philanthropists had poured their resources into charitable endeavors, attempting to make the world a better place. However, the stark reality was that this sector was plagued by a lack of both scale and funds.

In the 19th century, philanthropy began to organize itself more efficiently, seeking tax breaks and setting up influential foundations like the Rockefeller family's. By the 20th century, governments realized that philanthropy alone couldn't address all of society's issues. They stepped in, creating welfare states to provide a safety net for their citizens.

By the time the new millennium dawned, it was clear that even governments struggled to cope with the complex web of social issues. The question became, "Who could provide a solution?"

The Birth of the Social Sector

It was in this climate of social disparity and a lack of resources that the social sector emerged. We've cast aside the term "third sector" for something more fitting - the social sector. This sector, however, had one common characteristic worldwide - it lacked both money and scale.

While businesses in the United States had managed to achieve sales of over $50 million over the last three decades, not-for-profit organizations struggled to break this barrier, with only 144 accomplishing the same feat. The root cause was the funding model of philanthropy.

Wealthy philanthropists provided funds for a year or two, with one condition - these organizations had to seek out additional funding and ensure that none of it was spent on overheads. This unsustainable model was the result of a critical absence in the social sector: the lack of measurement.

A Paradigm Shift: Measuring Social Return

In the year 2000, I pondered the question: How could we empower social entrepreneurs who sought not just to amass wealth but to dedicate their lives to improving the lives of others? The answer lay in the power of measurement.

Fast forward to 2010, when the Social Finance movement gained traction. It was then that a group of young visionaries proposed a groundbreaking idea to tackle the rampant issue of prisoner reoffending. Across the globe, two-thirds of young prisoners found themselves back behind bars within 18 months of release. These forward-thinkers believed that by linking a reduction in reoffending rates to a financial return, they could create a win-win scenario.

This moment was my "lightbulb" moment. It illuminated a path towards integrating social impact into the capital markets. When social return became quantifiable and connected to a financial return, we could channel capital towards those who could deliver the highest social impact. This pivotal change allowed social entrepreneurs with scaling capabilities to access capital in the same way as their business counterparts.

From Vision to Reality

In the basement of my London office, Bridges Ventures, a social impact investment firm, was born in 2002. This pioneering organization aimed to invest in the poorest 25% of Britain, with a mission to make a real difference. Over the next 11 years, it would manage a staggering one billion dollars and deliver a remarkable 15% net internal rate of return.

The first social impact bond launched in 2010 was a watershed moment. The British government granted access to nearly a billion pounds of capital, ushering in a new era for impact investment. Big Society Capital, which I chaired, began investing in organizations focused on impact, leading to the birth of 21 impact investment organizations in the UK, all funded by Big Society Capital.

In June 2012, David Cameron, the British Prime Minister, brought the concept of impact investment to the G8 countries. I was entrusted to lead a taskforce of 22 individuals, complemented by hundreds more in national advisory boards and working groups. Together, we would craft a report titled "The Invisible Heart of Markets."

Shaping the Future

The report was aptly named, as it emphasized the transformation occurring within the world of investment. Just as Adam Smith's "invisible hand" guided markets in the 19th century, the 21st century introduced a new dimension - impact. Impact investment, defined as any investment with clear objectives to deliver both social and financial returns, now sought to measure its achievement in the same way financial performance was scrutinized.

This seismic shift brought empathy into the equation, a concept Smith had championed in his lesser-known work, "The Theory of Moral Sentiments." Impact investment was more than just profits; it was about improving lives and the planet. As we bring impact into the picture, we allow the invisible heart of markets to guide their invisible hand.

The future is bright, driven by a generation eager to reshape the world and a staggering $46 trillion aligned with the principles of responsible investment. With this wave of change, impact investment stands to revolutionize governments, innovate social solutions, and bring empathy to the forefront.

So, as we stand at the crossroads of the old world and the new, let's choose the path less traveled, the path paved with impact investment. It's a journey filled with creativity, innovation, and the unwavering belief that we can build a better world, one investment at a time.