The "revolution" of impact investment

On 10 June, Spain signed its adhesion to the Global Steering Group, an independent group that aims to globally boost Impact Investment. It currently has the adhesion of 23 countries, in addition to the EU, and is chaired by Sir Ronald Cohen, partner and founder of Apax since 1972 and pioneer of the Venture Capital.

The adhesion of Spain is the culmination of a process initiated in 2018 by Foro Impacto. On that occasion, Foro Impacto, together with the law firm Cuatrecasas, organised a meeting chaired by Ronald Cohen himself. I had the satisfaction of participating in this meeting on behalf of the Open Value Foundation.

During the meeting, Sir Ronald Cohen made a presentation of his book “On Impact, a guide to the impact revolution”. It describes in a very clear, succinct and suggestive way, the principles and objectives of this movement that it defines as Impact Investment.

His approach is based on an undeniable reality, the existence of two major problems that human beings should solve:

• The growing environmental deterioration
• The inequalities that affect disadvantaged groups

Among the first are all those related to sustainability, waste management, emission of toxic gases, deforestation, pollution, etc. That is, problems that affect humanity as a whole.

The latter include all those that affect certain groups, such as illiteracy, hunger, unhealthiness, political or social repression, economic inequality, exclusion, gender inequality, child exploitation, etc.

These are problems that are largely created by the economic system itself -capitalism- and the objective of maximising the benefits it advocates. This is a system that, in the words of the author, although it has served us well over the last 250 years, now needs a radical change.

Traditionally, helping the disadvantaged has been a function of the public sector, together with private initiatives -philanthropic- acting through charities associated with foundations or, in general, non-profit organisations. Given the essentially marginal nature of private charity and its low capacity for autonomous growth, since it depends on donations, the author defends a new approach to aid: that the concept of profit can join the concept of helping others, which a company can do well -earn money- and at the same time, do good -help others, have a social or environmental impact.

Business for profit and a purpose

Sir Ronald Cohen’s proposal is based on a simple and innovative idea: to end the dichotomy between non-profit companies (seeking social good) and for-profit companies (seeking economic benefit). To do so, he wants to promote a change of mentality, a “revolution” that allows us to include, together with the objective of making a profit, the objective of producing an impact, an improvement, whether for a disadvantaged group, or for society as a whole.

The way to develop and implement these types of “businesses for profit and a purpose”, goes through several instrumental measures:

• Make the impact fully measurable.
• Define impact accounting standards.
• Build, within the world of investment, the idea of results adjusted for risk and impact.

What it raises as a logical evolution: initially the overall result of the investments was measured. The evolution of financial theory led to the concept of risk adjusted results. This new step will lead to a result adjusted by risk and impact. For this to be possible, it is necessary to have a capacity for measuring and standardising measures and impact reports, in the same way that accounting standards made it possible to measure and compare economic results of different companies.

These two simple, practical ideas -the ability to measure impact, the fact that we focus on results and not on actions, and the combination of profit, with a social or environmental objective, materialised in the “business for profit and a purpose”- can help to boost a trend that already exists and with very different names, proposals and developments. A trend that clearly expresses a reality: that in the mentality of consumers, voters, companies and regulators, social and environmental awareness, the concern to help others and help ourselves, the willingness to act in favour of others and to have an impact, is being increasingly instilled.

Aligning consumers, companies, workers, suppliers, voters and regulators would make it possible to generate a new sector of companies that are self-sufficient, prosperous and beneficial for themselves and for society as a whole.