Tipping Point: Is the Impact Revolution Just a Matter of Time?
Written by Sophie Harbour
Since 2000, Sir Ronald Cohen has championed global efforts to develop and support impact investment; setting up the Impact Revolution as the movement that will reshape financial markets, reimagine the world’s economy, and realise humanity’s potential to create a positive social and environmental future for all. For him, we are at the tipping point.
But what is the Impact Revolution, how compelling is its case, and why might doubts persist about its potential.
The Impact Revolution
Conventional capitalism, which privileges profit as the ultimate value and measures investment primarily as the balance between risk and return, is perpetuating harm to humanity. The social and environmental challenges we face are dire, inequality is widespread and severe, and belief in the worlds’ ability to disrupt or overturn these harms is waning. The problem of our day is that the dominant economic model can no longer support sustainable development or inclusive social good.
The Impact Revolution is the solution; a response to the need to change these realities.
The revolution brings in a reconstitution of market logic and a radical shift in the way in which finance and investment are harnessed and shaped. It imagines a world in which risk and return include a third force – impact – which guides decision-making for all stakeholders. It does not deny traditional understandings, of the invisible hand that leads the market, but incorporates an often forgotten but similarly aged wisdom of the ‘invisible heart’ to guide the hand in turn.
The beginnings of the revolution are in the flagship initiative, the Social Investment Task Force (SITF), chaired by Sir Ronald and launched in April 2000. With UK government backing, the taskforce aimed to explore the question of whether investment could be used to tackle the pressing social issues of the day. It is really from the 2010s, however, that the movement begins to take hold. Tools, like the first Social Investment Bond (SIB), and mechanisms, like Social Investment Tax Relief (SITR), are developed and organisations, from Social Finance (2007) to Better Society Capital (2012), start to establish themselves. Global efforts such as the G8 Social Impact Investment Taskforce and the Global Steering Group for Impact Investment (GSG) are launched in 2013 and 2015 respectively and attention turns to firm implementation and widespread mobilisation of capital.
And these efforts have steadily progressed since. Just last year the UK saw the establishment of the Social Impact Investment Advisory Group (SIIAG) in January and the UK Office for Impact Economy in November.
The Core of the Impact Revolution: Measures and Motivations
From task forces to steering groups and foundations to organisations, the goals of many actors in the space are two-fold: establish meaningful measurement and align public and private interests.
For the Impact Revolution, meaningful measurement is fundamental for at least two reasons: to accurately identify what outcomes are produced as a consequence of companies’, organisations’, and enterprises’ actions, and to bring together a variety of actors that speak incredibly distinct languages. In turn, the alignment of public and private interests, supported by this newly established currency of communication, is necessary if the world is to recognise that the only sustainable change to a dominant economic order is one in which all stakeholders are a part.
According to Sir Ronald’s latest work, Impact: Reshaping Capitalism to Drive Real Change, to achieve the goal of measurement we must encourage the concrete tracking of the outcomes, rather than the activities, of business and enterprise, and we must make visible the transparent reporting of these impacts. The measures developed must be dependable to avoid the challenges of ‘impact washing’ and they must be standardised to help scale interventions and prevent increasingly siloed funding. In addition, for diverse interests to be brought together, people must realise that business cannot be sustainable if it does not account for its social and environmental consequences, and that governments, charities and NGOs cannot adequately alter the flows of funding to the benefit of social and environmental good without adopting and supporting the redesign of financial language and logic. Drawing inspiration from Japanese philosopher Nonomiya Sontoku, Sir Ronald echoes the sentiment that ‘economics without ethics is a crime and the ethics without economics is a fantasy’.
The last decade has seen the development of viable tools to achieve such measurement and diverse actors motivated to align their activities – encouraging the hopes of the revolution. The world’s first Social Investment Bond (SIB), for example, created in the UK in 2010 aimed to reduce recidivism among prisoners and proved incredibly successful. Since this, similar bonds have grown to include a global collection of impact bondstackling a variety of social and environmental challenges. Other mechanisms have also grown in popularity and success. These include impacted-weighted accounts, Outcome Funds, and Development Investment Bonds (DIBs). Acceleration of ‘impact accountancy’, somewhat spurred by machine learning and the efforts of the International Foundation for Valuing Impacts, means that the vehicles to drive impact investment are gaining traction in real markets. And applications to track, record, and display these impacts are also becoming popular (especially for sustainability). For those sceptical of our ability to measure impact, Sir Ronald points to the time when ‘risk’, something so ordinarily a feature of financial calculations today, was similarly touted as impossible to calculate and also to countless examples of where this kind of assessment is providing productive.
On the question of interest-alignment, nowhere is this more compelling than in the examples of social entrepreneurship. From life-saving medical delivery (Zipline), to disability support (Livox), to healthy meals for school children (Revolution Foods), Sir Ronald presents stories of where impact investment has scaled effective social enterprises globally. Those who believe in the possibility of robust measurement and cross sector collaborations have many reasons to feel confident.
Succinct and clear, the message of Impact is not only that this revolution is necessary but that it is possible (and already happening).
Obstacles: Political Power Plays and Nuance in Norms
Inspiring as it is, the transformation to an impact economy is not entirely frictionless or straightforward.
Politics
In his book, Sir Ronald makes a distinction between the impact revolution and other movements that have pushed for business and industry to account for social and environmental costs. For him, ‘impact thinking’ is crucially not only about tracking the harms done but about measuring the benefits produced and, where other initiatives tend to track a company’s activities, impact investment focuses on outputs.
Distinct as it may be, impact investment is not immune to the wider political context. Many other movements, ESG most popular among them, have faced recent political backlash and the mission at the heart of the Impact Revolution may face similar pressures. Even though Sir Ronald suggests that ‘doing harm has become a risky business’ (p.66), the political climate of what is and what is not acceptable to do, say and support has notably shifted in the last five years. The reality may be that many of these conversations (about sustainability, climate action and social impact) have moved behind closed doors so as to avoid the negative attention of taking clearly politicised public stances. Many of the institutional developments to ensure that these movements stay on track may remain ongoing. This silencing, however, is not comforting. Green washing may be bad but “green hushing” should not be encouraged either.
To work against this challenge, the world needs good leaders, innovative thinking, and ongoing public engagement. For Sir Ronald, the reactive political pressures on movements for social and environment good are just that – reaction. A status quo is always bound to ‘fight back’. For him, it should be seen not as a reversal of the trend toward impact but as the natural rhythm of old convention breathing its last breath. The resistance should not be underestimated, however. Champions of impact are still needed. For this, supporters of an impact revolution must encourage vocal and influential leaders and voices, a new generation of those who can think outside of convention and familiarity, and ongoing public engagement alongside the transparency to support this activity.
Norms
“We should not be afraid to make judgements”[1], yet in a world in which norms emerge and change depending on context and time, the ability to crystalise an impact into a precise metric fixes that which is inherently dynamic. This ‘fixing’ could do nothing more than obscure a whole picture (as stereotypes of single-parent households once did for child development). Or it may perpetuate harms (as conventional assumptions about upgrading informal settlements have done for governmental interventions).
The question, however, is do we need to solve the most complex cases before we are convinced of the impact revolution’s potential? If there are examples of where impact has and continues to work, is that not better than the reality we are currently in? Why should the ideal and perfect be the only acceptable standard when there are so many improvements that can be made right now? These may not get us there in one fell swoop, but they may move us closer to a better world. This is Sir Ronald’s argument.
Mere conviction does not solve the delicate ground on which we tread and caution in the unintended consequences of fixing a conception of good on judgments of current norms is necessary. But this caution should not create a paralysis to act. To realise the potential of impact, even if it cannot solve all the world’s problems at once, people should rally behind ongoing engagement with all stakeholders, insulation for experimentation of ideas, and a flexible system of potential measures.
Is Impact Investing Inevitable?
Sir Ronald’s book is not an argument for complacency. No matter how evident certain trends, the assumption that radical transformation ‘just happens’ is naïve. There are still many efforts that must come together to support any meaningful change of conventional capitalism and a new economic mindset. There is perhaps not one, but several ‘tipping points’ over which the drive from different stakeholders could push this trend.
So why is Sir Ronald so optimistic? At a time when Venture Capitalism (VC) was near to non-existent, Sir Ronald pursued it as an opportunity. He knew it had the potential to transform the markets, and the world, as it finally did when it propelled the Tech Revolution. Today, VC is a considerable force in the investment market. For Sir Ronald, Impact Investing is the next VC; it will bring in the Impact Revolution and in doing so it will set us on a path to a sustainable social and environmental future. Throughout his book, Sir Ronald expertly and accessibly crafts a story of the genuine possibility for a better world.
Ultimately, however, for him at the heart of it is a very simple choice: impact or extinction.
[1] Impact, p.115
Sophie Harbour is the Executive Director of the King’s E-Lab and Fellow of King’s College, Cambridge. She completed her PhD at the University of Cambridge in the Department of Politics and International Relations with a focus on the potential of care ethics to inform approaches to political representation and accounts of political judgement. She is a Graduate Research Fellow of the Cambridge Centre for Social Innovation focusing on theories of climate mobility, water governance, and geospatial mapping, and is a research consultant for the Organisation for Economic Co-operation and Development (OECD), with a focus on infrastructure support for social innovation, particularly as it relates to care services.