IMPACT
‘A fascinating blueprint for a hope-filled future’ Kristalina Georgieva, Managing Director, IMF
SIR RONALD COHEN
IMPACT
Other books by the author:
The Second Bounce of the Ball ON IMPACT: A Guide to the Impact Revolution
IMPACT
Reshaping Capitalism to Drive Real Change
Sir Ronald Cohen
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First published by Ebury Press in 2020 This edition published in 2025 1
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This book is dedicated to my dearest partners in this revolution, my wife, Sharon, our daughter and son-in-law, Tamara and Or, and our son, Jonny.
My warmest thanks go to my pioneering colleagues on the Social Investment Task Force (2000–10), at Bridges Fund Management (2002–), on the Commission for Unclaimed Assets (2005–7), at Social Finance worldwide (2007–), at Big Society Capital (2012–19), on the G8 Social Impact Investment Taskforce (2013–14), at the Global Steering Group for Impact Investment (2015–), at the Impact Management Project (2016–22), at the Impact-Weighted Accounts Initiative (2019–22) and at the International Foundation for Valuing Impacts (2022–). You are valiant comrades-in-arms, and it is thanks to your leadership, effort and vision that the Impact Revolution is here.
I also want to thank most warmly my close colleague in researching the first edition of this book, Yaelle Ester Ben-David, and Ruth Moatti, Daniel Rosehill and Rebecca Thomas for their dedication and effort in researching this new edition.
Dear Reader,
When this book was first published in 2020, governments around the world were grappling with the shock of the COVID-19 pandemic, which brought economies almost to standstill and put unprecedented strain on our economic system and society.
Surprisingly, perhaps, five years on, the economic and social challenges facing governments are undiminished. Political instability, populism and extremism are on the rise, against the same backdrop of widening inequality. Voters who feel that our system serves only the elite are expressing discontent at the ballot box. Democracy and capitalism are clashing and, in many national elections, democracy is losing ground to authoritarian governments. Meanwhile, climate change continues to advance apace, with disastrous environmental and human consequences.
How should we react? This book provides an answer. It is imperative that we adapt our economic system so that more inclusive economies spread the benefits of rising prosperity widely and reduce the environmental damage we cause. We can do so by bringing impact to guide the pursuit of profit so that our economies deliver the solutions we need.
We have taken big steps in this direction since the first edition of this book. Most notably, we now have a $5 trillion sustainable finance pool, of which performance-linked sustainability bonds and loans account for $700 billion. At the same time, impact accounting has
taken a huge leap forward. This convergence of financial markets and impact transparency is accelerating the progress we need.
While political headwinds inevitably arise during periods of great transition, if our system does not adapt to contain climate change, natural catastrophes will multiply. This will affect consumer preferences and drive innovation to bring technological solutions. Impact accounting will reveal that risk–return–impact decisions deliver better returns for investors while simplifying reporting. Together, these factors will boost momentum for impact investment and bring us closer to impact economies.
This edition comes with my reinforced conviction that we have found the way forward. Putting impact alongside risk and return when we make decisions is the solution. In the pages of this book, every one of us can find a meaningful role to play in creating a fairer and more sustainable world.
INTRODUCTION
Nearly25 years ago, I gave a speech at an event to celebrate the thirtieth anniversary of Apax Partners, the venture capital and private equity firm I co-founded and led for so many years. I warned then that if we did not tackle the needs of those left behind more effectively, a ‘curtain of fire’ would soon separate the rich from the poor in our cities, countries and continents. We have recently seen this curtain rise in countries such as France, Lebanon and Chile, which have suffered violent protests, while in the UK rising inequality was a factor in the decision taken in the referendum of June 2016 to leave the EU .
Today, the gap between rich and poor has widened massively. Inequality is causing huge migration from poorer countries in Africa to richer countries in Europe, and from Central America to the US , in search of better lives. The challenges arising from absorbing these immigrants are exacerbating the inequalities that already exist in the host countries.
I have written this book because I can see that a solution is within our grasp; I call it the ‘Impact Revolution’. Fuelled by impact investment, it will allow us to address the dangerous inequality in our society and degradation of our planet, and will lead us to a new and better world.
The journey that led me to write this book began in 1998, when I took the decision that seven years later, at the age of 60, I would leave Apax in order to tackle social issues and try to help resolve the conflict in the Middle East. I did not want my epitaph to read, ‘He
delivered a 30% annual return on investment’ – I’d always known that life should have a greater purpose.
When I was 11, my family and I were forced to leave Egypt and were lucky enough to be accepted by the UK as refugees. We arrived with just one suitcase each, me clutching my stamp collection under my arm, fearing that it would be taken away from me. We were made welcome in our new home and started to rebuild our lives in London.
I received several breaks in life, including a first-class education at Oxford and then at Harvard, where I discovered venture capital just as it was emerging. I received a Henry Fellowship, which paid for my first year at Harvard Business School but required me to bring something of value back to the UK after my studies. I ended up bringing back venture capital, for which I was knighted in 2001. Giving back is an important aspect of my values. Just as I was helped when I was in need, I want to help others. Part of the reason I became a venture capitalist was that I knew it would enable me to help create jobs at a time of high unemployment. As I saw social problems spreading during the 1980s and 1990s, I remained motivated to make a difference. I hoped that by leaving Apax at the age of 60, I could devote 20 years to these issues and have a chance to make a real difference.
I co-founded Apax when I was 26 and built it into a global private equity firm with offices across the world, and it now manages more than $80 billion.1
Throughout my career, I have played many different roles: as an entrepreneur, as an investor, as a philanthropist and as an advisor to governments. Each of these roles has given me the opportunity to view the world from a different perspective. These experiences have led me to understand why capitalism is no longer answering the needs of our planet, and that there is a new way forward. In this book, I propose a new solution that we can each put into action. Things cannot continue as they are. As inequality surges in
developed and developing countries alike, social tensions rise and those who have been left behind feel that they will be permanently stuck there. Our system does not seem fair to them, and so they rebel against it.
At the same time, environmental challenges threaten the quality of life on the planet and possibly its very existence. Our current economic system cannot correct this threat: governments do not have the means to cope with our human-made social and environmental problems, nor are they well placed to develop innovative approaches to tackling them, a process that inevitably involves risky investment, experimentation and occasional failure.
The governments of countries in the Organisation for Economic Co-operation and Development (OECD ) are already spending more than $10 trillion every year on health and education;2 this is the equivalent to 15% of their GNP, double what was spent 65 years ago. Governments are constrained by budgets and feel unable to spend more, and yet this is still not enough. Philanthropy can only do so much to help governments meet these challenges: philanthropic foundation donations stand at an estimated $100–200 billion each year globally, a small figure relative to government expenditure.
There is, therefore, an obvious need for a new system, a need that has been publicly recognised by leading figures in finance and business. Until now, however, we have spent a great deal of time diagnosing our system’s problems and precious little time proposing real alternatives to capitalism, leaving us feeling stuck, with no way forward.
Humankind has made enormous progress. We are capable of finding the right answer, of shifting to a new system that distributes opportunity and outcomes more fairly and proposes effective solutions to our great challenges. We need a new system where, for both moral and prudential reasons, a sense of mission reins in self-interest; where contribution confers greater status than
conspicuous consumption; where firms that demonstrate social and environmental integrity are more successful than those that are simply self-interested; and where individuals and organisations are encouraged to find fulfilment in being part of something bigger than themselves, rather than in striving just to make money.
This new system is impact capitalism. It aligns the private sector with government, so that the two work in harmony rather than opposition, harnessing capital and innovation to solve social and environmental issues.
It attracts capital from investment markets, in much the same way as private capital has funded entrepreneurs to help bring about a revolution in technology over the last four decades.
It marries social and environmental impact with profit, overthrowing the tyranny of profit and placing impact firmly by its side, to keep it in check. It has been evident in our changed preferences: we are increasingly choosing to buy products from companies that share our values; we are investing in companies that do not pollute the environment or use child labour; and we are working in greater numbers for companies that have inspiring social or environmental goals.
The fuel of the capitalist system is capital, so it is not surprising that impact investing is a manifestation of the new system. Just as venture capital was the response to the investment needs of tech entrepreneurs, so impact investment is the response to the needs of impact entrepreneurs, investors and businesses that want to improve lives and conserve the planet.
The Impact Revolution is already transforming the way we think about social responsibility, business models and investment. It is beginning to change our economies, turning them into powerful engines that drive capital to achieve impact alongside profit. We can already see it marking the twenty-first century as much as the Tech Revolution marked the twentieth.
Impact investing is about creating a chain reaction. One that
brings innovation to the five groups of stakeholders we will examine in different chapters of this book, whose engagement is crucial to tackling massive social and environmental challenges at scale. One that changes the mindset and behaviour of investors, philanthropists, entrepreneurs, social organisations, big business, governments and the general public and places impact at the centre of our decision-making.
Much of the impetus for me to develop impact investment has stemmed from the work of the Social Investment Task Force (SITF ), which I established in the UK in 2000 at the request of the UK Treasury.
Later in 2013, in light of the progress which had been made, the British prime minister David Cameron asked me to lead the G8 Social Impact Investment Taskforce, in order ‘to catalyse a global market in social impact investment’. When Russia left the G8 in 2014, the geographic scope of the taskforce included the US , the UK , Japan, France, Italy, Germany and Canada, to which we added Australia and the European Union as observers. We set about organising more than 200 people across these countries in eight national advisory boards and four working groups.
A striking conclusion emerged from our work: we realised that a deep change was occurring, as the world was shifting from one where decisions were made on the basis of risk and return to one where impact was an essential third dimension. The social impact bond (SIB ) – a new way of investing that ‘did well’ at the same time as ‘doing good’ – was the first expression of this fundamental change.
Our findings were articulated in a report, ‘Impact Investment: The Invisible Heart of Markets’, published in September 2014.3 It included the endorsement of figures ranging from Pope Francis, who urged governments ‘to commit themselves to developing a market of high-impact investments and thus to combating an economy which excludes and discards’, to the former US Treasury
Secretary Larry Summers, who called it ‘ground zero of a big deal’. The report kicked off an impact movement to spread the idea across the world.
Soon after the report appeared, the British government asked me to lead the effort to expand the work of the G8 Social Impact Investment Taskforce globally. And so, in August 2015 I co-founded the Global Steering Group for Impact Investment (GSG ) and took over as chair to continue the work that the G8 Social Impact Investment Taskforce had started. The GSG recruited most of the G8 Social Impact Investment Taskforce board members and quickly admitted five new countries: Brazil, Mexico, India, Israel and Portugal.
Under the leadership of Amit Bhatia, its inaugural CEO , and then his successors Cliff Prior and Elizabeth Boggs Davidsen, the GSG has expanded to 50 countries, engaging over 2,000 impact leaders across the boards of its national partners.4 Driving to ‘innovate, agitate and orchestrate’, it has become the leading force advancing impact investment across the world.5
In 2007, I felt that something fundamental was changing. I could tell that social investment would be the next big thing and wrote about it in my first book, The Second Bounce of the Ball. Now, nearly two decades later, I believe that impact will bring about as great a change as the Tech Revolution.
Impact thinking is changing our investment behaviour, just as innovative thinking about measuring risk did 50 years ago. Risk measurement resulted in portfolios whose risk is diversified across many different asset classes, allowing them to capture the high returns of higher-risk investments like venture capital and investment in emerging markets. Impact measurement will now transform our economies and reshape our world.
For me, the breakthrough in impact thinking came in September 2010, when for the first time we linked the measurement of social impact to financial return. The first SIB , the ‘Peterborough
SIB ’, tackled the reoffending rate of young male prisoners released from Peterborough jail in the UK . Until the arrival of SIB s, conventional wisdom had it that nothing in the social arena could be measured. How can you measure an improvement in the life of a prisoner who avoids going back to prison? With 314 SIB s and DIB s (development impact bonds are SIB s that address challenges in developing countries) today tackling more than a dozen social problems in over 40 countries, it has become clear that by linking improvements in social and environmental outcome to a financial return we can hand the keys to the investment market to leaders of charitable organisations.6 By doing so, we have given social entrepreneurs the financial freedom they lacked to develop innovative solutions to our biggest social challenges.
According to the Global Impact Investing Network’s (GIIN ) 2024 report, the impact investing market has grown to $1.6 trillion.7 This does not take into account the $700 billion pool of sustainability-linked bonds and loans (SLB s and SLL s), which has been inspired by the SIB. SLB s and SLL s are debt securities where the interest paid by the borrowing corporation falls if it achieves measurable environmental or social targets.
The creation of the SIB was an early sign of the impact innovation that is occurring today. Just like the software and hardware firms of the 1980s and 1990s, innovative ‘impact’ organisations, both non-profit ‘social organisations’ and ‘purpose-driven businesses’, are bringing creative disruption to the existing models of entrepreneurship, investment, big business, philanthropy and even government.
This book introduces a new theory about how the Impact Revolution will enable us to achieve systemic social and environmental improvement, and puts its progress in perspective. It examines the trends affecting different groups in our society and how these groups influence one another, creating momentum for change across our whole system.
IMPACT
Chapter 1 introduces the Impact Revolution and the powerful innovative thinking that drives it: the triple helix of risk–return–impact. It shows how the Impact Revolution resembles the Tech Revolution that preceded it.
Chapter 2 examines impact entrepreneurship and looks at how young entrepreneurs are redefining disruptive business models that improve lives and the planet, in addition to generating financial gain.
Chapter 3 addresses the role of investors, who are already driving businesses to integrate impact into their decision-making about products and operations.
Chapter 4 turns to the effect of the Impact Revolution within big corporations. Influenced by the changing preferences of consumers, employees and investors, and sometimes by the business models of smaller competitors (discussed in Chapter 2), big companies have started to embed impact in some of their activities and product lines.
Chapter 5 considers the new model of philanthropy that is emerging in response to impact thinking and innovative impact tools. We look into the use of outcome-based philanthropy and foundation endowments to maximise improvement in lives and the environment.
Chapter 6 explores how impact approaches and tools can help governments solve bigger problems, faster.
Chapter 7 explores how impact economies can help resolve the visible tension between capitalism and democracy.
Finally, Chapter 8 charts the way ahead. We cannot persist with a system that does not actively seek to create positive impact, while at the same time creating negative consequences that governments have to spend a fortune trying to redress. We must transform our economies so that they generate solutions rather than problems. And much is at stake – billions of people’s lives depend on the success of the Impact Revolution. There has never been a more
tangible opportunity to make a transformative difference, and each of us has a significant role to play in making it happen.
The economist Adam Smith famously introduced the ‘invisible hand of markets’ in The Wealth of Nations at the end of the eighteenth century, to describe how everyone’s striving for profit results in everyone’s best interests being served. His first book, The Theory of Moral Sentiments, was about the ability of humans to act out of empathy and altruism. Had he known that we would be measuring impact in the twenty-first century, he might well have combined his two books into one, and written about impact as the invisible heart of markets that guides their invisible hand.
THE IMPACT REVOLUTION: RISK–RETURN–IMPACT
We must shift impact to the centre of our consciousness
We cannot change the world by throwing more money at old concepts that no longer work – we need new concepts and approaches. New words are coined to capture new ideas, which is as true of economics as in the world of scientific discovery.
What does impact mean? It was in 2007, at a meeting hosted by the Rockefeller Foundation at its Bellagio Centre in Italy, that ‘impact investing’ was coined as a term to replace ‘social investment’. In its simplest terms, impact is the measure of an action’s benefit to people and the planet. It goes beyond minimising harmful outcomes to actively creating beneficial ones. It has social and environmental dimensions, which are often interconnected. It represents genuine social progress: educating the young, feeding the hungry, healing the sick, creating employment and providing
livelihoods for the poor. Environmental impact is just what it sounds like – the positive consequences of business activity and investment on the planet. Put simply, are we preserving the planet and passing it on to future generations in better shape, so they can benefit from it and do the same?
Impact needs to be brought to the heart of our society and take its place at the centre of our economic system
Impact needs to be brought to the heart of our society and take its place at the centre of our economic system. Our current system encourages decisions that are based on how to make as much money as possible with the lowest level of risk; we need to shift to a system that encourages making as much money as possible but in a way that is consistent with achieving the highest impact and with the lowest level of risk.
Impact must become ingrained in our society’s DNA , part of a triple helix of risk–return–impact that influences every decision we make regarding consumption, employment, business and investment. It needs to become a driving force of our economy.
When we follow this new model, the social and environmental benefits of our decisions become central to our thinking rather than a mere afterthought. But to channel this new way of thinking into social and environmental improvement, we need to be able to measure impact dependably.
Though we take the prevailing model of risk and return for granted, it wasn’t always the dominant model. Up until the twentieth century, business owners and investors only measured how much money they stood to make when deciding how to allocate capital. It wasn’t until the second half of the twentieth century that the measurement of ‘risk’ was formally introduced and that it became natural to quantify risk and look at its relationship with return.
Risk is defined as the likelihood of adverse outcomes that could cost investors money. It sounds like an indefinable concept, and it used to be considered unmeasurable, but the academic community eventually found ways to standardise its measurement across all forms of investment; by the end of the twentieth century, everyone was talking about and measuring it in the same way.
The measurement of risk has had profound implications for the investment community. It introduced new theories like portfolio diversification, which gave rise to new asset classes that came with a higher level of risk, but also disproportionately improved returns. These new asset classes included venture capital, which funded the Tech Revolution, private equity and hedge funds. It also allowed new investment themes to take hold, like investment in emerging markets, which funded globalisation.
If we fast-forward to the present day, we see that the same revolution that risk brought is now being brought by impact. Investments are increasingly examined for their positive and negative impact, and investors and businesses are becoming interested in factoring impact into their decision-making. Is it harder to measure than risk?
Not at all – in fact, one can argue that it is easier. All over the world, people are developing methods to measure impacts in quantity terms, and regulators, such as the European Union, the Securities Exchange Commission of the US , and the IFRSF (International Financial Reporting Standards Foundation), which covers the whole world except for the US , are actively implementing them.
One organisation I chair, the International Foundation for Valuing Impacts (IFVI ), a spin-off from Harvard Business School, is expressing impacts in standardised monetary terms, integrating them into financial analysis and the valuation of companies.
The Impact Revolution promises to be just as world-changing as the Industrial Revolution or the more recent revolution in tech. It is a peaceful movement started by young consumers and entrepreneurs, who are disrupting the prevailing business models once
again, but this time in order to improve lives, reduce inequality and protect the planet.
the tech revolution
It has been amazing to see how, within just a few decades of my life, new tech companies have overtaken giants that long dominated their field. Once-obscure start-ups such as Amazon, Apple, Google, Meta and Tesla have rocketed to the top 30 most valuable companies in the world in just 30 years.1 We all know the stories of entrepreneurs who through their talent and drive have come up with new ways to solve old problems, pioneered invaluable new technologies and reshaped our modern world.
Of course, breakthroughs like this don’t occur in a vacuum: one of the key factors that gave rise to the scale and speed of the Tech Revolution was the ready flow of venture capital investment, now a sector worth $2.7 trillion.2 If you told someone you worked in ‘venture capital’ 50 years ago, you would have been met with a blank stare.
Invented after the Second World War, venture capital gained a foothold in Silicon Valley in the 1970s and 1980s, and spread globally as the idea of investing in small, high-growth tech companies took off. Beyond their technical ingenuity, the skill of those early entrepreneurs lay in convincing investors there was money to be made by breathing life into their visions. Investors evaluate success based on profit, balancing the threat of risk and the potential for return. When they decided to invest in those early-stage tech companies, they were taking a leap of faith.
In the early 1980s, I was one such investor. The firm I co-founded, Apax Partners, invested in nearly 500 pioneering start-ups, each of which was intent on making an indelible mark on its field. Our investments included PPL Therapeutics, the company responsible for Dolly, the world’s first cloned sheep, Apple and AOL .
One of the main reasons I became a venture capitalist was my feeling that I could make a positive impact on society while also doing well financially. Apax Partners backed hundreds of entrepreneurs who enriched themselves, as well as the people working with them and their communities. They created many thousands of jobs in new fields ranging from technology to consumer products and media. I believed that providing new sources of revenue and jobs to improve people’s lives would elevate society as a whole.
However, as the years passed, I could see that the gap between rich and poor was widening. Some companies ended up doing more harm than good, and things got worse rather than better for many people at the bottom of the social pyramid. In the UK , even with the extension of the welfare state providing a safety net, poverty is still a huge challenge, and economic opportunity for the needy failed to expand meaningfully. The story is similar for the rest of the world. Although 60 million jobs were created in the new tech sector in the US , social and economic inequality continued to spread.
Part of the problem was due to supply and demand. The new skills required for tech jobs depended on higher-level education and so were in short supply. Firms competing for the talent drove tech salaries upwards, just as salaries in low-growth sectors were shrinking. The confluence of globalisation, new technology that replaced workers and the flow of equity capital and cheap debt raised financial returns for the 1%, while competition for qualified talent contributed to making the rich richer and the poor poorer.
By 2000, it was clear that this model was failing society. The Tech Revolution had created incredible wealth and many social benefits, but huge social and environmental problems continued to plague our world, some of which had been made even worse. The relentless consumption of our natural resources raised global temperatures, leading to the loss of wildlife, deadly wildfires, flooding and the destruction of the biodiversity on which our existence depends.
In his book, The Crisis of Democratic Capitalism, Martin Wolf, the
Chief Economics Commentator at the Financial Times illustrates just how great this gap has become in countries such as the US , Japan, Germany and the UK . As an example, he highlights that ‘the ratio between the average chief executive pay and employee pay in the US was 42 to 1 in 1980, and 347 to 1 in 2016’. Similarly, he notes that, in the US , ‘over the period 1993–2015, the cumulative real growth in incomes of the top 1% was 95% compared with 14% for the remaining 99%. As a result, the top 1% captured 52% of the increase in real pretax incomes’.3
If we do not fix these problems, the results could be catastrophic, so we need a new revolution in our thinking. We need new solutions that address both our social and environmental challenges – two streams that are now converging, as climate change leads to forced migration. But where will we find our bold solutions? If neither governments nor the private sector have been able to bring the urgently needed improvement at scale, perhaps the answer lies in changing our economic system.
the Birth of Impact
I began to realise that we needed a system that aligned the interests of business, investors and entrepreneurs with those of government, nonprofit organisations, philanthropists and impact enterprises and drove them to work together to improve lives and the environment. But what could that look like? The answer turned out to be very simple: social initiatives needed to be connected to investment, which would enable entrepreneurs to finance purpose-driven businesses and charitable organisations. It would allow us to harness entrepreneurial talent and innovation to tackle old problems in new ways.
Just as tech entrepreneurs were able to bring about change with the help of investment capital, impact entrepreneurs can make