“The force of impact transparency through technology and big data is going to shift our economies from creating problems our governments try to solve with taxes to businesses delivering solutions while making profits.”

Sir Ronald Cohen is Chairman of the Global Steering Group for Impact Investment and The Portland Trust. He is a co-founder director of Social Finance UK, USA, and Israel, and co-founder Chair of Bridges Fund Management and Big Society Capital.

He is the author of 'IMPACT: Reshaping capitalism to drive real change,’ published by Penguin Random House in 2020, which became a Wall Street Journal Bestseller. His previous book 'The Second Bounce of the Ball,' published in 2007, was described by the Financial Times as “one of the best books written on entrepreneurship in recent years.״

In this episode, Sir Ronald Cohen discusses the growth of ESG and impact investing and its role in addressing some of the world’s biggest challenges. He explains how technology and big data enable impact transparency so consumers and investors can understand the full scope of a company’s ESG impact. Cohen envisions more business models where economic efficiencies align with maximum positive impact.

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MODERATOR

SPEAKER

Sir Ronald Cohen

Chairman

Global Steering Group for Impact Investment

FULL BIO

TIMESTAMPS

0:00 - Intro

2:49 - Growth of ESG

5:44 - Measuring impact investments

9:38 - Investing transformations among younger generations

11:07 - Impact transparency via technology and big data

14:30 - Addressing intractable global conflict via impact investing

16:17 - Impact investing and climate change

19:02 - Impact unicorns

21:57 - Pressure on fossil fuel companies from institutional investors

23:14 - Aligning impact with economic efficiency

25:27 - Long-term effects of COVID

EPISODE TRANSCRIPT

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John Darsie: (00:07)
Hello, everyone. And welcome back to SALT Talks. My name is John Darsie. I'm the Managing Director of SALT, which is a global Thought Leadership Forum and networking platform at the intersection of finance, technology and public policy. SALT Talks are a digital interview series that we started in 2020 with leading investors, creators and thinkers. And our goal on these talks is the same as our goal at our SALT Conferences, which is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And there's no bigger idea in our opinion, in the investment management world today than the idea of ESG investing, which can take on many forms. But our guest today is going to talk in-depth about concrete steps that we can take to measure and implement both social and environmental friendly investing and business operations as well.

John Darsie: (01:02)
And our guest is Sir Ronald Cohen. He's a pioneering philanthropist, a venture capitalist, private equity investor and social innovator. He serves today as the Chairman of the Global Steering Group for Impact Investment, which is the Impact-Weighted Accounts Initiative at Harvard Business School and the Portland Trust. He is a co-founder and the former executive chairman of Apax Partners worldwide, which is a global private equity firm. He's also a co-founder of Social Finance UK, USA and Israel. And co-founder and chair of Bridges Fund Management, and the former co-founding chair of Big Society Capital.

John Darsie: (01:39)
Ronnie was born in Egypt, but left as a refugee at the age of 11 when his family came to the UK. Today, he's based in Tel Aviv, London and New York. He's also the author of a fantastic book called, Impact: Reshaping Capitalism to Drive Real Change, which was published in 2020 by Penguin Random House. And it's also a Wall Street Journal bestseller.

John Darsie: (02:01)
Hosting today's talk is Anthony Scaramucci, who's the Founder and Managing Partner at SkyBridge Capital, which is a global alternative investment firm. Anthony's also the Chairman of SALT. And with that, I'll turn it over to Anthony for the interview.

Anthony Scaramucci: (02:14)
Ron, thank you so much for being on with us. I know John's got a series of questions for you as well. I'm going to start with something that troubles me philosophically, and maybe you can help me through it. And it's related to the government and the private sector, recognizing that there is a problem and yet, for some reason we are not coordinated as a group to solve the problem. And so, how can we tap the financial markets to harness innovation and steer social change, which is the premise of what you're writing about?

Sir Ronald Cohen: (02:49)
So, Anthony, it's great pleasure to be here with you. And John, you come from the financial business and you understand it deeply. The financial capital markets have already cottoned on that the world is changing. We have $40 to $70 trillion of environmental, social and governance capital. That's flowing to achieve more than just profit. We've never had that before in history. We're talking of something that's equivalent to half or more of all professionally managed assets in the world.

Sir Ronald Cohen: (03:36)
And it is this flow of capital which was spurred into action by the changing preferences of consumers and [inaudible 00:03:45] to longer wanted to buy the products of companies that are polluting or to work for them. That got investors to shape investment flows and put pressure now on governments, through their regulators, to bring transparency to the impacts that investments create. So that is how the link between government and the private market is going to happen.

Anthony Scaramucci: (04:19)
I don't want to sound pessimistic. But I feel somewhat pessimistic about all of this because we all know what the problems are. And yet we don't see that linkage. So, where is the catalyst for that?

Sir Ronald Cohen: (04:36)
Okay. So the catalyst is this coming from the valuations that are being placed on stock exchanges. If you look at the Harvard data that I have been involved in putting together at the Impact-Weighted Accounts Initiative at Harvard Business School, you can already see, Anthony, a correlation between higher levels of pollution and lower stock market values within several sectors. So investors are shunning the companies that are creating big environmental issues today. And that is what is driving this change. That's why you are seeing companies now beginning to take this whole issue of impact seriously.

Anthony Scaramucci: (05:31)
So tell somebody that's not familiar with the term common impact accounting and those reporting standards. Tell them, or tell all of us what they are.

Sir Ronald Cohen: (05:44)
Okay. So we've all assumed that we can measure very little in the environmental or social area. And that we can't measure impacts in the way that we measure profit. The world's changed, Anthony. That was true a decade ago, but it's no longer true. With the massive data that is available now, that companies have made public about their carbon emissions, their water usage, their employment practices. And with the ability of computing to gather and sort through this data.

Sir Ronald Cohen: (06:24)
We can now take the tons of carbon that a company puts into the atmosphere as a result of its operations. And we can see on the Harvard Business School site, 3,000 companies' environmental impact. For the first time, you can see that 450 of these companies create more environmental damage than profits. That 1000 of them create environmental damage equivalent to a quarter of their profit. That together they create $4 trillion worth of environmental damage in a single year, right? And this is putting a completely different perspective on making investment decisions. Because if the level of damage is going to affect the stock market valuation of the company, then management's going to want to deal with it.

Sir Ronald Cohen: (07:22)
And what is also a major breakthrough, Anthony, in answering your question, is our ability to measure the employment impact of companies. We will soon be publishing 2000 companies' employment impact in dollar terms. You'll be able to look at the cost of diversity to the excluded communities. You'll be able to look at Apple's wage bill of 7 billion and say there's a $2.7 billion negative charge because of lack of diversity. And if you compare it with Costco, while Costco employs twice as many people, 160,000, but it only has $1 billion negative charge.

Sir Ronald Cohen: (08:09)
So when you then add to that [inaudible 00:08:14] and you can measure the sugar content of a product, then you can quantify the impact on health, process a lot of science about it, and express it in dollar terms. Or, you can measure the fiber content and you can put the positive value that that has in terms of health. You can begin to see that is a whole form of impact accounting now, which is going to be based on impact accounting principles like the GAAP accounting, that we're all used to in doing financial markets, and these numbers are going to be audited like financial numbers.

Anthony Scaramucci: (08:55)
Okay. It's very helpful. And it's also very encouraging. I have millennial children. And my very popular co-anchor here, John Darsie, happens to be a millennial. And some people pick on the millennials. They talk down to them, but not me. I actually think that these are some of the brightest people. And I think this is a very encouraging generation.

Anthony Scaramucci: (09:20)
And what influence do you think they're going to have in terms of allocating capital, the transparency issue that you talk about, the impact transparency, where we can see what companies are doing? How do you think the younger people and the millennials in particular are going to drive change or create [crosstalk 00:09:37]?

Sir Ronald Cohen: (09:38)
So, like the tech revolution, the impact revolution was started by millennials and then Gen Z that follows them. So they were the ones who started [crosstalk 00:09:49].

Anthony Scaramucci: (09:48)
I have some of those too, Ronnie. I have a couple of Gen Z or [inaudible 00:09:51] kids too. I got a whole collection.

Sir Ronald Cohen: (09:54)
People don't realize that millennials and Gen Z today represent 60%, 6, 0% of the US workforce. This is no longer the minority view, the views of millennials. And they're the ones who stopped buying certain products from certain companies. And they're also the ones who are going to inherit a ton of money, which was made by their parents. And that they are beginning to influence the investment market, having influenced the market for product. And so, I think the values of this generation is one of the three major forces that are transforming our world for the better.

Anthony Scaramucci: (10:46)
You've been working on this a long time. And you've seen a lot of things over the course of your career, and it's impossible to predict the future. But I want you to make a case for 2031. It's 10 years from now in our civilization, what does it look like, sir?

Sir Ronald Cohen: (11:07)
So we're going to find the different shopping. We're going to be using an app which gives us the environmental and social impact of the product we are buying and the company that brought it to our shelves.

Sir Ronald Cohen: (11:25)
If we're sitting in the boardroom, we're going to be managing our business according to the profit we make and the impact that we deliver. We're going to realize that if we're delivering negative impact and negative profit, we're done for. But if we're delivering profit and negative impact, we're going to be done for too. Because investors aren't going to buy our shares.

Sir Ronald Cohen: (11:58)
And so I believe that this force of changing values, the force of technology that enables us to deliver impact through artificial intelligence, machine learning, augmented reality, the genome and computing coming together and finally, the force of impact transparency through technology and big data. Those forces are going to shift our whole economies, Anthony, from creating problems that governments then trying to solve by taxing everyone, to bringing business to deliver solutions as it delivers profits.

Anthony Scaramucci: (12:43)
When you think about ESG and the focus effectively is on eliminating harmful outcomes, what would it mean to you to actively focus on creating good outcomes? So we have two things going on at once. How do you create the second?

Sir Ronald Cohen: (13:05)
Excellent question. The answer is impact transparency. If governments through their regulators, because they want every investor to get the same price sensitive information at the same time on their comparable basis, mandate that every company starting 3 years from now must publish impact-weighted financial accounts, which are audited like financial accounts are, it will enable investors to distinguish between those that are minimizing the harm they do and those that are bringing solutions to the big problems we face. And the money at the end of the day, is going to go to those who know how to deliver the maximum profit and positive impact at the same time.

Anthony Scaramucci: (13:58)
Let's talk about global conflict for a second. We've got the hotspots still in the world, in the middle east parts of Africa, and there's also major pockets of poverty still in our societies. How can we solve those intractable issues, which would include the Israeli-Palestinian conflict, but also extremism that we find in Africa?

Sir Ronald Cohen: (14:30)
It's a very big question. And every conflict obviously is different in kind. But if you look at the Irish conflict, it gives you the beginning of an answer for conflicts like the Israeli-Palestinian one and many others. The solution that brought Ireland to the Good Friday Agreement involved cutting the flow of money to the terrorists and inverted commas, "from the other side's point of view," terrorist organizations, so that they no longer had the supply of arms. It also involved a rising economic path. Because of Ireland entry into the European union, which made the Northern Irish look less suspiciously at the Southern Irish. All of a sudden they were prospered. There is an economic interest in cooperation. There was less fear that they were trying to grab what you've got. And so I think the simple answer to your question is we have to work on three dimensions of every conflict. Not just the political one and the security one, but the economic one, too.

Anthony Scaramucci: (15:58)
We're starting to see more technology in the impetus to remove carbon from the atmosphere. That's happening. How promising is the recent innovations addressing climate change? And are we seeing a willingness for energy companies to focus on these issues?

Sir Ronald Cohen: (16:15)
Two very important questions. We're certainly seeing a huge amount of money going into clean fuel technologies or carbon absorption technologies. And the phase of technological innovation is accelerating all the time. So our ability to bring solutions is vastly greater than it was three decades ago when the tech revolution was getting underway.

Sir Ronald Cohen: (16:50)
But what is going to drive the push for technology is the pressure on the incumbents today to shift their models. For instance, look at fossil fuel. If you look at the Harvard Business Group data, you can see that ExxonMobil delivers $39 billion of environmental damage in a year from its operations. Its environmental footprint, as it's called. You can compare it with Shell, the figure's 23 billion a year. You compare it with BP, it's 14 billion a year. So you already see leaders and laggards within the same sector. And so at the same time, ExxonMobil's share price falls by 2/3 in three years. You look across the way of Tesla, which is trying to shift us away from pollution through electric vehicles, and the share price multiply seven times in a single year.

Sir Ronald Cohen: (17:56)
So the power of financial markets today to drive technological advance both by the incumbents and through the venture capital industry and entrepreneurship, is going to be, what's going to bring this second disruption, this impact disruption. This time aided by technology to change the business models of many industries in the way that Tesla has changed the business model of the automobile industry.

Anthony Scaramucci: (18:30)
This is an impossible question. But this will be my last one before I turn it over to John Darsie who has a series of questions as well. And it's about the unicorns of the future.

Anthony Scaramucci: (18:41)
What are we going to see as investors in terms of emerging technologies related to impact investing? Is there a Uber or a Google, a SpaceX out there that's in the process of being formulated today that we need to be aware of or keep our eyes on?

Sir Ronald Cohen: (19:02)
There definitely are. My definition of impact unicorn in my book is a venture that is worth $1 billion, and improves the lives of 1 billion people. And I think that's what the millennial and Gen Z, the generations are looking for. Whether they're working for a big business or whether they are entrepreneurs.

Sir Ronald Cohen: (19:31)
You look at fields like education today. Our ability to educate people by digital means enables us in essence, to give some people, a free education that they pay for after their earnings, when they've got into their job, after they'd been educated. They're going to be models like that. There're already are some startups like that, that they've got going. And they're arising by the way, everywhere or across the world. They're going to revolutionize our approach to education.

Sir Ronald Cohen: (20:11)
Telehealth. I don't need to tell you how Telehealth has grown the impact of COVID. We are going to see remote diagnosis. We're going to see remote treatment. We're going to see new technologies come in to give us much faster testing. We've learned our lesson with testing, through COVID in difficulty in getting testing going fast enough. It's something we can't afford to do when there's another epidemic. So, we're going to begin to see giant opportunities in many sectors coming from this delivery of risk, return and impact.

Anthony Scaramucci: (21:01)
John Darsie, what do you got to say?

John Darsie: (21:04)
You asked a lot of great questions, Anthony. But I have a couple of follow-ups. Sir Ronnie, if you don't mind? You talked about Exxon...

Anthony Scaramucci: (21:11)
Sir Ron, if he asks a good question, I don't want you to say, "Good question," though, okay? I want you to just stay... I had the good questions. Okay. Go ahead, Darsie.

John Darsie: (21:20)
You talked about Exxon, Sir Ronnie, which I think is a fascinating case where Engine No.1, it's a small hedge fund that we have a relationship with, and we're looking forward to welcoming on SALT Talk soon. They won a proxy fight with a very modest amount of resources with Exxon trying to drive more urgency around their climate issues. Do you think you'll see more activism and more pressure put on these energy companies from whether it's hedge funds or government entities or things like that to accelerate what they're doing in terms of carbon capture and limiting their environmental impact?

Sir Ronald Cohen: (21:59)
Undoubtedly, John. Undoubtedly. The conversations I've been having suggest that there're already 200 motions have been tabled on both environmental and social issues. For shareholders, the meeting's coming up. Activist funds are getting, going. But they're not doing it alone in the ExxonMobil case. BlackRock came in alongside Engine No.1 as you well know. And so it is part of the pressure that is being exercised by investors today that is transforming itself into this open impact revolution that I write about.

John Darsie: (22:41)
Right. And you talk a lot in your books and in your commentary about how the idea of profit and impact are not mutually exclusive, that actually investing in impact drives returns. What are some concrete ways? And you talk about this in your book in a very, I think lucid way, that with a business, whether it's a manufacturing business or a services business, what are ways specifically that investing for impact actually does drive enhance productivity and enhance efficiency within the business?

Sir Ronald Cohen: (23:14)
So I gave you an example in the area of education. That you have a model where you're enabling people in remote corners of the world to get qualifications as coders or other vocational areas, or even university degrees, and they're only paying for it afterwards. And you make a profit out of that. The more impact you deliver, the more profit you deliver. If you look at FinTech platforms that begin to assess the credit worthiness of a potential borrower for a consumer loan, on the basis of their usage of their firm, instead of looking at their bank account. Because they don't have one. The more credits you deliver, the more profit you will make.

Sir Ronald Cohen: (24:07)
If you look at pharmaceutical companies, it's great to have a breakthrough cancer treatment. But if it costs $300,000 a year to administer, how many people could afford it? And so you only invested in a company which has a cancer treatment, that costs $20,000 or less. And so I think what's going to become the rule, John, is these great impact business models are going to involve distributing products very widely, at lower prices to help more vulnerable populations. And it gives you a bigger market and potentially a bigger profit than if you stay at the premium high price end of the market with a very narrow client base.

John Darsie: (25:01)
Right. And let's talk about COVID-19 for a second. So we've seen a short-term impact on emissions, for example, because of reduced business travel, reduced commuting into offices and things like that, do you think there's going to be a long-term benefit or impact from COVID-19 in terms of emissions that we can sort of build off of as we sort of remake the way we operate business and operate our societies?

Sir Ronald Cohen: (25:27)
I certainly think that COVID has shaken up a lot of our beliefs and habits, John. And we'll get back to some of them. We're not going to go back to others, or at least not in the same extent. And the question that you asked about travel is a very important one. Here we are having a perfectly intelligible interview to thousands of people, or could be hundreds of thousands of people. And neither of us has had to jump on a plane in order for us to have this conversation. We're going to see that replicated.

Sir Ronald Cohen: (26:10)
But I think COVID is going to have a much deeper effect too. It's somehow strengthened the feeling that we're all in the same boat. We can't live this COVID crisis by just looking at ourselves and our neighborhoods, nor as our cities only, nor are countries now, or even our continents. And I think that feeling of greater solidarity connects with the millennial and Gen Z values that we were talking about.

Sir Ronald Cohen: (26:44)
And so I think COVID will have strengthened hugely the attraction of impact investing and will hopefully bring our governments, whether it be the US, so Biden Administration or the EU or the British Government to realize that impact transparency is now a human rights. We all have the right to know, not just what profit companies are making, but what good and what harm they're creating. And governments owe it to us to provide this transparency because investors, apart from anything else, investors are demanding it and they're not getting it today.

John Darsie: (27:33)
We're going to leave it right there on a positive note. That we can turn this unfortunate situation with all the suffering and death that we've experienced around the world from COVID and try to turn it into a positive and come together to solve some of these intractable issues that you write so eloquently about in your book, Sir Ronnie, and in all of your commentary. Keep up the good fight. Thank you for everything that you're doing, and hopefully we get to see you in person. It's great to see you on Zoom, but we'd love to see you in person soon.

Sir Ronald Cohen: (28:00)
Likewise, thank you very much, John and Anthony, of course.

Anthony Scaramucci: (28:01)
Thank you, Ron.

John Darsie: (28:06)
Thank you everybody for tuning into today's SALT Talk with the great Sir Ronald Cohen. Just a reminder, if you missed any part of this SALT Talk or any of our previous SALT Talks, you can access them on our website on demand@SALT.org/talks or on our YouTube channel, which is called SALT Tube. Please also follow us on social media. We're most active on Twitter @SALTConference, but we're also on LinkedIn, Instagram and Facebook as well. And please spread the word about these SALT Talks. On behalf of Anthony and the entire SALT Team, this is John Darsie signing off from SALT Talks for today. We hope to see you back here again soon.