#46 Book Summary: IMPACT - Optimizing Risk, Return, and Impact in Investing | Sir Ronald Cohen, Author

Sir Ronald Cohen is Chairman of the Global Steering Group for Impact Investment and The Portland Trust. In this episode, Sir Ronald and Daniel discuss how companies can optimize risk, return, and impact.
Last updated
August 14, 2023
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Sir Ronald Cohen co-founded and was Executive Chairman of Apax Partners Worldwide LLP and also founded the British Venture Capital Association and the European Venture Capital Association.
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#46 Book Summary: IMPACT - Optimizing Risk, Return, and Impact in Investing | Sir Ronald Cohen, Author

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“If you want to run a big successful company or a successful growth venture, you have to bring impact into your decision-making.” – Sir Ronald Cohen 

Sir Ronald Cohen (@sirronniecohen) is Chairman of the Global Steering Group for Impact Investment and The Portland Trust. He co-founded Social Finance UK, USA, and Israel, and is Chair of Bridges Fund Management and Big Society Capital. He has served as chairman, board member, and trustee of multiple international investment companies and organizations, and is a graduate of both the University of Oxford and Harvard Business School. He recently authored Impact: Reshaping Capitalism to Drive Real Change.

Chapters in this interview:

  • Sir Ronald’s background and career in venture capital
  • What is impact investing?
  • The second and third order effects of impact investing
  • The three major forces that increase gains with impact investing
  • Short term and long term decisions and how they affect impact in business
  • How we can measure a company’s impact
  • Why impact investing is so important right now
  • Early impact companies and their models
  • How larger companies are addressing impact
  • How companies can get started in making a positive impact
  • The future of impact investing

Links from this episode

Learn more about this topic

The UN’s Sustainable Development Goals

The UN has provided 17 ESG goals for large companies to adopt that will make a measurable positive impact.


Why Millennials and Generation Z Love Impact Investing – Entrepreneur

A quick look into how younger investors take social responsibility into account when investing.


Impact Investing: Your money doing good in the world—and your wallet – TED Talk by Kevin Peterson

A 10-minute video on how impact investing can make a difference.


Impact: Reshaping Capitalism to Drive Real Change, by Sir Ronald Cohen

Sir Ronald’s own book on his learnings and recommendations for impact investing.


30 Social Good Apps That Make It Simple to Impact the World Everyday – Cause Artist

A great list of apps for those wanting to focus more on social impact, including a few investment and funding apps. 


Key Takeaway

Sir Ronald summed up how entrepreneurs can make an impact with their businesses:

If you're an entrepreneur wanting to set up a venture today, find an issue you are passionate about solving, define a business model that helps to solve it and bring impact to decide the profit. The more impact you deliver, the more profit you make. And you will build the most profitable company—and you become a unicorn, but you become a unicorn that also improves the lives of a billion people.


Transcript

Daniel Scrivner:

So Ronald Cohen, it's a huge honor to have you on Outlier Academy. Thank you so much for your time and for coming on today.


Sir Ronald Cohen:

My pleasure Daniel.


Daniel Scrivner:

So we're going to be spending most of today talking about the book you just wrote, that just came out called, Impact: Reshaping Capitalism to Drive Real Change. And it's a fascinating book and it's super timely, but before we get too deep into the book, for people that are listening that might not know much of your background, can you just share a little bit of a quick sketch? There's a lot you could cover, because you've done a lot. You've done a tremendous amount, but if you can give us a quick sketch around investing in business and just the arc there that led up to writing this book?


Sir Ronald Cohen:

So, as you know Daniel, I was born in Egypt, left Egypt as a refugee, I came to the UK, I was lucky enough to go to Oxford and then Harvard Business School where I discovered venture capital. I was one of the co-founders of Apex Partners, today, more than $60 billion under management in private equity. In those days, we invested in venture capital and private equity. And as I came to my 53rd birthday, I said to my partners, I'm going to leave Apex to you, and I'm going to devote my time to two major issues. One is social issues and how we address them. And the other one is peace in the Middle East. And that put me on the path to impact investment.


Daniel Scrivner:

I'm curious, What I wanted to explore a little bit is your own personal journey, because obviously the book is about, and we'll get into in a second. I think it will be a fun exercise to contrast the old way of doing business and what that meant and what that looked like with the new way of doing business, where impact is really woven into the DNA and ethos of a firm. And I was curious, I imagine you have your own personal arc in the investing in business that you did. Can you talk a little bit about that? How your approach to investing in business has changed over your years?


Sir Ronald Cohen:

Well, to put it very simply my career in venture capital and private decorative was about optimizing risk and return. Uncertainty was my friend. I invested in risky situations. I backed young entrepreneurs trying to do major things or invested in entrepreneurs, trying to improve the profitability of businesses. Since 2000, I've been working on optimizing risk, return and impact. And that's what impact investment is about, doing good and doing well. And I believe it actually delivers better returns and adjust optimizing risk return.


Daniel Scrivner:

So maybe we can start getting into, I guess, first laying a little bit of the foundation for the old way. And you articulated it there of, I guess, as an investor, you're really focused on risk and return. But as an entrepreneur, another way to say it would be that the old way of doing businesses, you were primarily focused on a single stakeholder, which was the investor. So in your mind, what does a stereotypical business doing business old way kind of look like? What are the commonalities there?


Sir Ronald Cohen:

It focuses on trying to maximize the return on your investment. It doesn't matter what consequences you've created in your way. If you create a climate issues through pollution, or if you are using child labor or underpaying your workforce or whatever, was secondary to it. And so, we found that a lot of businesses growing fast and making money, but creating problems in their way, which governments then have to step in to try to remedy by [inaudible 00:03:35]. That's the old way of doing business. Your success is measured by how much money you make and that's it.


Daniel Scrivner:

It seems like another way to say that would be like you're focused on first order consequences and not second and third order. So, as in that example, you've got a company that was producing emissions. They honestly, it seems like on the whole, they were like, well, that's not my problem. In fact, I'm not even going to talk about that or really own it. Is that part of it as well just lack of ownership?


Sir Ronald Cohen:

Totally. And Milton Friedman famously 50 years ago wrote his article in the New York Times. The purpose of business is business, it's to make money and nothing else should count. Well, that's led us to the climate crisis and the social tensions we face. So, we clearly have to do things differently. And impact is I believe already a transformation that has started. So we see young people like yourself, refusing to buy certain products of companies whose values they don't share, refusing to work for these companies. And the investors have noticed this and there's more than $14 trillion worth of environmental, social, and government money as it's called, which is taking impact into account when making investment decisions and trying to do good and do well at the same time.


Daniel Scrivner:

I think it would be helpful too, to maybe just flesh out a little bit of how you define impact. Can you talk about what all is embedded in that word?


Sir Ronald Cohen:

Impact is the effect that you have on people and planet. Positive impact is the connotation of it. And the whole concept of impact investing is that you have the intention to create impact as well as profit and you measure the impact that you've created. So, in that sense, the $1 trillion today of impact investment differs from the $40 trillion of ESG investing. They share the same intention, but ESG doesn't measure the impact. And we're in the process of bringing measurement to ESG and turning it into impact investing.


Daniel Scrivner:

On that ESG note, you had, one of the pieces I loved in your book. You talk about risk. You lay out that maybe the biggest change that happened in the 20th century was really people started embracing risk, thinking about it, trying to quantify it. So there's that piece. But then again, there's these amazing second and third order effects. And you talk about that through that there was new asset classes that were born. There was also a new focus on diversification.


Daniel Scrivner:

So, I'm curious maybe to take that idea that for risks, there's these first order effects of actually being able to quantify it, which is amazing in its own right, because I'm sure you start out being like, oh, this is undefinable thing. It's this vague amorphous thing. So you first define it. Then you have these second and third order effects that happen. What do you think the second and third order effects will be around impact investing. If there are?


Sir Ronald Cohen:

As we begin to measure impact in the reliable, verifiable, comparable way for every company, we begin to create a race to the top because investors are looking for the companies that know how to deliver both profit and impact. Hopefully maximizing both. Tesla could be an example of a company whose goal is not just to make money in the automobile industry, but to shifted away from the combustion engine as well. Now, when you provide that transparency, it changes the behavior of management. First of all, you begin to see, and we see it already in the Harvard effort I'm involved with, the impact rated accounts initiative at Harvard Business School. You begin to see that the companies that pollute more are worth less than they competitors. So that's because the ESG of impact money is shifting away from the companies that are doing harm.


Sir Ronald Cohen:

If you know ExxonMobil creates $39 billion of environmental damage a year from its operation alone, without the damage from the oil that goes on to the ground, and Shell delivers $23 billion of damage and BP #14, who are you going to invest in? And so, you begin to change the goal post for business, just making money means it's not enough. And if you want to attract the consumers and the talent and the investors, you better do good and do well at the same time. And actually, there are three major forces that lead us to make more money as a result of this approach than if we just optimize risk and return.


Daniel Scrivner:

Can you talk a little about what those three are? I know you cover them in the book and one is tapping into an entirely new size of market, finding these underserved areas or gaps in the market. What are the others?


Sir Ronald Cohen:

So, the first one is this massive change of values I refer to. So, if you want to get customers for your product more easily, and if you want to attract talent and if you want investors to seek you out. If you've got an impact dimension to your business model, that's a big advantage for you. And it's a competitive advantage relative to your competitors who may have been established much longer, but harm the environment or people as they make money. So, you can eat into their market share and eventually overtake them, as Tesla has started to do.


Sir Ronald Cohen:

The second major force is the force of technology. New technologies today enable us to deliver impact in ways humanity could never consider previously. So, whether it's tele medicine or the tele education or a myriad different ways of applying technology today, we can, as you say, reach much wider populations than ever before, reduce the price level of our service and build a faster growing more profitable company than if we did the traditional thing. You're focusing on the high margin customer and trying to make the most money out of a small number of customers.


Sir Ronald Cohen:

The third one is the transparency on impact, to the extent that we're going to see companies publishing impact rated financial accounts. Investors and consumers and talent and governments are going to be able to compare the performance of companies and capital will shift to those who are doing the best job of optimizing the three dimensions. Risk, return and impact. Now, when you take these three forces together, if you're an entrepreneur, it leads you to think, well, how can I manage to create a business model where the more impact I deliver, the more money I make.


Daniel Scrivner:

It's a very different question than just how do I make as much money as possible, even just in reframing that. There's one of the things I wanted to explore a little bit, which is, you don't really touch on it in your book, but as I've been thinking about it, as I've been reading it over these last few weeks, one thing that's come to mind is, in some ways it's like the old way of doing business was just everything was extremely short-term focused.


Daniel Scrivner:

You were very focused on this quarter. You were very focused on first order effects and consequences. You were purposefully ignoring or not thinking about or not taking ownership for all these other kinds of negative effects. And it seems like to truly be successful at weaving impact into your business, you give examples in the book as an example of Danone who set this 20 year 2050 carbon emissions target as well as a 2030 target. Even on that, they're thinking 30 plus years out. So, how much of this is short-term versus long-term thinking and how does that play into impact overall?


Sir Ronald Cohen:

So all businesses are combination of short-term and long-term decisions that have to be consistent with one another. Obviously, some aspects of impact take longer to achievement than others. Like changing your employment practices, maybe something that you can do relatively quickly, but investing heavily in plant and equipment in order to reduce your carbon emissions, or investing in new technologies is a longer term prospect. And so, I think impact thinking, will need us to take a longer term view of things and that investors will begin to focus on both the profit and the impact performance of the company.


Sir Ronald Cohen:

And to the extent that you're remote education company, for example, your ability to reach a very large number of underserved people across the globe is going to motivate investors to invest with you and stick with you for the long term. Now, you take a company like Amazon investors had to stick with it for a very long time before it started to look like a profitable company.


Sir Ronald Cohen:

Here, I think what we're going to find is technology is going to disrupt the way a lot of sectors function in the same way that they did before. But before it did that on the basis of the microchip and the innovation it could bring. Now, it's going to do it on the basis of the innovations flow through the microchip and impact thinking. If you're entering a sector where your competitors are polluting and have terrible employment practices, you're going to invent a new model as an entrepreneur that enables him to beat them in the same industry.


Daniel Scrivner:

I want to talk for a second, you mentioned it a little bit ago, this idea of impact weighted counts, and want to take that a little bit higher level, which is, so we have that conversation a little bit earlier around risk and quantifying risk. And now we're going through that same thing with impact, where we're focusing on defining impact, seems pretty well defined. Now, it seems like we're iterating on ways to measure impact on both, and there's two sides. One side is obviously in business. How do you measure it in business? And on the other side is how do you measure it as an investor? And I know there's ESG scores. I'm not familiar if there's anything like that with impact. So, can you talk a little about two sides of the equation and how those are measured?


Sir Ronald Cohen:

Yap, absolutely. So one of the things people don't realize today Daniel, is that technology and big data enable us to measure the impacts that companies create in dollar terms that they create through their operations, through their employment and through their product on people and the environment. So, if you'd go to the Harvard Business School site and you look for IWUA, you're going to find 3000 companies, environmental impact.


Sir Ronald Cohen:

If I say to you, these are public companies across the world that happened to have made information available on their environmental footprint as it score. If I say to you, you look at these numbers and you see that 450 create more damage in a year than profit, a 1000 create damage equivalent to a quarter or more of their profit, together, they create $4 trillion of of damage in a single year.


Sir Ronald Cohen:

And as I was saying before, the ESG money has already tipped the scales lowering the valuations of those who pollute more relative to their competitors, then you can begin to understand how we can measure impact just like profit, really. And you don't just do it in the environmental area. We're about to publish several thousand components, starting with 2000 employment impact. Measuring lack of diversity, differences in gender pay and ethnic pay. Differences in advancement of different groups.


Sir Ronald Cohen:

And if it's a company like Apple, $7 billion wage bill in the United States, by the time you've looked at its lack of diversity of these differences, there's a $2.7 billion challenge, negative challenge for lack of diversity. Now compare that to Costco. Costco has twice the number of employees, 160,000 and the billion dollar chart. So, all of a sudden you can begin to look at diversity, set objectives for diversity in the same way that we do for profit.


Sir Ronald Cohen:

And when it comes to product, sector by sector, we've defined the ways in which you can measure the impact on health of food products. So, you referred Danone, [inaudible 00:16:26] Danone makes $5 billion of profit a year and $8 billion of damage because of the high sugar content of its products. Now, we should know this and if we begin to know it and to compare it to Nestle and to general mills and to [inaudible 00:16:44], and Chobani and so on, then we are able to make consumption decisions and investment decisions that make more sense.


Daniel Scrivner:

Have you noticed that, I guess just, as I was thinking about this, preparing for this interview, I don't know when Apple first came out with its sustainability report, but my recollection was, it was one of the first companies to publish that publicly. And it probably started almost 10 years ago. I know it was when after Al Gore joined the board. I guess the question I wanted to ask is on the environmental side, I've seen now a lot of companies engage there, because I think it's a really appealing story. It's a really good thing to think about. It clearly feels like you're doing good. On the social side, which you just touched on, that still feels like a topic a lot of companies don't want to open up about or own. I don't know, thoughts there?


Sir Ronald Cohen:

Absolutely. First of all, if my memory serves me, right, Al Gore started in the climate area 40 years ago, more than 40 years ago in Congress talking about these issues. And so, the movement's been going a lot longer than in the social area, but what the Harvard effort has shown me, I chaired the effort, which is led by a brilliant professor of accounting, called George Serafeim. You realize that there's a lot more information already in the public domain that enables us to make the comparisons I was making.


Sir Ronald Cohen:

And what we need is for this data to be comparable, today it isn't, and that's why we need the Biden administration or the EU or another government to do what [inaudible 00:18:18] did in the 30s about transparency on profit, bringing generally accepted accounting principles and auditors. We need to do the same thing now for transparency on impact. And I hope the Biden administration will rise to the challenge.


Daniel Scrivner:

Yeah, I think it's clearly timely. And it does make sense. I mean, that's a wonderful point you made that the climate movement has been going on 40 plus years, which is somewhat staggering because it feels like it's really intensified in the last five years along with the consequences. But it's interesting to reflect on.


Daniel Scrivner:

I'm curious, you touched on ... So we talked about some of the metrics on the business side. I'm curious what you've seen in the evolution you've seen on the investing side. And I'm curious there are really in two areas and I think in one is in venture capital in private equity. So, when you're investing in private companies, are you starting to see the needle move and people focus on quantifying impact there? And then on public companies, I know there's ESG scores. I haven't seen that for impact yet. I don't know. So just public and private. How are you seeing the impact there on the investing side of the equation?


Sir Ronald Cohen:

So in many ways, the first movers in terms of measuring impact were in the private equity industry. So, you began to see specialists impact funds, like the Rise Fund, the TPG, and that Bain Capital's Fund, and KKR's fund. My own Apex Partners is launching a dedicated impact fund. And in all of these, you have a methodology for measuring the impact and it's not just in the U.S. I gave you a few examples, [inaudible 00:19:52] partners group in Europe is doing the same thing. Bridges Ventures in the UK, Lichro in Africa, they're all measuring their impact.


Sir Ronald Cohen:

The thing is, it's easier to measure the impact, Daniel, over a single product company than it is a massive conglomerate like Proctor and Gamble or [inaudible 00:20:13]. And so, it's taken us a bit longer now to begin to devise the ways in which we can reflect in financial accounts, the impacts of big companies, but with them. And if governments mandate it today, three years from now, every company has to publish impact rated accounts, companies would be able to do.


Daniel Scrivner:

I hope that happens. I want to switch now and talk about, you have a ton of wonderful examples in the book of companies that are really embracing impact. So, I want to talk about that. But one thing I wanted to start with is, and we've kind of danced around it. So, I just want to ask the question. Why do you think that we're seeing the move that we're seeing? In my sense, I'm sure it's different for everyone, but in my mind it seems like really the last two, three years impact, especially on the social side is really started to take off and be a focus, especially in the U.S. Why do you think impact is reached this crescendo now? Why do you think it's so important right now?


Sir Ronald Cohen:

I think part of it is, it's been accelerated by COVID. So COVID has shaken the habits and that beliefs it's led us to think in more open-minded waves. It's also created the sense that we're all in the same boat and we have to deal with these issues in more generous ways, if you like. And it's accelerated the use of technology hugely. Look how we are meeting here. So, that's part of the reason. Another part of the reason is the efforts pushing impact such as the efforts of the global steering group for impact investment, which I chair, which is now active in 33 countries. The efforts of the [inaudible 00:22:00] as it's called, in the United States, of the B-Corp movement, of the impact management project.


Sir Ronald Cohen:

All of these have contributed now, not just to the debate, but to data flowing on these issues. And finally, I think a lot of people realize that the environmental and social are linked, and you have to deal with both at the same time. Look what's happened in France with the [inaudible 00:22:25], the government wanted to reduce emissions from diesel cars and it created huge social backlash, because of people using these cars, tended to be commuters who are more vulnerable on the whole and felt half done by. So this too has contributed to elevating the whole topic.


Daniel Scrivner:

It's a fascinating example of looking at the two as linked and how important that is. I thought it would be helpful, in your book there's a few threads that you talk about that kind of also support that answer of why impact has really reached this crescendo. And it seems like it's a whole bunch of things. One you're seeing on the environmental side, obviously global warming starting to be a bigger and bigger and a bigger issue, and actually affecting people.


Daniel Scrivner:

You're seeing increasing competition. Like what I see investing in the private markets, mostly in startups is, every industry is way more crowded than it's ever been. So companies are really looking for, and they need that differentiation on a values perspective. You also have gen Z and millennials, which is very different values. Maybe if that's the baseline, could you just try to share a little bit of your view and some of the nuances of all the threads you think that are feeding into really impact being so important?


Sir Ronald Cohen:

First of all, the gen Z and millennials now comprise 60% of the U.S working population. This is no longer a small group of people. It's the majority view. That's why values are changing. But the examples I've given in the book, illustrate just how different thinking becomes when you take impact into account. And that's the thread.


Sir Ronald Cohen:

So, I give the example of an Israeli company called OrCam, which created a venture to help the blind to see, an inverted commen, about spectacles that you put on, and it has a memory stick like device, which whispers into your ear the page of the book you're reading and beautifully read, can even translate for you, recognizes 300 people who've been recognized before. And obviously, that's a fantastic impact for the lives of 35 million people potentially, who were blind and another 250 million who are visually impact.


Sir Ronald Cohen:

But if you think in impact terms Daniel, you ask the question, how can this technology help the greatest number of people in the world? Then you'll get the surprising answer. You'll get the answer. Well, what if you provided these spectacles to the 800 million illiterate adults in the world? What would that do for their lives and the livelihoods? And all of a sudden you have a $1.1 billion market. Now the economies of scale, in going from a 300 million to $1.1 billion market, are huge obviously.


Sir Ronald Cohen:

And then I give another example of a company called Tala, which is trying to provide funding to the un-banked. So, these aren't people who have a credit rating. They don't have a bank account, but you can judge their reliability through their phone usage. And Tala has managed to acquire a large number of users with a very low number of bad loans. So, it's another way of thinking if you didn't want to help people, if you didn't set your venture up to help people who are in financial need, you'd never come to that business model.


Sir Ronald Cohen:

And I think what's really interesting, is that the combination of the three forces I talked about it's revolutionizing fields like education. Now, all of a sudden, because education could be provided digitally. You're seeing new models arise where the education is paid for after the student has gotten into a job and snapped it to earn money, no money upfront, virtually.


Sir Ronald Cohen:

Until you're finding brilliant entrepreneurs across the world, imagining these new models, which bring solutions to the big problems we face. And when you have an inspiring mission, in my experience, you attract the best talent to do it. And so, I believe that investing in impact VC or impact private equity or an ESG with impact measurement is going to deliver better returns than ignoring impact.


Daniel Scrivner:

Yeah. I love that example you gave, in that one little bit, you mentioned where you're now seeing companies like, I think Lambda school is one of these, in the U.S that allows people to go through an engineering bootcamp and then pay for that once they start earning money, that's not the only model they have. There are certainly companies that have a dual model, but just by that one change in the business model, it suddenly goes from, I don't know, being mostly concerned with profit, to being concerned with profit and impact, and really widening that scope.


Sir Ronald Cohen:

Yeah. And it may lead you to own the market down the line.


Daniel Scrivner:

Yeah. Just because you can serve a much larger number of customers from a much wider spectrum of backgrounds.


Sir Ronald Cohen:

Yeah.


Daniel Scrivner:

So, one of the things that, I want to spend a little bit of time on is in your book, you talk about companies that were the impact pioneers. And the sense that I got was if there's the old way of doing business, there's a new way of doing business. These companies were kind of maybe the bridge that helped us get from there to here. And there are companies like Patagonia, which I love. I'm a huge fan of that company. Tom shoes, Warby Parker. Can you talk a little bit about how these companies blazed the trail and what was new or unique about how they approached business? And I guess just how you see them in this new wave?


Sir Ronald Cohen:

So, they were the first wave of people who were applying a new way of thinking. That you have to do good and do well at the same time. They didn't have a heavy duty technology or AI platforms, which are now, you're seeing a lot of exciting models being based on. I think the second wave of entrepreneurs now is using as the application of technology to [inaudible 00:28:28] these issues. And the technology doesn't necessarily need to be computer technology. You're seeing food technology come in. If you use sugar to bind the product today and sugar is unhealthy, new technologies being developed that combined the product without the sugar content.


Sir Ronald Cohen:

And so, innovation is going to come from every dimension. And that's why I say in the book, if you're an entrepreneur wanting to set up a venture today, find an issue you are passionate about solving, define a business model that helps to solve it and bring impact to decide the profit, the more impact you deliver, the more profit you make. And you will build the most profitable company and you become a unicorn, but you become a unicorn that also improves the lives of a billion people.


Daniel Scrivner:

I love that example you give, because it starts with, maybe this would be helpful to talk about is, so in that example, which is really wonderful is just to maybe repeat back some of what you said. So, we have this wave of companies that really thought differently, but maybe didn't have all the tools that companies have today. So now, you have this new way of thinking enabled by all of this innovation and all of these tools. And at the same time, you're now encouraging entrepreneurs literally from day one, when they're thinking about this business model, to really incorporate impact. So we've got that as one example.


Daniel Scrivner:

On the other side, we've got existing companies that are at various different stages of negative impacts or somewhat neutral impacts that are really trying to move the needle. What I want to ask there is in your book, you give a lot of examples, a lot of great examples, companies like Danone, which we talked about earlier, and we didn't even go into all the depth you share in the book. So, I highly encourage everyone to read it, but you have these companies that are starting to make that move. Are there any that have a special place in your heart or that you just think have done something really unique or special? So a company that's a little further along?


Sir Ronald Cohen:

So, I think what's happening now is that companies are beginning to transition to this new world of risk, return, impact. And you see some of them embracing it faster than others. You see some skeptical in the same way that big some companies were skeptical about the arrival of technology. I remember some big company owners saying to me in the 80s and 90s, this chip is going to revolutionize the computer industry. They didn't appreciate everything that would come. Cellular communications, the internet and [inaudible 00:31:02].


Sir Ronald Cohen:

And I think the big companies today that are addressing the issue, are doing it in different parts of the spectrum. Some are focusing on their product innovation. So, I mentioned IKEA, and I did this in the book. Some are doing it in terms of their environmental impact from their operations. Again, IKEA is another one that is trying to do that.


Sir Ronald Cohen:

Some are doing it through their employment practices. And I mentioned Chobani, which employs refugees in good part. And I would say today, and we mentioned that in our reports at the Harvard Business School, there are about a hundred companies in the world which are beginning to measure their impacts in a systematic way. Now, who is being the most innovative in doing that isn't visible yet. But I think Tesla sets the benchmark. Like, if you can get into a leading position through a brand new product in an industry that's 130 years old, you've really set that very high benchmark. And that's what I think we're going to see.


Sir Ronald Cohen:

I invest in seed and early stage impact companies. Mainly tech. I see innovation coming into every single sector and it's coming in different ways. What would have been a software company simply organizing public transport better now, is a software company trying to reduce carbon emissions, to reduce commuting times for vulnerable populations, improves the lives of the drivers, reduce the number of accidents. And these metrics are being tracked. And the growth of these companies is as fast or faster than the traditional ventures we knew about that didn't care about impact. It isn't slowing down their growth, it's driving it to them.


Daniel Scrivner:

Is a fascinating example. It makes me think of one thing. And I guess the way to frame this question is, we just talked about some of those public companies, one thing that I've always just been fascinated by is large private companies, and one of my favorites that I think is a nice tie into your book and his concept of impact, blanking on the name of the parent company. But it's the company that owns Lego. And not only in the book, you talk about Lego and how they're focused on reducing plastics and having plant-based plastics in their products. But one thing I think a lot of people wouldn't know, that I highly encourage people to go check out is just go look up Lego parent company, annual report, because one, they don't have to, but they release an annual report.


Daniel Scrivner:

And one thing I found that was fascinating and kind of lovely, and this is something private companies are uniquely capable of doing, but outside of Lego, almost all of their investments are in renewable energy, which is just super cool. And I don't think most people wouldn't think that Lego would not only be improving their products, but also investing outside of it. Does that ring any bells? Do you have any other examples?


Sir Ronald Cohen:

I mean, I think the other example, which has just appeared is Unilever putting the impact of it's products on the box basically. And we already see apps on our phones being used in France. There's an app called Yuka, which covers cosmetic and food product being used by 21 million people. I had dinner with somebody the other night who told me her 13 year old daughter didn't allow her to shop in the supermarket without using the Yuka app. So, I think companies will begin to show that the impact on the box, just like they show the ingredients. Apps are going to be that to put comparable information out because companies sometimes use this as a marketing tool and green wash what they're doing. And these apps are going to enable us to make our consumption decisions. Will help us to decide who we work for and who we invest in.


Daniel Scrivner:

I want to change a little bit and now talk about putting this into practice. And one thing I wanted to start with is, I don't know, in some sense, maybe this question is judgy, but I'm not trying to have it be judgy at all, but I'm curious, in the book you talk about and you just laid out a really nice example of a bunch of public companies that are starting with very different places. Some are starting with the way they're hiring. Some are starting with their product. Is there a good or bad place to start or in your mind, does it just matter that companies get started somewhere?


Sir Ronald Cohen:

The most important thing is to get started somewhere. Once you get started, you begin to understand it's like beginning to use technology. You begin to understand the power of all this. And so, some management teams will gravitate more easily to product impact and employment impact or operational impact. Also in some industries, some factors are more important than others. The key is to start measuring your impact. Perhaps as importantly as getting started in improving it, it's just to have a rigorous system for measuring your impact.


Daniel Scrivner:

And I'm guessing part of that too would be, at least in your mind, or maybe it's just in the spirit of the book, that companies should not just get started, but maybe get started with something that's focused on the environment or planet and something that's focused on people. Is that the general advice or which would frame up for companies?


Sir Ronald Cohen:

Yeah. I mean, I think not every company can deliver positive product impact, it depends what area of business you're in, but every company can deliver employment impact, and operational impact varies accordingly. So, I think employment impact is the easiest place to start. Product impact probably at the end of the day is the one that's going to drive your growth and profitability and everything else the most. And your operational impact will depend on what type of raw materials you're using and so on.


Daniel Scrivner:

Yeah. And maybe a quick tangent for people, and this is little bit of a teaser to read the book, but just in relation to IKEA, there's some staggering stats. Number one, that they use 1% of the manufactured wood or the wood supply in the world, but that they also then, obviously they're not going to just stop using wood, but they can certainly use wood from renewable sources. And so making a little bit of that transition. I want to talk about something that's a little bit uncomfortable and maybe to go back to that example of Exxon, because in some ways it seems to be the kind of classical version.


Daniel Scrivner:

So, we've been talking about so far is companies that are just getting started. Entrepreneurs can clearly embed impact really deeply into their business model. You then have companies that are in later stages, who can start somewhere and just start moving the needle and trying to do the greatest good. I want to talk about an example like Exxon, because I feel like there's then this sea of shades of gray, somewhere in the middle or somewhere on the side that you're like, yes. At the end of the day, a company that pumps oil out of the earth does a lot of harm just by the way their business works. You can also say that the world still needs a lot of oil. Exxon is also an interesting example because you had this activist investor that recently made a campaign to try to push them into renewable energy that got a place on the board.


Daniel Scrivner:

So I'm curious for businesses like that, that maybe the root business is, I wouldn't call it evil, but it's certainly not planet positive at the end of the day. Do you see a world where they start to move in a greener direction and start to get more acceptance? Or are they just completely shut out forever?


Sir Ronald Cohen:

No. And indeed Exxon is the first one to have felt the brunt of this revolution openly, because Exxon was a bad culprit. I mentioned the figures relative to Shell and BP. Shell and BP have pushed on clean energy, Exxon double down on fossil fuel. They just didn't get it. And the investors lost patience with them. And we're going to see many more of these shareholders protests. My understanding is there are a couple of hundred shareholder resolutions stapled already on both environmental and social issues. And activist funds are going to multiply.


Sir Ronald Cohen:

You see the investors in these funds and the pension funds that invest in these companies. And the pressure from their pensioners, from their clients of asset management companies, high net worth individuals are under pressure from the children to help solve these huge problems that threaten the planet and the cohesion of our society. And so I call it the impact revolution if people two or three years ago, wondered, it's like the tech revolution or is like another type of revolution. Now we're beginning to see that it's both. It is like the tech revolution, but it's also breaking into the [inaudible 00:39:55] meetings.


Daniel Scrivner:

I love the way you framed it up there, because it really is. If you're a company like Exxon, you can take the point of view, which I think is the one that I would take, that it's wonderful that really the walls are closing in. They're getting pressure from all sides to really evolve their business model. I think the thing that I would like to see there that I haven't really heard a conversation about is, on my understanding from the research I've done, which is pretty extensive, is if you take the classic ESG approach, I think investment firms look at a company like Exxon and just say, absolutely not just because of the negative impact.


Daniel Scrivner:

I think the world that I would love to see is you have companies that maybe do something that's necessary. That's not planet positive, but they can move their business model in a way that becomes more positive and get accepted again by investors and by pension funds. Do you think that, that will happen?


Sir Ronald Cohen:

Totally. And I think we will see some fossil fuel companies reduce their emissions in some ways and shift to clean energy. Investing in innovation and they'll transform their business models. I mean, we're seeing some also selling off some of the worst polluting assets. It's important that we get to impact transparency, because if a private equity firm pays $5 billion for some of BP's high pollution assets, it too needs to have its impact measured. And do you know what's happening, Daniel? People are talking of a carbon tax. That's going to be the future of fair taxation.


Sir Ronald Cohen:

We're going to be taxing those companies that create damage for the damage that they create instead of taxing everyone for the damage created by some. Like the numbers I gave you in the Harvard Business School data, two thirds of companies are actually capable of getting to a positive environmental impact, or least zero negative environmental impact, because they are delivering 25% or less in damage of their profits each year.


Sir Ronald Cohen:

So, the picture is not as bleak as people think, but obviously some industries, the cement industry or the electricity generation industry, the fossil fuel industry, by their nature generate a lot of pollution. And I think what's going to happen, is investors will support and engage with those who want to transition to a clean model, but they're going to leave behind those that refuse to see the new reality and want to continue to pollute. Like they always did.


Daniel Scrivner:

Yeah, that's the world I would like to see, because it just seems like so far, the conversation has been around like these are bad, they can't become good. They can't do any good. And I think, no, it's all a spectrum and companies that want to engage one to improve, want to be the company that the way forward should obviously get capital, get supported.


Sir Ronald Cohen:

This is a transition which is going to be like the introduction of the microchip and technology, it's taken 40 years. And we're going to see a huge transition. Maybe not as long as 40 years, but 20 or 30 years for companies to transition to these new models. But what's going to drive them is the destruction of innovative young entrepreneurs.


Daniel Scrivner:

I want to pull on that thread around carbon tax for a second, because that's something I've heard. I've started hearing that term come up time and time again. I haven't really heard or read too much that's articulating how that would work. I read something recently that I thought was a little bit of a light bulb for me that was giving the example of, let's say your Germany, you've now implemented a carbon tax and that actually gets affected at the border.


Daniel Scrivner:

So, if you're Tesla, you want to go sell into Germany. They would actually look at your product, look at how much carbon it produces. Maybe there's a threshold where you don't even get in, but if you get in, you have to pay a tax, which I thought in my mind, I'm like, wow, it's amazing. Because obviously then starts to become really clear how that gets implemented. Are there other examples like that, that have been a light bulb moment for you thinking about carbon tax?


Sir Ronald Cohen:

I see quite a lot of interest now in the carbon offset market. So this says, okay, you're polluting. It's going to take the time to transition. Meanwhile, can you pay for planting trees where you've caused the deforestation? And I think we are going to see growth in the carbon offset market. At the moment, it's quite a disorderly market. It's very difficult to find offsets that you're sure are going to deliver the impact that you want.


Sir Ronald Cohen:

So, I think this is going to be a way of easing the transition so that companies begin to recognize publicly that they have a duty of care for the environment, which is the phrase of the judge used against Shell in the Netherlands in the judgment that was just delivered, which incidentally said to Shell, you have to reduce your carbon emissions by 45% before the end of the decade. So, I think we are going to see that, but we're going to see massive innovation now, in how to store electricity, in how to generate electricity and because of the pressures have become so great, capital is going to flow to innovative entrepreneurs trying to bring solutions.


Daniel Scrivner:

I'd love to ask you a couple of quick closing questions as we wrap up, this has been a fascinating conversation. One thing is that you just gave that example, which is wonderful of carbon offsets. And clearly we're in the early innings. If you're familiar at all with early stage companies, it's always a little bit of a nightmare and a hot mess. It's disorderly for a long time. It takes a long time to evolve and get cleaned up. So, I'm curious from your perspective, looking ahead, what areas are most exciting to you, whether that's carbon offset, whether that specific technologies, what gets you excited and inspired that things are improving?


Sir Ronald Cohen:

What gets me excited and inspired is I see this coming from every direction right across the world. I see new business models arising where hospitals are trying to claim from insurance companies, a payment for services rendered on behalf of patients. I see it happening in the payroll space, where new platforms are beginning to measure, not just the salaries and other payments to employees, but the sorts of figures we've been talking about. About diversity, differences in gender pay, et cetera, relative to their competitors, relative to the average in the market or whatever else.


Sir Ronald Cohen:

I see it in education. As you're explaining new infants coming in to compete with Lambda, with different angles on things. I see it coming in the food industry to reduce the sugar content. I see it coming in the world of sensors to measure the content of different affluence. I see it coming into the concrete industry where we can create a new type of concrete that can become a reef when you're building something in the water.


Sir Ronald Cohen:

So, I really do see coming from every direction and some people may say, it's a passing thing. The millennials and gen Z, aren't different from Ronnie Cohen's generation in the 60s when flower power and all of that. But it's gone so far now, trillions are now flowing in the direction of achieving impact. I think you're unrealistic if you think this thing is going to pass. If you want to run a big successful company or a successful growth venture, you have to bring impact into your decision-making.


Daniel Scrivner:

Yeah. I'm with you. I think it's a permanent evolution. I want to ask one more question around that, which is, you gave a couple of examples there. One is concrete that could be used for coral reefs. And from where I'm at, it feels like we're in a place where a lot of people are pessimistic that we're not going to be able to improve the environment and actually unwind some of the damage we've done. And from my perspective, I happened to just be kind of a terminal optimist. So, I'm always looking for the kind of silver lining and things, but directionally I see wave of things that feel like they are going to dramatically change the trajectory of global warming and how things are progressing with the degradation of the environment. Are you optimistic? Are you pessimistic and why?


Sir Ronald Cohen:

Well, I'm totally optimistic. I wouldn't have become a venture capitalist or an entrepreneur.


Daniel Scrivner:

You'd be terrible at it.


Sir Ronald Cohen:

Exactly, if I wasn't optimistic, but I'm also realistic. I spent my whole career tackling private equity, I've seen how you translate aspirations into building major companies. And I can tell you, we are going to improve time at position, but the markets and companies and their investors can do so much. We also need government to set the benchmark for transparency. To say the information you're looking at is reliable and verified and comparable. And that's where we are now.


Sir Ronald Cohen:

So, governments have to realize they need this as well, Daniel. We're coming out of COVID with government having borrowed unbelievable amounts of money, the social issues they're going to face because of higher unemployment, et cetera, are going to be magnified. They need to bring companies and investors alongside to provide solutions. They can't let them continue to create environmental and social problems.


Daniel Scrivner:

Yeah, I agree. And just thinking here in the U.S, it seems like the way people are focusing on that now is just how can we get more tax revenue? And yeah, just for myself, I would love to see more of a bar being set around, no, it's not just around companies being taxed more, it's about companies being held to higher standards. And I think that's something more people could get behind.


Sir Ronald Cohen:

[inaudible 00:49:58].


Daniel Scrivner:

So for anyone that's listening, I highly, highly encourage you to go by Sir Ronald Cohen latest book Impact: Reshaping Capitalism to Drive Real Change. Sir Ronald, is there anywhere people can go, a website should be able to go on Amazon to buy this, anywhere they can learn more or follow you?


Sir Ronald Cohen:

Go to Amazon or your bookshop. You can also buy the ebook very cheaply. I want everyone to be able to afford it. All of the royalties are going to impact charities. So buy it, read it, spread the word.


Daniel Scrivner:

Well, thank you so much for your time. This has been an awesome conversation. I really appreciate it.


Sir Ronald Cohen:

The pleasure is mine. Thank you Daniel.




On Outlier Academy, Daniel Scrivner explores the tactics, routines, and habits of world-class performers working at the edge—in business, investing, entertainment, and more. In each episode, he decodes what they've mastered and what they've learned along the way. Start learning from the world’s best today. 

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Daniel Scrivner and Mighty Publishing LLC own the copyright in and to all content in and transcripts of the Outlier Academy podcast, with all rights reserved, including Daniel’s right of publicity.

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