Sir Ronald Cohen: A Revolution in Financial Markets as Impact Joins Risk and Return

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Merida, Mexico — On his trip to Mexico last week, the Pope called for a more ethical capitalism. “The flow of capital cannot decide the flow and life of people,” he said during a packed mass in the border town of Juarez.

A few thousand miles southeast, here in Merida, hundreds of investors, entrepreneurs and social justice advocates gathered to advance just such a financial system. The conversation at last week’s Latin America Impact Investing Forum, or FLII, tackled the challenge of redirecting capital towards businesses solving problems in the region’s poorest communities.

[blockquote author=”Sir Ronald Cohen” pull=”pullleft”]What we’re doing is going to change financial markets. It’s going to begin to allocate resources not on the basis of just risk and return, but on risk, return and impact. [/blockquote]

Now in its sixth year, the FLII is the largest impact investing gathering in Latin America. Discussions ranged from the potential of new social impact bonds and other pay-for-success models now popping up across Latin America; to the burgeoning interest of the region’s millennials trying to bring talent to the growing sector; to Brazil and Mexico’s entrance into the Global Impact Investing Steering Committee, the global body charged with promoting impact investing around the world and pushing for policy support in national markets.

For Latin America, a big question is how much support governments and big institutions are prepared to give the growing sector. Sir Ronald Cohen, often regarded as “the father of British venture capital,” was in Mexico to support the homegrown movement.

Cohen, who leads the Global Impact Investing Steering Committee, joined the conference to meet with impact investing leaders from Mexico, Brazil and Colombia. Cohen told the crowd that impact investing represented a revolution, disrupting business, philanthropy, government and civil society as we know it. In the future, financial markets will consider impact, alongside risk and return.

ImpactAlpha sat down with Cohen to discuss Latin America’s impact ecosystem, Wall Street’s role, and the threat of “rogue” impact investors. We were joined by Juan Del Cerro from

ImpactAlpha: As you travel around the world to conferences like this, what’s the level of enthusiasm you are seeing for impact investment?

Sir Ronald Cohen: The response has been great. Here at the Latin America Impact Investing Forum, for instance, there are people from more than 20 countries, all thoughtful, dynamic people, who’ve gone out of their way to come here. You realize this matters to a lot of people. And you can feel the atmosphere changing, country by country. Can you explain the role of Global Impact Investing Steering Group?

Cohen: The U.K. government set up, on behalf of the G8, a task force to catalyze the global impact investment market. It did this in 2013 and we published our report a year later. The feeling was that we should not just stop. But if we wanted to continue we needed to broaden the group beyond the task force countries, the G8. So we decided to created a Global Steering Group, which would take the baton from the task force and push the implementation of impact investment across the world. The question was how many countries we would accept as members, because there’s a limit to how many new members we could absorb. We said we’ll take five, and the criteria is you’ve got a functioning task force in your country. This shows you are serious about impact investment. So we had invitations to join. We picked five countries from those who applied — Mexico, Brazil, India, Israel and Portugal — where a lot is happening in the country and a task force exists.

ImpactAlpha: Why was it important to add new members?

Cohen: So each country has a shot at becoming the leader in impact investing. It’s not like tech, where you need an ecosystem that is complicated to put together. There are social issues everywhere across the world and there are entrepreneurs everywhere across the world. We’ve just been in a discussion with Colombia about post-conflict issues. Colombia could well innovate in this area if the right people pick it up and put the effort behind it and from there it can spread to other countries in the world.


The social issues differ and there are some things in common, so I’m interested in helping anybody serious who wants to try to get impact investing going in their country. So from here I’m going to Silicon Valley. Then I’m off to Washington D.C., where the Brooking Institute has a whole meeting scheduled with 250 people on social impact bonds. A couple of weeks later I’m going to India, I’m visiting three cities in India. And it’s all demand. Demand is pulling me rather than my having to go around pushing it.

What interests me, is just as with tech, as you began to discover that tech can happen anywhere in the world — I mean the United States dominated it hands down but there were great software writers in Sweden and Finland and elsewhere. I think with social it’s going to be the same. If we want to improve people’s lives we have to do things at scale. It has to be global from the get-go and we have to think in terms of interventions that can be scalable. Which is why we’re thinking about very large outcomes funds for specific issues.

ImpactAlpha: Will the outcomes fund be tied to the new Sustainable Development Goals?

Cohen: Not necessarily. Because there are 17 goals, I’m not sure we can go all the way through them. But education clearly is a major, major way of improving people’s lives. If you can prevent someone from dropping out of school or university, it’s probably the single biggest influence you can have on how their life goes after that. So why I am going around all these different countries? Because all of these different countries have got people there that deserve to be helped and there are people who want to help them. What are a couple things that the rest of the world can learn from Latin America?

Cohen: I think each country has its own ecosystem. When I went to visit Brazil, I found everybody rather depressed by the inability of the government to tackle social issues because of budgets, because of the functioning of the government, and so on and so forth. When the idea of impact investment was developed by their task force and they began to speak to people, a coalition of people began to come together, including big corporations and big banks. It turns out that the big banks, for instance, have very big charitable foundations and that these charitable foundations could pay for the outcomes, instead of the government. So all of a sudden, in a place like Brazil, if you say I want to improve the dropout rate in schools where kids from the favelas are going, my bank foundation would pay on the outcome.

[blockquote author=”Sir Ronald Cohen” pull=”pullright”]I’m interested in helping anybody serious who wants to try to get impact investing going in their country. [/blockquote]

So you can go raise a social impact bond, sign a contract with me, I’ll pay you if you make sure that the number of kids that drop out of school is reduced. So I think what’s interesting about that is obviously if you can impact somebody’s life early on in their education you have massive improvements in the lives they would lead. But it’s also a way of supplementing what the government can do, so that countries don’t just depend on government.

Wherever I go there in Mexico there seems to be people interested in impact investment. There seems to be a groundswell of support in Mexico for impact investment.

ImpactAlpha: How specifically does the Global Steering Committee support its members?

Cohen: Mainly through the transfer of knowledge and experience and expertise. Like in the U.S., which just changed its regulations around trustees of foundations and pension funds, it’s because of the National Advisory Board that this happened. In the U.K. you’ve got parallel legislation that just made it through parliament to do the same thing for foundation trustees. It can be very powerful for other countries as a precedent. They can say look, it’s been done in the U.K., it’s been done in the U.S., why shouldn’t it be done here?

We are looking at the possibility of creating a platform for connecting leaders in impact investment across the world. So you want to start a recidivism social impact bond, you send out the message, you create a roundtable, you can discuss the issue, you can move forward. On diabetes, you get together and move forward. So whoever just issued the social impact bond could spend time talking about the metrics for a diabetes bond. The U.S. has a huge diabetes issue, India, the whole Middle East.

ImpactAlpha: Impact investing seems to have embraced Wall Street and the big financial institutions. Was this an intentional strategy and do you believe Wall Street can be, and be seen as, as a force for good?

Cohen: So I like to say: money’s like water, you can live without it and if it drowns you, it’s not such a good thing. From my perspective what we’re doing is going to change financial markets. It’s going to begin to allocate resources not on the basis of just risk and return, but on risk, return and impact. It’s a process that could take 20 or 30 years.

A lot of financial institutions have people in them who agree. It’s not easy for the financial institutions to change their models. But it seems to me what we want to do at this early stage of development of the field is focus on the people who believe this can work, not focus on persuading the skeptics. If those people are in the financial services business they may well come back with amazing ideas for reducing the cost of finance for certain parts of the population. When you begin to see the challenge of fintech entrants now into finance, reducing the cost of personal finance, or the cost of finance for businesses (that) has a big social impact in itself — quite apart from the support that they can bring to aggregating money from investors in social impact bonds of one kind or another.

I think it’s very important for us to focus on all those who are interested in impact investment, and those within financial organizations should be no exception.

ImpactAlpha: Say we set up this structure of risk, return and impact. Are you concerned at all about the accountability of wealthy individuals that might not share our values, let’s say Vladimir Putin, for example, who might claim to be an impact investors?

Cohen: I think you have to very strict on measurement. I don’t accept that anyone who creates impact is an impact investor. That’s investment with impact. An impact investor is somebody who has the intention of achieving objectives, set objectives in the social or environmental area, and measures their achievements alongside financial return. People will try to call themselves impact investors. Everyone will be an impact investor as some stage, just as in the tech bubble everybody jumped into it and hoped for a high valuation. We just have to be very strict about saying, ‘If it’s not measurable, it doesn’t qualify as impact investment. It’s investment with impact, good luck to you.’

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The interview has been lightly edited for length and clarity.