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A protected area of the Rawa Singkil wildlife reserve as part of the Leuser Ecosystem in Trumon, South Aceh, is burnt in preparation for the opening of a palm oil plantation on March 3, 2018.
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Ideas
November 1, 2021 9:08 AM EDT
Cohen is a philanthropist, venture capitalist, private equity investor, and social innovator. He is a co-founder and former executive chairman of Apax Partners Worldwide and serves as chairman of the Global Steering Group for Impact Investment, the Impact-Weighted Accounts Initiative at Harvard Business School, and the Portland Trust. He is the author of IMPACT: Reshaping Capitalism to Drive Real Change.

Throughout my life I have been greatly helped. In 1957, when I was 11 years old, my family and I left Egypt as refugees in the wake of the Suez crisis. We were made welcome in the U.K., where my education at school and at the University of Oxford was paid for by the government. I was then awarded a Henry Fellowship, which paid for my education at Harvard Business School and paved the way to my successful career as an entrepreneur and investor. My background drives me to help people in need.

In the early 1970s, as one of the founders of venture capital, I helped to fund entrepreneurs and spur the tech revolution. I was motivated by a desire to reduce high unemployment and improve lives. I am fortunate today, once again, to play a leading role in another revolution, the impact revolution, to massively improve our society and planet. What I’ve learned is that two attributes unite all successful revolutions: necessity and timing.

The theory of capitalism put forward by famed economist Adam Smith, relies on enlightened self-interest to improve society. The fact that this system is driven solely by the search for profit has, however, made it self-destructive. While it has brought about impressive economic growth, it is now creating social and climate-related consequences that have become too big for governments and society to handle.

Read more: How to Invest in Companies That Are Actually Helping the Environment

That’s why capitalism is primed for the impact revolution. Our economic system needs to go beyond generating profit alone to generating improvement for people and the planet as well. This transition is being driven by three unstoppable forces.

Values are now essential in business

The first force is a massive change in the values of consumers and talent, driving them away from harmful companies and brands. The brightest minds want to work for businesses that create solutions to the big challenges we face. Investors have noticed this powerful trend and understood its implications for profitable investment. More than $40 trillion of environmental, social and governance (ESG) investment is now flowing, aiming to achieve impact in addition to profit. This amounts to half of the capital in the hands of professional asset managers—it is too big to be a flash in the pan.

Read more: Inside the Battle for the Hearts and Minds of Tomorrow’s Business Leaders

Business leaders ignore this change in values at their peril. In May 2021, oil major ExxonMobil, for so long dismissive of global warming, was forced by its own shareholders to shake up its board to include climate experts. The same month, Shell was ordered by a Dutch court to reduce its carbon emissions by 45% by the end of this decade. Last year, Proctor & Gamble’s management saw two-thirds of its shareholders condemn it for the deforestation it is causing through its use of palm oil. Shareholder activism is now helping to drive the impact revolution.

Technology has become an even more powerful force for good

Huge leaps in technology—through artificial intelligence, machine learning, augmented reality and the genome—enable us to deliver impact globally in ways humanity could never previously contemplate.

Technology is also driving momentum behind a third powerful force: transparent measurement of the impacts companies create on people and the environment through their operations, employment and products. Huge computing power and big data enable us to translate impacts into monetary terms that investors, consumers and companies can readily understand and compare.

Together, these three powerful forces are acting to improve our world, shifting our capital markets, businesses and whole economies beyond their conventional drivers from risk-reward, to risk-reward and impact.

Impact and financial success now go hand in hand

The smartest businesses have already seized the epoch-shifting nature of this impact revolution. Take Tesla: Elon Musk wants to make a profit, of course, but he is also driven by a desire to break our dependence on the toxic combustion engine. Or Jessica Alba, whose Honest Co. focuses on healthier, eco-friendly products for babies.

Impact companies like these are on the right side of history. These are the companies people want to work for and buy from—and invest in.

Read more: How Making Smart Financial Decisions Can Have a Positive Impact on Climate Change

Can capitalism pivot away from seeking profit alone?

The forces of the status quo rise up against any major change. Revolutions, therefore, often need innovation in order to progress. Impact transparency is this revolution’s innovation.

The Impact-Weighted Accounts initiative at Harvard Business School points to the future. By publishing the impacts, in dollar terms, of thousands of public companies, it has shown how impacts can be measured alongside profits. It has also revealed that impact data are now influencing the valuations of companies, putting serious pressure on regulators to ensure that all investors receive verified, standardized impact information at the same time. Given the fast spread of impact data, regulators have no choice, in my view, but to mandate—in the course of the next three to five years—that companies publish impact-weighted accounts.

Capitalism stands at a crossroads and we must find the best way forward. Smith’s “invisible hand” now creates more harm than governments can cope with. We need impact, the invisible heart of markets, to guide their invisible hand in order to achieve a safer, fairer and more sustainable world.

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