Sir Ronald Cohen Discusses the Holy Grail of Impact Investing at the Vatican and Harvard

As the documentary, The Invisible Heart, begins its Canadian tour, I felt it an appropriate time to revisit a couple of talks given by Sir Ronald Cohen. Cohen, an important figure in UK venture capital, put together the first social impact bond deal. I’d like to thank BubbleBlower / @DoubleDutch31 in the Netherlands for the link to the Vatican talk, which I had not seen before. While I profess to being a digital skeptic, it is nice having allies afar who are generous sharing leads.

I woke up early, and since I couldn’t get back to sleep, I decided to start transcribing text from two of these presentations. Slowing down and listening closely helped me process the content. What follows includes: an overview, key dates highlighting US legislative developments since 2014, excerpts from Cohen’s talks and links to videos of the presentations made at Harvard and the Vatican.

After the Bezos preschool announcement, too many people simply wrote it off as a “stupid” idea. What I want to convey is that what is happening cannot be characterized as “stupid” if you recognize that the ruthless individuals pursuing these programs are solely about profit, not providing humane services. These impact investors are in the final stages of building a vast infrastructure they hope will sustain a massive expansion of bio-capitalism. While understanding this is no cakewalk, it’s really important we try. Hang in there.


Over the past decade, global finance has built an impact investment “safe haven” within our hollowed-out public sphere. There they plan to stash private assets in advance of market collapse. The drumbeat of “what works,” outcomes-based contracting policies is ramping up as foundations, pension funds, and corporations are promised baseline 6-10% annual rates of return on a variety of social impact interventions. Pitchmen like billionaire, JB Pritzker, and economist, Jim Heckman, have been lining up the money, while well-connected firms like Ridge Lane, LP are waiting in the wings to package the deals. Because the returns on outcomes-based contracts are uncorrelated to the stock market, Sir Ronald Cohen once confided to Vatican representatives, he considers them the “holy grail.”

Of course consistent returns presume continuous global poverty, since managing the data of dispossessed people through impact dashboards is central to their profit-taking enterprise. Once clients are “fixed” according to the metrics, another batch of broken individuals must flow into the pool to keep the scheme going. There is no incentive to address structural oppression. In fact, to do so would kill the chicken that lays this proverbial, yet rotten, “golden egg.”

Supportive housing, incarceration, addiction treatment, foster care, early literacy, preschool, ed-tech, and workforce training services will be carefully choreographed, rendering a stream of human capital that can be cheaply “serviced” using “evidence-based,” surveillance “solutions.” Predictive analytics will manage the supply side of the machine’s Orwellian sourcing system.

In this new world of imposed “digital labor,” the poor will be harnessed to devices. The digital divide, once bridged, will be transformed effortlessly into digital shackles. And if the metrics aren’t up to snuff? Or the “raw material” refuses its prescribed fate? If the devices remain off, the data uncollected? If “success” cannot be “proven?” Well, insurance policies will have been taken out, just in case (see QBE’s recent activities and George Overholser’s pitch for Social Impact Guarantees).

Before this machine can really get going, though, impact investors must finalize redesign of the development aid, philanthropy, and non-profit sectors. This new version will accommodate massive flows of capital and Blockchain “web of trust” systems. Hewlett Packard has been working behind the scenes on this for some time now (click the link and from the initiatives link on the left side choose “effective philanthropy”), and Palantir, a deal evaluator, has gotten into the game with their “Philanthropy Engineering” initiative.

In this scenario, “mom-and-pop” non-profits won’t suit their needs. Fin-tech will demand they be integrated into the global system. Large, national entities will become umbrella organizations charged with managing investment flows and providing “impact” data infrastructure and analysis. The little guys will close or become subsidiaries of the umbrella groups. Picture what has been happening to community hospitals, but expand that to include every public service organization and supporting advocacy groups. They also need a bit more time to groom/coerce service providers to get them in the proper mindset to carry out this plan.

Money will come from a variety sources, incentivized through generous tax breaks and legislated provisions that even allow pensions to be hijacked, feeding a system that will actually fuel the automation of the very jobs held by those paying into them. During the Q&A for his presentation at the Vatican in 2014 audience members asked Cohen if countries beyond the UK were considering similar incentives. He responded:

“We are finding across the world that there are GROUPS OF PEOPLE LIKE US IN INFLUENTIAL POSITIONS in their communities who are saying to their governments, “YOU HAVE NO CHOICE. YOU HAVE TO DO THIS. The cohesion of our society is going to be threatened in a major way. This is a way for you to set new benchmarks on how to achieve the best, somebody had it up earlier, cost per successful intervention, if you want it in technical terms.”

Each G8 (now G7 with exclusion of Russia) country has a national advisory board of 20-30 well-connected individuals positioned to lobby for this transformation. At the time of Cohen’s talks, Matt Bannick, managing partner and board member for the Omidyar Network was the chair of the US Task Force. Omidyar Network is a backer of a new “Pay for Success” finance tool call an “impact security.” Some hope these innovative “securities” will be more easily scalable than cumbersome social impact bonds. The goal of this product is “Survival of the Fittest: Apply free-market principles to drive unprecedented efficiency in the multi-billion dollar non profit industry.” The idea is to link impacts to returns and create a product open to Program and Mission Related Investments that is standardized to increase transaction speed and transferability.

The tool was developed by NPX, a bay-area finance consultancy founded by Wharton alumna Lindsay Beck and buildOn executive Catarina Schwab. The two were listed among Goldman Sachs’s 100 Entrepreneurs of 2017. A pilot project, the Last Mile, is underway in San Quentin with Omidyar financing. The people who are incarcerated have been forced into today’s sweatshop labor, computer coding. Omidyar’s $900,000 investor payout comes when the “success” goal of 18,000 hours worked is reached. And this newest version of the predatory profit machine is precisely why the United States has one of the highest rates of incarceration in the world. I suspect if we ever decide to seriously scale back prisons, the state will end up sending people home with a chip in their hand and an enforced labor contract.

Whether they be millenials at Powder Mountain resort in Utah, aspirational non-profit directors and policy wonks at the Dirksen Senate Building, or caviar-pizza-eating billionaires in the Hamptons, it is clear all those in impact investing’s inner circles are anxious for the game to get underway.

Legislative Developments Since 2014

July 2014: Workforce Innovation and Opportunity Act passed with embedded “Pay for Success” provisions.

September 2015: The IRS issues guidance stating there will be no penalties to foundations that use funds from their endowment (MRIs) for impact investing projects, even if those investments don’t yield the highest rate of return.

October 2015: ERISA (Employment Retirement Income Security Act) Guidance offered allowing pension funds to factor social impact metrics into determining investment choices.

December 2015: Every Student Succeeds Act passed with embedded “Pay for Success” provisions.

March 2016: Bipartisan Commission on Evidence Based Policy Making established.

September 2017: Final Report of the Commission on Evidence Based Policy Making issued.

February 2018: Social Impact Partnerships to Pay for Results Act passed in Federal Budget providing $100 million seed funding for “Pay for Success” projects. My write-up here.

February 2018: Investing in Opportunities Act passes in Federal Budget carving out 25% of low-income census tracks nationally for federal tax incentives for real estate and business development in those areas. Funds can be used for charter schools and for-profit training programs. I suspect they will also be used for pre-school franchises and will probably overlap with SIPPRA projects.


“The Future of Impact Investing Keynote Address with Sir Ronald Cohen”

Harvard Business School

November 3, 2014

Cohen: The welfare states were throwing their hands up and saying, “We can’t cope. We can’t cope with social issues. We don’t have the resources. We may not even be the best people to cope with them.” And as I analyzed how our system works, I realized that the only part of the system that was there to help those who were left behind was the philanthropic sector; used to be called the “third sector.” I hated that name and we banished it so you’ll hear about the “social sector” not the “third sector.” How can anyone be proud to be third, right? Especially in a room with people like you.

And the social sector had one characteristic, and now I give you the advantage of hindsight of fourteen years of working on this, had the characteristic, the common characteristic everywhere in the world of having no money and no scale. So, if you look at how many businesses in the United States over the past thirty years made it through $50 million of sales, the answer is 50,000. How many non-profits made it through $50 million of revenues? Anybody know? 144

Now why was that? I asked myself? I didn’t know that figure then, but I could certainly see that there was no scale and no money anywhere. Any why was that? The answer was very simple, philanthropy. Wealthy philanthropists had given money to these organizations and said to them we’ll give you money for a year or two and then after that, as a sanity check, please go raise money from somebody else and don’t spend any money on your overheads.

And that was the way that philanthropy had operated. And now with the benefit of hindsight, we realized that it was the case that nobody was measuring anything. You couldn’t tell who was doing a good job at delivering a social return, and so I’d asked myself in 2000, and today I can give the answer to it. How can we give social entrepreneurs, those who don’t just want to make money, but want to devote their lives to helping others? How do we give them the same means to achieve their objectives as we do business entrepreneurs?

And fast forwarding, in 2010 Social Finance, which has started in the basement of my office in the UK had gone from one to eighteen people, and the young people of social finance came to see me one day, and they said “Look, we think we may have an answer to how we tackle some social issues.” I said, “What’s that?” “We met a chap in Birmingham, who told us to look at recidivism, prisoner re-offending, you probably know that across the world, two-thirds of young prisoners go back to jail within eighteen months, and we think we can link an improvement in that rate of reoffending, a reduction, to a financial return. What do you think of that?” For me it was a light bulb moment like the General Daurio comment.

For me, it was the key to the capital markets.

When you begin to MEASURE social return or social improvement, and you connect it to a FINANCIAL RETURN, you can allocate capital to those who can deliver the highest social return. And those who have the ability to scale up can raise the capital they need in the same way as a business entrepreneur can.

“Future Potential”

Sir Ronald Cohen, Chair of the G8 Social Impact Investment Taskforce

June 16-17, 2014

Investing for the Poor: How Impact Investing Can Serve the Common Good in the Light of Evangii Gaudium

Rome Italy

Hosted by Catholic Relief Services, Pontifical Council for Justice and Peace and University of Notre Dame Mendoza College of Business

Timestamp 20:15

Cohen: Well, if you look at it from an investor’s point of view, this could really be the Holy Grail. Why? Because, there is no correlation between the results that you get from a recidivism bond, or from a literacy bond, and the stock market.

If the stock market goes up or down, that’s not going to affect the ability of leaders such as those in this room, and those they support, to improve literacy levels. For those who come from the investment world, if we can deliver 7-10% uncorrelated returns within the absolute return part of a portfolio through social impact bonds and development impact bonds, what percent of portfolios of the $200 trillion across the world should be in there? Well, the answer is several percent.

How much should be in impact venture capital, which measures social outcomes such as the organizations we’ve just heard?

How much should be in impact private equity? When in Australia they’ve bought an $800 million sales business, which was dealing with preschool care, and turned it into a not-for-profit and repaid the debt that they used to fund it three years earlier.

How much could be in impact real estate? Taking and rehabilitating and refurbishing buildings in poor areas?

The answer is, a colossal amount.

So, where should the church play a role in all of this? Now many of you don’t know me. I’m not an expert on the church, right? But many of you don’t know I spent the first eleven years of my life in Egypt and my schooling was of the schools of St. John the Baptist. So, I was educated in Catholic schools. And an excellent education it turned out to be when I arrived in the UK, I must say.

What could the role of the church be? Well, I benefitted from a conversation over lunch with one of you who said, you know what in a way it’s an evolution in the concept of Caritas. In my own words, it’s shifting charity from a focus on the act of giving to focus on achieving social outcomes.

Timestamp 25:48

Audience Member: I was very interested in hearing about the tax incentives. Can you say a little bit more, because I think I heard an, ooh?

Cohen: Yes, so the British government accepted the argument that the incentives, which exist for investment in small businesses and medium-sized businesses, should be extended to not-for-profit organizations. So, when you invest in a social impact bond issue or when you provide a loan with no collateral to a not-for-profit, or if you put in something that looks like equity for a not-for-profit, so a high-risk security, you can set off thirty percent of the investment against tax. And if you lose your investment, you can set off the loss against capital gains or income tax, which effectively means that you’re taking a risk on half of your money. Which is pretty well the same as a philanthropic donation.

Audience Member: Have you found other nations willing to consider that policy?

Cohen: We are finding, I should explain, I’ll answer your question and explain why instead. We are finding across the world that there are groups of people like us in influential positions in their communities who are saying to their governments, “YOU HAVE NO CHOICE. YOU HAVE TO DO THIS. The cohesion of our society is going to be threatened in a major way. This is a way for you to set new benchmarks on how to achieve the best, somebody had it up earlier, cost per successful intervention if you want it in technical terms.

So, I think different countries will interpret it in different ways. But I hope that we will see certainly the countries that have been involved in the G8 effort, which don’t include Russia unfortunately. I hope we will see those countries certainly move in that direction, because in the United States there already all sorts of incentives through the New Markets Tax Credits and CRA legislation, and so on and so on. But I would hope that we see tax advantaged flows of capital increase significantly.

Audience Member: Is there a variant of the social impact bond, which works in markets where the government does not spend the money already?

Cohen: Yes, so there are two different answers to your question. In the case of Africa, there are many outcomes funders coming forward in the forms of the official aid arms of the different governments. So, DFID, which is the UK’s international development arm, said it is prepared to be an outcomes funder, as well as an investor in social development bonds. Often people try to give the local government a stake in success so they require the governments, the local governments to pay a small amount. And in some cases we are seeing corporates, big corporations, interested in acting as outcomes funders on social issues that concern their business. But there’s a second category of issue where the market can pay back the investor, if you like. Development impact bonds become a cheap form of equity to implement a model to sell product at low prices, and in that case the market is the outcomes funder.

Audience Member: Have you made that sort of, the opportunity of, pension deficits that exist, if by having the pensions indexed to the impact bonds, so as to not only earn more consistent returns, but also to reduce the load on the sponsor (?) government to meet that pension obligation?

Cohen: Well we would love you to develop the idea. (laughter in audience)

What I think is happening, truthfully what is happening across the world, is that people are innovating all the time, and pension fund money possesses a particular challenge. Because in the case of a foundation, which is in existence to achieve a social purpose, you can see the trustees accepting a lower return on their endowment; hopefully, one day a lower return in return for a high social return.

But with a pension fund, the fiduciary responsibility suggests that people will want a minimum rate of return. So, there is an attempt in the United States, and Matt Bannick, who will be speaking tomorrow, leads the national advisory board in the United States of the Task Force. There’s a national advisory board of twenty to thirty people in every country. And one of the recommendations, which I hope he’ll talk about tomorrow, is to change the ERISA legislation, which regulates the obligations of pension fund trustees.

What we’ve seen in the UK is that the group of pension funds from local authorities who are the main providers of social services, social services are generally provided at the local level so it’s the states and federal systems, local authorities in the case of unitary governments like in the UK. They got together than they put 250 million pounds into a pool, and they said as long as we can achieve a social return on top of a six percent financial return, we think it’s worth doing. And I think people will be surprised by the rates of return that can be achieved.





Exit mobile version