The current movement towards impact-focused business is not just a trend but a fundamental economic succession. Just as the tech revolution reshaped global industries, the impact revolution is now establishing a new paradigm where companies are valued on their ability to create both profit and positive contributions to society and the planet.
Just as the 1929 stock market crash revealed the need for standardized profit reporting (GAAP), today's social and environmental crises necessitate standardized impact reporting. This creates the transparency required for investors, consumers, and employees to make informed decisions and for markets to function efficiently.
Impact data isn't just a niche metric for investors. Sir Ronald Cohen reframes it as a basic human right. He argues that every employee, consumer, and investor has a right to transparent, standardized information about the good and harm a company creates, moving the conversation from finance to ethics.
Sir Ronald Cohen critiques the philanthropic model, arguing that relying on donations keeps charitable organizations small, underfunded, and perpetually begging for capital. This prevents them from achieving the scale needed to solve massive problems, a flaw that impact investing aims to correct by creating self-sustaining models.
Sir Ronald Cohen suggests that economic systems like communism fail because they suppress the natural human instinct to strive. The goal should not be to eliminate capitalism's encouragement of striving, but to evolve it by redirecting that powerful drive toward achieving both financial profit and positive societal impact.
Citing a Harvard Business School study of 1,800 companies, Sir Ronald Cohen reveals the staggering scale of negative externalities. A third of these firms (600) cause environmental damage equivalent to a quarter or more of their profits, while 250 create more damage than they make in profit, highlighting the financial materiality of impact.
The emergence of venture capital as a major asset class was unlocked by the new ability to mathematically measure and price risk. Similarly, the current impact investing movement is being driven by our newfound technological capacity (via big data and computing) to quantify a company's social and environmental effects.