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A child refugee who learned the importance of philanthropy at an early age, Sir Ronald Cohen - or more simply Ronnie, as he insists on being called - dedicated his young life to repaying the investment made in him by his family, teachers, and the country that had given him sanctuary. He rose to become one of the first and most successful venture capitalists in the UK but is now devoting his time to reforming the capitalist system that he thrived under, in a Superheroic effort to force the corporate world to clean up its act and invest in the future of the planet. 

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The anxious philatelist

Ronnie Cohen was born in Egypt in 1945 into what seemed a comfortable life; his father, Michael, was a banker, but the family was thrown into disarray in the aftermath of the Suez Crisis, a failed invasion of Egypt by Israel, the United Kingdom and France in 1956. Once the brief hostilities were over, Egypt’s leader General Nasser brought in sweeping new laws stripping Egyptian Jews of citizenship and allowing the seizure of Jewish businesses. The Cohens lost everything, and they packed their bags and headed for the United Kingdom as refugees.

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Ronnie recalls his arrival in the UK clearly; although he spoke no English and knew very little about his new home, the one thing that bothered him most amidst all the upheaval was the possibility of losing his precious stamp collection, and he describes clinging to his treasured binders as he was waived through UK customs on arrival. Nobody tried to separate him from his stamps, and he recounts how this, and the warm welcome he and his family received in the UK, led him to a greater empathy for those facing hardships in life and influenced the course that his investment career would later take, telling the Philanthropy Bites podcast in 2021: “My whole youth was a story of being welcomed and helped and I basically want to do the same for others.”

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Adjusting to life in the UK was hard, but the Cohens relished the challenge. Michael had arrived with just £10 ($12) to his name, but soon started an import/export business in London while also managing to get Ronnie into the local grammar school with rash promises that his son, who still spoke almost no English, would soon be “top of the class”. Young Ronnie took the responsibility of fulfilling his father’s prophecy extremely seriously and devoted himself to his studies with spectacular results, not only topping his class but going on to win scholarships first to Oxford, and then to Harvard, and it was at Harvard that he learned of an exciting new frontier in investment: venture capitalism.

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The reluctant capitalist

Cohen took the idea of venture capitalism back to London with him; the concept was so new that very few people knew what it was, and he tells a story of how one of his partner’s young sons told his teachers that his father’s trade was “adventure copulism”. In 1972, Cohen was one of the founders of Apax Partners, one of Europe’s first venture capital firms, but the early going was tough, with backers thin on the ground and deals sparse. Half the partners gave up on the business and Cohen was on the verge of following suit, but his father persuaded him to carry on. Slowly his fortunes changed, and by the mid ‘70s Apax began to find its feet and then thrive in the increasingly deregulated financial markets toward the end of the 20th century. Cohen was widely recognized as one of the great financial innovators of the period, but he was increasingly dissatisfied with the work he was doing and started looking for ways to provide more benefit to society. 

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In 1998, Cohen announced to his partners that he intended to leave Apax in 2005 in order to focus on finding solutions to social issues. As things turned out, he began his work on improving society far earlier than anticipated after receiving a call from the UK Treasury in 2000; Gordon Brown wanted him to find ways to solve poverty through entrepreneurial methods. This was fascinating to Cohen because he realized that nobody had ever attempted to use financial mechanisms to solve societal problems before, so he devised the Social Impact Bond, which sought to reduce recidivism rates among young offenders. Five million pounds was raised from private investors to fund the bond and it was hugely successful, reducing reoffending rates by 9.7% in the targeted areas by 2010, and delivering a 3.1% annual return for investors. This was a hugely encouraging proof of concept, with investment generating social benefits as well as profit. Now Ronnie’s task was to develop this innovative approach and see where it would take him. 

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An impactful bottom line

There were other developments happening elsewhere in the field of social investing, with ESG (environmental, social, and corporate governance) accounting being widely popularized from 2004 onward as a means of evaluating social impact of investments. Many are critical of the ESG approach as it is vaguely defined and rarely provides an accurate gauge of a company’s record, especially on environmental issues; it is possible for a firm to vastly increase its production of environmentally harmful products, but also improve its ESG ratings with minimal reductions to or incomplete reporting of its manufacturing emissions. Many accused corporations of gaming the ESG system to ‘greenwash’ their activities.

As Bloomberg wrote in a 2021 article entitled The ESG Mirage: “The most striking feature of the [ESG rating] system is how rarely a company’s record on climate change seems to get in the way of its climb up the ESG ladder - or even to factor at all.” 

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To tackle this issue, Cohen teamed up with Harvard Business School and developed a new, improved system - Impact Weighted Accounting. This method seeks to define ‘impact’ as a measurable metric, providing a meaningful scale by which to gauge the social footprint of corporations. Impact’s rapid rise in popularity heralds a sea change not just for accountants, but also for investors. The greater transparency that Impact provides means investors have more knowledge about and confidence in their decisions, and Cohen believes that this will lead to a seismic revolution in investing that will rival the tech revolution of the last few decades. Companies with poor Impact scores will become seen as bad investments, forcing corporations to clean up their acts or suffer financial consequences, and Impact has the potential to become a powerful force in reforming global capitalism for the Net Zero age.

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In order for Impact to begin influencing the markets in this way, it needs to be widely used and there are challenges ahead in persuading corporations to adopt Impact Weighted Accounting. One of the key frontiers is in changing government regulations in order to mandate the reporting of Impact, and much of Cohen’s time is now spent lobbying regulators to make this happen. In the meantime, firms who seek to make a virtue of their environmental records are embracing the increased transparency of Impact Weighted Accounts; the most notable being Tesla, who have been using the system since 2020. As is often the case, where Tesla leads, others follow, and many firms from a wide variety of industries are now following suit, and Impact accounting shows every sign of overtaking ESG as a more meaningful and pragmatic metric. As Al Capone once discovered to his detriment, sometimes an accountant is the best way to solve a problem, and if Sir Ronald Cohen and his team at Harvard Business School succeed as the True Superhero version of The Untouchables, it won’t just be investors reaping the dividends, the entire planet will have a greatly improved financial future.