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SOCAP Recap: Sir Ronald Cohen and Darren Walker on Meeting the World’s Greatest Challenges by Reimagining the Future of Capitalism

SOCAP Recap: Sir Ronald Cohen and Darren Walker on Meeting the World’s Greatest Challenges by Reimagining the Future of Capitalism

Years of rising social inequality and environmental threat have laid plain the fact that our existing system of global capitalism doesn’t work. Such was the opening sentiments of Sir Ronald Cohen (Author, Impact, and Chairman of the Global Steering Group for Impact Investment and Portland Trust) and Darren Walker (President of the Ford Foundation) during a frank discussion at SOCAP Virtual last week. The entrenched stakeholders of the capitalist system don’t want change, only profit, while the government levies taxes on the masses to fix the damages caused by a few.

The lack of moral leadership in the capitalist world has made it difficult to envision the policies and incentives required to change our reality. In 1933, the U.S. led the world in introducing transparency to accounting standards. Who is going to take up that mantle of leadership today? The speakers posited that we need not wait for government leadership – impact investors are already shaping a better path forward for capitalism.

Sir Cohen introduced his work on the Impact Weighted Accounts Initiative (IWAI) as an example. The Initiative seeks to create accounting statements that capture external impacts reflecting a company’s financial, social, and environmental performance. To date, the Initiative has tracked over 1800 companies.

First, the bad news: of the 1800 companies measured, 250 create more environmental damage than what they make in profit, while 600 create environmental damages equivalent to profits. The good news? We can already see that companies that generate more environmental damage are worth less in the stock market — investors and consumers are shunning them. In fact, more than a third of all managed assets in the world are already being invested to achieve impact. The younger generation, which believes in more than just making money, is putting their entrepreneurial energy into social and environmental improvement alongside dollars.

Balancing not only risk and return, but risk, return, and impact, will be the formula of profitable companies of the future.

Sir Cohen and President Walker offered a number of next steps for impact investing. President Walker highlighted the need for companies, asset managers, and asset owners to adopt a single lens to analyze impact issues.

As an industry, we must build consensus around a framework to measure impact, or companies will forum-shop to get the consultant or framework that gives them the best grade.

As the public and as shareholders, we must incentivize long-term behavior that allows companies to focus on the future rather than quarterly earnings statements. As individuals, we should buy from and work for only companies we respect.

As President Walker concluded, “it is possible to have ethical enterprises that are profitable and prosperous.” It’s up to us to make the market work for justice.