An impact approach to public spending may be the answer to mounting social and environmental problems for cash-strapped governments, the impact investing pioneer says in an updated edition of his book on impact investing.
Outcomes-based public spending models, where governments mobilise private capital to deliver public services and in turn generate a financial return to investors only when improved social outcomes are achieved, may be the answer to rising economic and social inequality in developed countries, Ronald Cohen writes in the second edition of his 2020 book ‘IMPACT: Reshaping capitalism to drive real change‘
Cohen, a venture capitalist and philanthropist and a pioneer in impact investing, launched his book at the Global Education Forum hosted this week by former UK prime minister Gordon Brown in New York, during the 80th session of the United Nations General Assembly.
“The world is facing an economic and social crisis, making the case for the advancement of impact investment and outcomes-based public spending models compelling and urgent,” Cohen said.
‘This works’
Past examples have shown that impact investing works, according to Cohen. He referrred to the creation of the world’s first social impact bond in the UK in 2010, which brought private investors together with the government. This not only led to a drop in prisoner reoffending rates, but also paid investors “a return as a result of the social outcome delivered – reducing the risk and cost to the UK Treasury”, said Cohen, a co-founder and president of GSG Impact.
Through the creation of impact accounting, governments will be able to measure how well companies are delivering positive social and environmental impacts as well as profits, Cohen argued.
“The solution is within our grasp. I am calling on G20 governments to encourage, accelerate and embed the development of impact investment in all its forms, by establishing pay-for-outcomes models and mandating impact accounting by companies and investors,” said Cohen, who is also a former co-founder chair of Bridges Fund Management and Better Society Capital, and a co-founder of Social Finance UK, USA and Israel.
The second edition of Cohen’s book, which will include an additional chapter on how an impact approach can generate solutions to social and environmental challenges for investment, business, government and philanthropic decision-making, will be published in November.
