New Delhi: Sir Ronald Cohen is chairman of the Global Social Impact Investment Steering Group with 13 countries—the G8, India, Israel, Brazil, Mexico and Portugal—as partners. He is in India to attend three round tables in Delhi, Mumbai and Bengaluru to discuss and explore the potential of the impact investing sector in India. The events have been put together by the Impact Investors Council, the industry association of impact investors in India. Ahead of the round table in Delhi where he will meet sector experts, CEOs and foundation heads, Cohen talks about impact investing, and why governments can’t solve all social problems. Edited excerpts from an interview:

Connecting capital markets with the social sector—how can one get better traction for that in India?

It seems to me, based on the exposure I have had in the last 24 hours, that what distinguishes India’s ecosystem from others’ is the existence of this 2% corporate social responsibility (CSR) corpus. That does not exist anywhere else in the world. It happens to fit in well with what we are trying to do because impact investing is about connecting entrepreneurs who have social objectives with the capital markets in the same way as entrepreneurs who want to make money or who belong to the technology innovation space.

The idea that we have been developing in India with the Impact Investors Council is that if CSR money can flow into professionally managed charitable funds whose aim will be to be a (social) Outcomes Fund.

But the current CSR law does not allow for this...

Creating a social impact bond (a contract in which a commitment is made to pay for improved social outcomes that result in savings) can be the answer to this. The CSR law allows you to commit funds to not-for-profits or charitable organizations. These funds can be a part of an Outcomes Fund. The Outcomes Fund can be structured in a way that it does not make profit but is paying to make the non-profits sustainable. Of course clarifications will be needed if this can be possible.

How do we deal with trust deficit between the social sector and investors or even the government?

This exists in other countries too. For me this is a question of measurement. The problem arises when you don’t measure and people question whether the money was wisely spent or not. The strength of impact investing is that at its core it is all about measurement. You can’t connect a return to a metric unless somebody has agreed on the metrics and signed off. I think it is a good way of combating the trust issues and in this way the money begins to go to someone who can really deliver the results.

Measuring social impact is tough and expensive...

It was never that easy to say how much profit is being made earlier either. We have gone through a revolution in accounting since the 1929 crash till today. In the same way that you needed to have financial accounts to raise finance, you need impact accounts to raise impact measurement. It’s part of doing business. We all complain about the cost of financial reporting but we do it. It will be the same with impact.

Sir Ronald Cohen, 70Cohen is chairman of the Global Social Impact Investment Steering Group and the Portland Trust. He is also the co-founder director of Social Finance UK (2007-11), Social Finance US and Social Finance Israel, and of Big Society Capital. Cohen chaired the Social Impact Investment Taskforce established under the UK’s presidency of the G8 (2013-2015). In 2012, he received the Rockefeller Innovation Award for innovation in social finance. He co-founded and was executive chairman of Apax Partners Worldwide Llp (1972-2005).

More fundamentally, impact investment is for things that can be measured. There are some things that will have to continue to be funded through donations. Impact investing is additional to philanthropy.

You have previously said that the key to a social revolution will be the young people...

In India, like elsewhere, the young people want more meaning than just making money. In the UK and the US, the best and the brightest instead of going to big consulting firms or investment banks want to join the social sector, and it’s not about not getting those jobs. This generation has had enough of the consequences of making just money. They consider that the financial crisis is from greed and they don’t want the same thing to happen. They are inheriting what they consider to be a threatened society and planet.

Why do people feel the need to bridge the gap between those left behind and those who have it all?

I think something has changed. The one proposition that everyone agrees with is that there is an urgent need to help those left behind. Why? There is a bit of empathy and also there is the sense that the system will just collapse upon itself because of social tensions. It’s just untenable.

Start-ups get so much attention, social entrepreneurs do not get the same kind of interest from investors. Why?

It’s because today investors have not yet made—they will though—allocations to impact investments. My basic proposition is that we move the world where we used to manage in the 19th century just financial return to the 20th century where we added risk to return to now when we actually measure risk, return and impact. The world has to move to “I want both social and financial returns". In order for that to happen, pension and insurance funds, and wealthy individuals have to make an allocation to impact investing so that when they see young social entrepreneurs walk in, the people judging them aren’t asking is this as good as say a tech investment? These investors have to ask what is the combination of financial and social return, and does it suit me? They have to be perhaps willing to accept just a 10% financial return because of the 35% social return that the investment will bring.

What kind of checks should be in place for impact investing to make sure that the social objective is not compromised for profit?

With social impact bonds, it’s easier than it is for profit-with- purpose businesses because in the former you adjust the metrics so that you get results but you can’t get around it. You either deliver the results or you fail. With the latter, I think, you need to lock in the mission, and get the legal mechanism going. In the UK, we are using the Golden Share which has to vote in favour of the change in mission. So the mission remains locked in. If you don’t have a corporate structure like that, investors will worry that you are in it just to make the money.

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