Ronnie Cohen
On Tuesday, we’re having a debate on how we pay for New Towns in the UK. I have been thinking about alternatives to hiking up gilt yields by borrowing from the Exchequer. What’s needed is impact investment and that can come from many sources but none better than pensions.
I have been looking at financiers who understand the needs of society, last week I spent time with Robert Gardner, next week I will be spending time reading work of Ronnie Cohen.
We’ve got a budget coming up when the pressure not to do things from the Exchequer will be mounting. The taxpayer’s money should go further!
The importance of impact investing to pension funds
Pension Funds from LGPS to DC master trusts have an opportunity to do something for Britain, Robert Gardner and Ronnie Cohen are my contribution to the debate with Con Keating and Thomas Aubrey next Tuesday.
As with Robert Gardner, Ronald Cohen is a businessman who can and should be known by those in pensions with vision about what the money we have can do.
He is an advocate of impact auditing in corporate accounting and there’s an excellent FT interview on how this is creating a revolution in the way we view companies here. (it’s free but contacting me henry@agewage.com) if it has run out.
Since its official launch in July 2011, Sir Ronald Cohen has been the Chairman of Better Society Capital, Britain’s first social investment bank. The role of the BSC is to help speed up the growth of the social investment market, so that socially orientated financial organisations will have greater access to affordable capital, using an estimated £400million in unclaimed assets left dormant in bank accounts for over 15 years and £200million from the UK’s largest high street banks.
Its investment from dormant accounts has gone to the Private Equity Foundation, an organisation whose mission it is to support disadvantaged young people into employment, education or training.
The importance of the Better Society today
The FT are reporting on “Impact Investing” as opinion in its Social Affairs section. This article is from Sir Ronald Cohen .
I’m pleased that Ronald Cohen explains Better Society Capital in today’s political climate. In my view it has not been more important
Across Europe, governments are under increased pressure from rising deficits and debt. Public finances are straining under the weight of ballooning spending — from defence to the rising costs of health and social welfare and the energy transition. Geopolitical instability, ageing populations and the impact of artificial intelligence on workforce composition will further exacerbate this pressure.
The question is how governments can tackle pressing social issues in the face of such severely constrained budgets. There is a way forward: impact investment through social outcomes partnerships. This channels private capital towards social issues by delivering a financial return to investors when improved outcomes are achieved. Governments can tackle social priorities much more effectively by paying for social improvement only once it has been achieved and likely generated public savings and revenues.
The UK has pioneered the way in the development of impact investment. In 2010, it invented and launched the world’s first Social Impact Bond (SIB), mobilising private finance to address the challenge of high reoffending rates. By bringing private investors together with the government, it tied the reduction in the reoffending rate to a financial return for investors, and paid investors based on the social outcome delivered — reducing the risk and cost to the UK Treasury.
Early success saw the model replicated globally, and today there are over 300 SIBs and DIBs (Development Impact Bonds) tackling eight policy sectors in 40 countries. They achieve high social returns on investment, while government and philanthropists pay only for the results that are actually delivered.
We know this approach works. Research commissioned by Better Society Capital, the world’s first social investment bank which I previously chaired, shows that these outcomes-based public spending models can enable government to deliver public services at half the cost of traditional commissioning while giving a threefold fiscal return on investment, and produce an additional six-fold social and economic return from the positive outcomes achieved.
Shifting towards such partnerships has the potential to make public spending go further and improve millions of lives. The capital is there for the government to tap into. As of 2023, the UK impact investment market was worth £10bn. The global market is worth $2tn, including a $700bn pool of sustainability-linked bonds and loans, where interest paid by the borrowing company or country falls if targeted social and environmental goals are achieved.
Encouragingly, the UK government has recognised this potential with the announcement by the chancellor this summer of the Better Futures Fund (BFF). Championed by the then chief secretary to the Treasury, Darren Jones, this social outcomes payment fund will be the largest globally, with £500mn from central government and an additional £500mn to be committed by local government and philanthropists.
The BFF aims to support 200,000 vulnerable children and young people across the areas of education, crime and employment to give them a brighter future. But this is only the start. Replication in to other policy areas could take total outcomes-based commissioning to £5bn and beyond, and improve outcomes in reducing homelessness, employment support and workforce upskilling.
Constrained public budgets in the UK and across Europe make the case for outcomes-based partnerships supported by social impact investors compelling and urgent. This approach will transform how governments serve vulnerable citizens, while delivering better value for taxpayers.