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Sir Ronald Cohen, the founder of Apax Partners: ‘Capitalism hasn’t changed for more than 200 years, but now it’s changing’

The fund’s co-founder is now the father of impact investing, which drives greater social and environmental commitment from companies

Ronald Cohen is the founder of the Global Steering Group for Impact Investment
Ronald Cohen is the founder of the Global Steering Group for Impact Investment. He is internationally recognized as the father of social investment. Here, he is pictured at the Ontier law firm in Madrid.Jaime Villanueva

Sir Ronald Cohen arrives for his interview with EL PAÍS after meeting with Spanish businessmen in the morning… and attending the opera in the afternoon. Married to film producer Sharon Harel-Cohen, anything that involves acting seems like a good plan for him.

His own life could well fit into a script. Born in Egypt 77 years ago, he had to leave with his family at the age of 11, after President Nasser nationalized the Suez Canal. The 1956 crisis pitted Britain, France and Israel against the Egyptian government. Cohen’s mother – British and Jewish – was doubly suspect. She was even placed under house arrest and called to testify before a military court. Cohen’s father, meanwhile, was stripped of his Egyptian nationality. The family subsequently took refuge in London, where they arrived with 10 Egyptian pounds. Cohen didn’t know a single world of English – a language that he speaks today, though it is tinged with an accent.

The life he lived in the UK was a story of resurrection through academics: he earned a scholarship to study at Oxford, where he earned a degree in Philosophy, Political Science and Economics, while also chairing the debate club. He then got an MBA at Harvard, before going on to found Apax Partners, which is a giant in the world of finance today. He founded the venture capital firm in 1972, leaving it more than three decades later to dedicate himself to a larger task: reinventing capitalism to make it more socially and environmentally-friendly. This so-called “impact investing” doesn’t just look at profit, but also seeks to redirect money towards companies that generate positive effects for society. This is a way of encouraging companies to follow a path that is kinder to the planet and its inhabitants. He explains his ideas in the book Impact: Reshaping Capitalism to Drive Real Change.

Based between London and New York, Cohen visited Madrid for three days to attend Impact Week, co-hosted by the Transcendent Impact Consulting Company and the Ontier law firm.

Question. What have you told the businesspeople who attended your talk?

Answer. I think many people are aware of the environmental and social challenges we face… how the gap between rich and poor threatens both our planet and our society and is leading to a clash between democracy and capitalism. We’re seeing pushback against both [systems]. And, at the same time, we’re beginning to see a change in values.

We’re actually at a historic crossroads today. Capitalism hasn’t changed for more than 200 years, but now, capitalism is changing. We’re bringing the invisible heart to the markets, which is empowered to guide the invisible hand. That’s what I’ve been talking to them about.

Q. But is capitalism really getting better? Despite how much they pollute, the profits of oil companies and their shares on the stock market are at record highs.

A. You have to distinguish the cycle from the trends. There’s a very clear trend towards renewables and away from fossil fuels. Even the fossil fuel producers are investing heavily in renewables now. And then you have the Ukraine war. And the Ukraine war creates its own cycle and, you know, oil prices go up and so on and so forth. But you cannot confuse the two. You can’t say, ‘oh, we were wrong, fossil fuels are the future and we’re going to be using ever greater quantities of fossil fuel.’ Even producers aren’t saying that.

We’re shifting away from pollution because you can see the droughts, you can see the fires, You can see the famines. You can see all the consequences of climate change very plainly. And consumers – particularly the younger generation of consumers – were the first to say, “This cannot continue. We’re not going to buy the products of these companies, we’re not going to work for them. And we want greater meaning than just working for a company in an activity that doesn’t improve people’s lives or the environment.” Fulfillment comes not just from doing things for yourself, but doing them for others as well. This balance is what the younger generation wants. They’re idealistic in the same way that my generation was when I was at Oxford. I think that the current generation – the millennials – is idealistic about what business investment should achieve.

Q. Have you been surprised by any success stories?

A. Let’s take the example of Tesla. If Tesla had just come along and said, “I’m going to create a new car that will go faster with a combustion engine,” would it have had any chance to break into the auto industry? Zero chance. But by bringing impact – by saying, “I’m going to make a car for those who are concerned about the environment… a car that won’t pollute and, by the way, will perform as well or better than the rest” – Elon Musk, with all his idiosyncrasies, created a company worth $1 trillion in the space of 20 years. He made it worth more than its next five competitors and pushed the entire auto industry away from pollution. We’re going to see this happening over and over again, in every sector. Now, wherever a company is creating negative social and environmental impact, competitors are going to outflank them with new technologies to deliver products and services that don’t create these negative consequences. The prize is going to go to the companies that are bringing solutions to the problem.

If we look at what’s happening with renewables, their valuation is skyrocketing, because they will be the future. Could it be hydrogen? Will it be nuclear? Will it be a new form of solar energy and batteries that will store water for us? The technology and the impact that come together today will be as big a revolution as the one introduced by the microchip.

Q. That raises a question for me: is Musk creating an electric car to improve the world, or because he sees a niche to make more money? Although perhaps the result matters more than the reason…

A. I don’t know Musk. I’ve never talked with him. But you don’t do something like raise $150 million in venture capital just because you think it’s a way to make money. You do it because it’s profit with a purpose. The two things cannot be dissociated. Musk wanted to show that you can have a green car and make money at the same time. And those are the new rules of the game. We’re going to see it in finance. Banks have been growing over the centuries, but they don’t do the socially correct thing most of the time. Sometimes they charge more interest to the most vulnerable people, simply because they’re too weak to refuse – not because it is justified. So, new digital platforms, they’re coming in and saying “okay, we’re going to provide [credit] at the right price.” And this is how the banking model will change. Large companies that understand this change – [the ones that] embrace it and start thinking about how entrepreneurs are going to threaten them – will be able to stay ahead. But those who don’t realize it will be outpaced by competitors, just as IBM was overtaken by Apple and Microsoft.

Ronald Cohen during his interview.
Ronald Cohen during his interview.Jaime Villanueva

Q. Is the war in Ukraine a threat to that progress you are talking about?

A. The geopolitical risk that we’re beginning to see makes me very uncomfortable with the stability of the world. We’re not living in a time when we have an abundance of great political leaders who are farsighted and wise. I think the main impact of the Ukraine war was to increase the sense of risk.

Q. You insist a lot on the importance of measuring impact.

A. Investors want profit and impact, but there’s no transparency about the impact – that will be the tipping point between the capitalism we have done up until now and capitalism as it moves forward. The impact will guide the behavior of companies, because transparency will allow consumers to make choices that are going to affect the profitability of [firms] and allow investors to make similar choices. It’s going to give governments the transparency to provide incentives and disincentives. We’re already talking in terms of a carbon tax… we’re perhaps going to be talking about tax credits for companies that are making a positive impact on society. It’s a watershed moment – it’s going to help us close the social gaps that we see, because a lot of the social gaps arise from the employment behavior of companies, whether it has to do with gender, whether it has to do with ethnicity, or whether it has to do with salary levels.

Q. If the system doesn’t change, is there a danger of a populist rise?

A. Democracy, like capitalism, is based on freedom. The freedom to lead your life as you wish… and the freedom to compete with other companies within the law. But where democracy and capitalism collide is in the distribution of capital and work, which [mostly reaches] the most-educated. This is the balance that we need to redress. Today, I think [the salary of] a CEO is 359 times higher than an average employee in the United States. These gaps cannot be sustained. They create a feeling in people that democracy is not working for them and they revolt and they become prone to the promises of populist leaders who say, “democracy doesn’t work for you; trust me, as a protector, I will make sure you get your fair share.” And that leads us to governments that are unscrupulous, undemocratic… [governments that] don’t distinguish between truth and falsehood. We see this in many countries around the world.

People like Donald Trump have taken us to identity politics. What does that mean? It means they identify with the electorate. They speak the language of the electorate. The electorate looks at somebody like them [as somebody] they can admire, because they’ve been successful. And so, they follow them blindly. And then, it doesn’t matter whether [the populist] delivers or not. It becomes like a football team: if you’re a Barcelona supporter, then you’ve got to continue to be a Barcelona supporter through thick and thin. Social media plays a big role in this.

Q. Let’s end with a jump to the future and another to the past. What advances can we see in the impact investing movement in the coming decade?

A. I would say that before the end of this decade we will see many companies – perhaps most – publish an impact statement as part of their financial statements. [They would declare] not only expenses and income, but also operational impact on the environment, employment and supply chains. And we’re going to see a slew of new companies with new technologies beginning to break through and [replace] the business models that deliver negative impacts.

Q. Now, let’s go backwards: in 2001, you were knighted for being a pioneer of venture capital in Europe. What was that like?

A. Amazing. In 1957, I arrived as a refugee. And, in 2001, I was being knighted. My father, unfortunately, had passed away, but for my mother, it was a huge, huge thing. You go to the palace and they allow you to bring three people with you. My wife and two children came. There’s a procession – with all the pomp you just saw at the coronation, but on a small scale – and then there’s a stool where you kneel in front of the Queen (Queen Elizabeth II) who knights you with a sword. And you worry about your ears!

Then, when she’s knighted you, you shake her hand and she has a few words with you. And then you leave. If you now ask me what the title did for me, I would say that perhaps I get a slightly better table in restaurants.

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