A Renewed Optimism Behind Impact Investing in Asia
Last month, I was lucky enough to represent AlphaSights’s social impact business unit at the second annual Financial Times’ Investing for Good conference in Hong Kong. With this year’s focus on 'new opportunities for regional transformation', the event brought together impact investors, asset managers, foundations, and social entrepreneurs to address how sustainable and innovative finance can be used to bring solutions to current opportunities and challenges in Asia.
The institutionalized world of “traditional finance” has conventionally made the idea of mobilizing private wealth for social good to create “catalytic capital” seem overwhelmingly optimistic. However, through AlphaSights’ work with impact investors and social entrepreneurs, I’ve been introduced to how impact investing can tangibly generate social impact as well as yield meaningful financial returns by aligning both with sustainable objectives. Before getting involved in the space, I also questioned whether there’s an inherent conflict in purpose-driven profit. Surely there has to be a tradeoff?
That said, discussions and insights from the conference reaffirmed the belief that there is a positive middle ground to be found. Learning more about the motivations driving individuals and groups striving to make impact investing more accessible also left me feeling optimistic and energized.
Here are a couple of insights and/or reasons to maintain this optimism.
A panel on ‘impact measurement’ demonstrated that measuring (positive) progress drives more progress
Impact measurement can be seen as tedious, arbitrary, performative, or even as a disingenuous marketing ploy from corporations. Corporations in Asia are often criticized for lacking the transparency standard that’s found in the US and Europe, making ESG integration in Asia challenging. While groups like the Asian Venture Philanthropy Network (AVPN) develop holistic standards that create a forum to build a global consensus that brings different stakeholders together, the fact that there isn’t a one-size-fits-all measurement for impact measurement can be frustrating.
Yet, by realistically focusing on metrics that truly matter to you, measurement not only communicates but also drives progress. It’s easy to feel defeated by statistics (98% of VC funding goes to men?) or drowned in acronyms (ESG, SRI, RI, GIIRS, CSR, the list goes on) when talking about impact investing, but identifying specific objectives also forces us to distinguish between emerging market investment and actual tangible impact. Objectives give companies a compass and encourage investors to resist the temptation to seek out companies that are already excelling from an ESG standpoint. Rather, investors can partner with companies that want to change their practices to do better.
Panelists also seemed to concur with the idea that ESG integration should be presented as an opportunity as opposed to a regulation that you’re obligated to adhere to or are penalized against. With groups like B-Corp becoming a more globally recognized ‘badge of honor’, companies are incentivized to do better when positive behaviors are recognized and rewarded. Technology is also used to make these goals more transparent. Ecomatcher, which helps companies use smart tree planning to become more sustainable, hopes to plant 1 million trees in three years time and uses GPS tracking for each tree to ensure that its carbon capture goals remain transparent.
Investor and consumer demands are shifting and changing the way we define and work towards success in the long run
As investor and consumer demands change, our mindset towards ‘doing good’ and how we’re choosing to view and measure success in the world is also transforming. While significant incentivization is still required for more sustainable ways of investing in a culture where capital markets are wired for fast returns, reports also show that a diverse portfolio of socially and environmentally responsible investments are a safer bet for investors in the long-term. Speakers throughout the day reiterated how important education is to shift our mentality so that we can begin measuring output driven metrics and put a spotlight on longer-term outcomes in order to build a business case for sustainability.
As we focus on longer-term financial returns, we need to recognize that progress doesn’t happen overnight. We strive to address imbalances, ‘right the wrongs’, and galvanize immediate tangible change; but the gender lens investing session also reminded us that progress is a process. Marcel Neutel (Managing Partner and Chief Investment Officer at C4D Partners) opts to proceed with an increased awareness for diversity and the need for gender to be acknowledged, rather than integrate an immediate 50/50 gender representation. They’re aiming for a certain percentage of their capital to go towards women-led or women-owned SMEs.
Lastly, Durreen Shahnaz, Founder and CEO of Impact Investment Exchange (IIX), challenged investors to make an impact as defiant optimists in her opening address. By embracing risk and maintaining optimism in connecting “the backstreets to Wall Street”, we can transform the conventional approach to how capital is distributed. Of course, there are still significant gaps in understanding and collaboration that need to be addressed in order to bring together a “fragmented universe of impact investing to create real change” (Helene Li, Co-founder, GoImpact Capital Partners).
I am hopeful that this kind of continued dialogue will begin to reduce those gaps and drive progress.
OnTing joined AlphaSights in March of 2018 and serves as a Client Service Associate in our Hong Kong Office