Is APAC on the Verge of an Impact Investing Boom?

  • by Tom McManus, AlphaSights HK
  • Jun 15, 2018
Social Impact

On May 10th 2018, I represented AlphaSights and our Social Impact Business Unit at the Financial Times (FT) Investing for Good Asia Conference, which brought together diverse delegates to discuss the changing social impact landscape in Asia, with a focus on the growing investment in the sector and innovative finance solutions.

impact investing
Henry Motte-Muñoz, CEO & Founder of Edukayson.ph, speaks to Sarah Murray from the FT about founding a social enterprise and the challenges of appealing to investors for funding. 

From seasoned impact investors to government and non-government stakeholders, top speakers shared their opinions on the most relevant current topics. Here are four key trends on impact investing in Asia that I gathered from the day.

#1 China’s growing

China took center stage through an excellent keynote speech by Chairman Ma Weihua and a dedicated panel discussion on increasing deal flow in the social sector, as well as the growth of social enterprises and venture philanthropy in China. Given that China only started prioritising this sector in 2016, I was astonished to see the pace with which it has grown.

Since China’s first-ever impact investing Forum in 2017, the government managed to increase public interest towards tapping into the technological and financial revolution, and encouraging traditional investors to plug the funding gap in this area. We’re witnessing innovative financial products and a growth in Environmental, Social and Governance (ESG) tracker funds like the Shenzhen 100 Index. In fact, there has been clear correlation between financial success and ESG compliance for companies within this index, showing that the future will be in this field.

Xi Jinping, President of China, promises to alleviate poverty in the country and grow infrastructure, transportation, and energy through the Belt & Road initiative. China’s shifting from a high-growth strategy to a high-quality-development strategy. This will lead to a demand for investment in social and climate issues, and a move from philanthropy and governmental grants to sustainable impact investing.

With Shenzhen serving as a hub for social innovation, AlphaSights Hong Kong is perfectly positioned to tap into this growing sector and add value to the social progress in the region.

#2 Focus shift from climate-only to social and climate

Although there are a wide range of options for investors addressing climate change — from green bonds to decarbonising investment portfolios — it’s still difficult for investors to track the environmental quality of these tools. Even green bonds have a questionable level of environmental impact. Coal is even sometimes given a green bond label! Across APAC, we are now seeing a growing number of mechanisms for measuring and tracking the environmental effectiveness of these investments.

While climate and the Paris Agreement goals remain firmly in the minds of many, there has also been an obvious shift away from a climate-only view to a more inclusive climate- and social-focused view.

This has been largely due to the implementation of the United Nations Sustainable Development Goals (SDG)– social issues which typically wouldn’t receive investment are now getting more recognition and funding.

impact investing#3 There’s no common language for measuring impact

While climate impact can be measured using innovative new techniques, the move towards tackling social issues has raised concerns about the way that social impact is measured.

Many investment funds have their own impact formulas, or join programs aimed at helping investors such as IRIS, a catalog of performance metrics published by the Global Impact Investing Network (GIIN). In spite of this, there’s a breakdown in communication when it comes to social entrepreneurs being able to convey their impact to investors, and investors conveying what they need from their investment.

This translates to a lack of ‘bankable projects’ across APAC. Both start-up social enterprises and major infrastructure developments aren’t able to communicate why they deserve investment to organizations like the International Finance Corporation (IFC), and impact investors.

Moving forward, there will be a need for a common language to maximize opportunities and match worthy projects with willing investors.

#4 ESG investing is on the rise

GIIN’s CEO Amit Bouri envisions a world where ESG investing will not exist because ALL investments would be in firms that meet these standards. Unfortunately, we’re not quite there yet. Until then, ESG investing is really gathering pace amongst investors and is becoming more prominent in the public eye.

Pension Funds have been at the forefront of responsible investing. Another keynote speaker, Takahashi-San, Head of the Japanese Government Pension Investment Fund, explained how even in Japan he’s hearing people say more and more that they’ll only put their pensions into funds with ESG values. This was unthinkable even a couple of years ago.

Moving forward, companies need to be more transparent and provide information about their ESG values. This has a direct impact on whether or not investors will finance them. It’s not only traditional ‘dirty industries’ like tobacco and oil which will feel this impact, but all companies who don’t seem to be doing their part.

Haoling Xu
Haoling Xu, Assistant Secretary-General, UN; Assistant Administrator and Regional Director APAC, UNDP pictured speaking on a star studded international panel about the challenges of achieving the UN SDGs in APAC and the important role innovative finance will play in getting us there. 

Overall, it’s an exciting time for anyone involved in or interested in social impact finance, investing, and entrepreneurialism in the APAC region. There’s a clear desire from the finance community to do more to meet the SDGs.

APAC represents 50 to 70% of the world’s problems in meeting the SDGs and currently has an $800 billion per year funding gap which will only be bridged by sustainable private investment and an improvement in government regulations and policy.

The good news is that the rhetoric from governmental, private, and NGO organizations is extremely positive and there seems to be a commitment across the entire region to improving the current environment. Through this event, it was apparent that we’re on the precipice of progress. This is the time to kick on and energize all stakeholders into action.

Hong Kong’s Tom McManus, Account Development Specialist, Capital Markets, is the lead manager of Ashoka, one of AlphaSights’ largest social impact accounts. To learn more about Knowledge for Good, AlphaSights social impact business unit, visit our website or email kfg@alphasights.com.