How ESG Funds Can Drive Asia’s Economic Growth: A Spotlight on Leading Impact Funds

How ESG Funds Can Drive Asia’s Economic Growth: A Spotlight on Leading Impact Funds
Date

August 31, 2020

5 min read

While the pandemic has resulted in disruptions and uncertainty in the market, asset owners, fund managers and impact investors have remained active. Many have undertaken fundraising and investment in a more climate-aware portfolio.

To demonstrate how ESG funds can catalyse sustainable economic development and offer greater security and co-benefits, we hosted a webinar featuring two impact funds aligned with the Paris Agreement. The first is a growth equity fund called The Norwegian Innovation Fund. Managed by AV Group Ltd (AVG), it focuses on clean technology and renewables. The second is the SDG+ Indonesia Fund, an ESG-screened global public equities and Indonesian debt fund. Managed by PT Bahana TCW and AWR Lloyd, it provides an annual cash yield to a conservation-focused NGO and creates SDG+ outcomes for its investors. Read on to find out how they work.

The Norwegian Innovation Fund: Harnessing the investment potential of clean tech

AVG and the Norwegian government have established in partnership The Norwegian Investment Fund, which aims to bring out Norway’s forerunners in green solutions and upscale them across Asian or U.S. markets before they are eventually acquired. This is strategically sound, as Asia is the next big market for clean solutions, with strong potential for economic growth and increasing consumer openness. These clean tech companies can also become catalysts in the renewable energy sector by discouraging Asia’s reliance on fossil fuels. The sovereign wealth fund of Norway’s response to the pandemic has provided additional opportunity, as they have liquidated $37 billion to inject back into the domestic economy, especially into renewable energy and infrastructure-based companies.

How it works:

The Norwegian government co-invests not only through matched equity, loans and grants but also through forgivable loans and grants, while assisting AVG with enhanced due diligence on the companies. This government-growth equity fund partnership determines strong climate-focused ESG criteria, which the partners implement into their target identification, investment analysis and decision-making processes. They also evaluated the historical impact and future potential of companies via proprietary frameworks or third-party rating agencies.

Such investment opportunities provide economic value driven by upsides for portfolio firms including revenue upsides (enabled by macro trends), cost savings (through reduced resource use and more efficient processes) and improved risk mitigation (esp. regulatory, reputational, operational) for the Asian markets.

The AVG fund partnership also comprises government institutions such as Norway Investinor, Nysno and Norfund, which all invest alongside AVG.

SDG+ Indonesia Fund: Creating multi-capital returns through innovative funding models

AWR Lloyd, a strategy consulting firm with a 20-year track record in providing international best practice investor relations (‘IR’) services to companies in Southeast Asia, partnered with PT Bahana TCW Investment Management, Indonesia’s fourth largest fund manager with over US$3 billion AUM, to launch the ‘SDG+ Indonesia Fund’. The fund employs a multi-capital returns philosophy by taking a holistic approach in quantifying financial and non-financial impacts of the beneficiaries’ programs. Its objective is to encourage investors to quantify the economic value of non-financial returns, expressed as SDG outcomes.

The beneficiary of the fund is Alam Sehat Lestari (ASRI), an NGO that engages with local communities to reduce illegal logging by 90%, regenerate 50,000 acres of rainforest, and remove approximately US$53 million worth of carbon from the atmosphere. AWR Lloyd is also exploring the potential of establishing incubator and accelerator programmes for start-ups, microenterprises, social enterprise ventures and other businesses that are linked to ASRI’s programmes by involving some of AWR Lloyd’s innovation partners, including UNTIL (the UN Technology Innovation Lab).

How it works:

This innovative model combines:

(i) Financial returns from an ESG blended portfolio which are shared between investors and the beneficiary. The beneficiary shares an annual cash yield of the portfolio, but not in capital gain

(ii) Non-financial returns generated by beneficiary projects and quantified as ‘SDG outcomes’

(iii) Scalability. As the fund evolves, each new division will have particular SDG focus area – with a new beneficiary organization focused on those SDGs.

The SDG+ Fund will provide case study evidence of the full impact (economic, environmental, human and social) from natural capital investments, with the hope that this holistic approach becomes part of the investment decision-making process (from project finance to fund allocation), thereby encouraging further investment into natural capital. As this fund scales and others adopt the model, we expect the structure to emerge as an important force moving the global market towards monetary valuation of SDG metrics.

The Way Forward

While global climate finance has grown significantly in recent years, there remains a sizable gap between the public finance available and the investments needed to address climate change. Closing this gap requires governments and the private sector to leverage a wide variety of resources and instruments whilst taking into account the needs and priorities of developing countries.

The two featured funds display promise through their public leadership and accountability in tackling climate change and SDG outcomes. Such partnerships will greatly benefit Asian governments, who are working alongside the private sector to embed ESG actions consistently across the financial market.

To learn more, hear from AV Group Head of ESG and Impact, Peter Fusaro, and Managing Director, Karl Andersen; AWR Lloyd Managing Director of Corporate Finance, Aris Stamoulis, and Managing Director of Innovation for Sustainability, Brad Denig; and Alam Sehat Lestari (ASRI) Executive Director, Nur Febriani, in the recording of the webinar Catalysing Impact: Investing in Innovative Low-Carbon and Climate Resilient Development. This webinar is brought to you by the AVPN Climate Action Platform, which aims to move the needle by unlocking human, intellectual and financial capital into climate solutions in a more targeted and effective manner.


About Author
Prachi Seth
Prachi Seth Climate Specialist, Manager, Climate Action Platform AVPN

Prachi Seth is an environmental consultant working on climate relevant topics with key entities and influencers across ASEAN. She has more than a decade of experience working for UN organisations, government-linked international think tanks and non-profit organisations, such as The World Bank (WB) India, the International Institute of Environment and Development (IIED), and the Overseas Development Institute (ODI), Eco-business (Singapore), Asia Venture Philanthropy Network (AVPN, Singapore).

Her work has included impact investing, environmental & energy policy research, low carbon project structuring & analysis, socioeconomic data gathering & analysis, and business development across geographies including South & South East Asia, UK and Africa.