Will Impact Investment in Asia take off?

Date

November 21, 2017

3 min read
  • Despite increasing interest in impact investment, the number of practicing social impact investors in Asia is still relatively small compared to its potential.
  • 3 reasons why impact investment in Asia is not in full flight
  • Multi-sector platforms and opportunities to develop the impact investment ecosystem in Asia

Global interest in impact investment and the amount of assets allocated using impact investment practices have increased significantly over the last decade According to the Global Impact Investment Network (GIIN), while current impact investment assets under management are estimated at US$114 billion,  the amount of capital needed to achieve the UN Sustainable Development Goals (SDGs) by 2030 is US$2.5 trillion. This means that there are considerable amounts of opportunities for impact investment to play a role in addressing some of the world’s largest social issues.

Abhilash Mudaliar, Director of Resarch and ImpactBase, GIIN, shares insights from GIIN Annual Impact Investor Survey

Nonetheless, while most of the assets and investments are in emerging markets, most investors come from Western Europe and the United States[1]. Given the new wealth in Asia, why do we not see more Asian players investing for social impact? 

Social Impact Drivers across Sectors in Asia
Given an increasing interest in Impact investing in Asia, the number of ecosystem players is definitely growing. They include incubators, academia, institutional investors, corporates, government agencies and high network individuals.

Credit SuisseUOB Ventures recently closed their Impact Investment Asia Fund, a $55 million fund investing in businesses with strong social impact in China and South East Asia. The Australian Government Department of Foreign Affairs and Trade (DFAT) together with Frontier Innovators recently launched a A$15 million fund to support social enterprises in South East Asia. HG Initiative, started by Kyungsun Chung, a next generation member of the Hyundai family in Korea, invests in social enterprises and builds real estate developments for sustainable and healthy communities. Lastly, more academic institutions in Asia such as INSEAD and CUHK are offering a number of courses and competitions to build the next generation of social entrepreneurs as well as the next generation of impact investors.

The trends are definitely positive across Asia, but the number of active players involved in impact investment is still relatively small compared to the potential.

Challenges and Opportunities in Asia’s Impact Investing Landscape

  1. The Impact Investment industry is still a niche, unexplored space
    Many funders and investors are generally still not aware of the concept of impact investment. The traditional Asian mentality still tends to separate philanthropic giving and business as two very distinct activities that do not overlap.
    RS Group, a family office from Hong Kong, recently conducted a survey with different ecosystem players in the sustainable finance ecosystem in Hong Kong. Its findings reveal that the primary reason for not engaging in sustainable finance is due to the lack of awareness and knowledge.
  2. The Impact Investment Ecosystem is still in its Infancy
    The entire impact investing ecosystem in Asia, from high quality social enterprises, to intermediaries, accelerators and impact funds, are in a fledgling and growing stage. This suggests why the growth of the sector is still slow.
  3. Perception of Risk
    Concessionary type of financial returns may not be as attractive to large institutional investors and family offices that need to achieve a certain type of returns on their assets.

However, the reality is that there is broad spectrum of possibilities for attaining both impact and financial returns. Investing in deep impact will most likely involve some financial trade-offs in exchange for large social returns, while investing in Environmental, Social, and Governance (ESG) and Responsible Investments probably will still be able to achieve competitive market rate returns.

During my roundtable talks in Hong Kong, Shanghai and my participation at D3 Impact Nights in Jeju, there were interesting discussions about the role of foundations in the impact investment space. The consensus was that there is a need for a blended finance approach – the combination of foundation’s patient and concessionary capital with finance-first impact capital is an effort to scale the number of active investors in the impact investment space.  As this is quite a new trend in Asia, only very few pioneering foundations such as the SK Happiness Foundation in Korea, the Sasakawa Peace Foundation in Japan and the Leping Foundation in China have ventured into impact investment.

AVPN shares about Impact Investing Trends in Asia at the Shanghai Roundtable

Interest in impact investing will only increase. I am very excited to hear about the formation of the East Asia Impact Investment Steering Committee, made up by AVPN members in Korea, Japan, China, Taiwan and Hong Kong to develop the movement of impact investment in North East Asia.

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In summary, there is a continued need to educate the market, bring up best case studies, and develop capacity in order to build up the ecosystem of social investment in Asia, from grant making to impact investing. AVPN is committed to play a strong role in this effort as we improve the effectiveness of our members across the Asia Pacific region. More interesting developments and discussions on this topic will be continued at the AVPN Conference 2018 in Singapore on June 4-6, 2018.  Save the date!


[1] 2017 Annual Impact Investment Survey published by the GIIN.


About Author
Patti Chu
Patti Chu Greater China Director AVPN

Patti Chu is AVPN’s Greater China Director. Patti has over ten years of experience working on international development issues with particular focus in the areas of financial inclusion, microfinance, education and sustainability.

Patti started her career in New York with the Bank of Tokyo Mitsubishi and has also worked with the International Finance Corporation and Citigroup in Latin America and Asia. In the last few years, Patti has been providing consulting services to various foundations around strategy, program evaluation and impact assessment.

Patti is a native of Argentina and has working experience in Latin America, the United States, Asia and Europe. She has a B.A. in Business Administration and a Master’s in International Development and Economics from the Johns Hopkins School of Advanced International Studies. She speaks Spanish, Chinese, Portuguese and Danish.