The Rise and Rise of Impact Investing in Asia

What is Impact investing?

References to Impact investing are becoming more and more prevalent in discussions about money and investing. But what exactly is Impact investing?

Most obviously, Impact investing is investing. In other words, it is deploying capital to risky ventures in the hopes of a financial return. But Impact investing departs from more traditional investing by insisting on a desired positive social outcome, in addition to a financial return.

This social outcome can be highly subjective, or highly measurable and objective, or something in-between. For example, an investment can be aimed at “increasing access to financial services for the underbanked”, which is a fairly subjective value statement. On the other hand, an investment outcome could also be very specific, for example funding a plant upgrade to achieve a specific reduction in CO2 emissions within a certain time period.

Impact investing is on the rise globally

There is no single “Impact investment” dollar amount globally to refer to. Yet most attempts to measure Impact dollars point to both the rapid growth and huge scale of Impact investment.

For example, in its 2020 market report, GIIN, the Global Impact Investment Network, estimates the global Impact investment pool at USD715 billion. This number is expected to grow to USD26 trillion in the years ahead.

Asia is behind but is poised to catch up soon

Not entirely surprisingly, the push toward Impact-themed investing is led by the rich world.

GIIN, for example, estimates that the United States and Canada account for 50% of all Impact investment managers, while Europe accounts for an additional 29%. In contrast, Asia accounts for only around 9% of Impact investment managers.

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However, Impact investment as a theme is likely to grow rapidly in Asia, in line with rising wealth levels.

Just in recent weeks we have seen two big announcements in this regard. Taking a strategic view of the growth of Impact investment as a theme, Singapore’s Temasek announced a USD500m investment in the funds of Impact-focused private equity firm Leapfrog. Shortly thereafter the ADB announced the creation of a USD100m Impact debt fund to support young companies.

Southeast Asia will grow as a recipient of Impact-themed investments

Interestingly, and perhaps a bit surprising given developmental needs in the region, Asia has not just lagged in Impact investing, but has also been lagging as a recipient of Impact-themed investments.

Blackrock, for example, notes that Asia as a whole accounts for only around 14% of all Impact-themed investments, with Southeast Asia accounting for only 3%.

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Within Southeast Asia, private Impact investment deal activity has been concentrated in just three markets — Cambodia, Indonesia and the Philippines.

Given the growth in Impact investment as a theme, coupled with huge developmental challenges in Southeast Asia, we expect that Impact investment will become a dominant force in Southeast Asia in the years ahead.

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The problem of greenwashing

Any discussion of Impact investing would not be complete without a reference to the potential for abuse. The Impact investment community has even developed a word for it: Greenwashing — the practise of making claims around Impact investing in fund marketing materials, but not following through with actual implementation of Impact strategies.

A related problem is the lack of measurement and quantification of Impact outcomes. For example, it’s a noble aim to invest in solar power for underserved communities. But without a rigorous quantitative analysis of what outcomes such investments have on people’s lives and livelihoods, a full understanding of Impact outcomes will remain elusive.

Concluding remarks and PRIVIUM’s role

As a Singapore and Jakarta based boutique investment bank, PRIVIUM is uniquely positioned at the intersection between Impact asset owners, Impact asset managers and Impact issuers.

This unique position has allowed us to evolve into a key ecosystem enabler for the Impact community.

We experience first hand, day-to-day, the growing interest of European, U.S. and Asia based asset owners and asset managers in South and Southeast Asian Impact issuers. In terms of the Impact mandates that we have advised on to date, three things stand out.

First, there is a growing interest in Southeast Asia as a destination for global Impact investment flows. India has traditionally been the mainstay for inward Impact investment. But increasingly global Impact investors are moving further east.

Second, in Asia, Impact investors have traditionally focused on debt investments. This probably reflects, in part, the outsized role that DFIs (development finance institutions) have historically played in the region. Increasingly, however, we are seeing an acceleration of equity strategies, including early stage equity.

Third, we are increasingly seeing a sector diversification away from the traditional large allocations to financial services investments and energy investments, into manufacturing, agriculture and in some cases even technology investments.

All of these developments are healthy and portend multi-year growth for Impact investing in Southeast Asia and the rest of Asia. PRIVIUM remains committed to serving assets owners, asset managers and issuers as the ecosystem grows and evolves.

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