In this episode of China Money Podcast, guest Margot Brandenburg, former senior associate director at the Rockefeller Foundation, speaks with our host Nina Xiang, about China’s nascent impact investing sector, what she sees as the main driver of the space’s future growth, and what the pioneer impact investors in China are doing.
Read an excerpt below, but be sure to listen to the full episode in audio. Don’t forget to subscribe to the podcast for free in the iTunes store.
Q: What is impact investing, and what has the Rockefeller Foundation done in this field?
A: Impact investing is investment made with the intent to generate a positive social and environmental impact, as well as a financial return, or the so-called double or triple bottom line investing.
About six years ago, the Rockefeller Foundation convened investors, entrepreneurs and others who are active in this double bottom line investing space. We asked the question: What would enable investors to put more money to work more impactfully?
The Rockefeller Foundation spent US$40 million over the past five years to help build the architecture of impact investing by starting the global impact investing network, developing new funds and intermediaries and supporting basic research and other initiatives.
Q: What is the difference between impact investing and ESG (Environmental, Social and Governance) investing?
A: You could say that there is a lot of babble in the space, including ESG investing, SRI (socially responsible investing), and many others. Typically, when you talk about ESG and SRI, you might be talking about screening out bad companies like tobacco or firearm makers.
But impact investing is not about doing less harm. It’s about proactively trying to create social and environmental good, as well as to solve particular problems. It’s complementary to ESG investing, but distinct from it.
Q: How has the impact investing space evolved during the past five years?
A: The term and concept have resonated with people more and faster than we could have hoped. I remember in 2006 when I came to the Rockefeller Foundation, it was difficult to find a fund manager to take a check of US$2 or US$5 million to deploy that into social enterprises or mission-driven companies.
Now, the global impact investing network maintains a database of dedicated impact investing funds. There are several hundred now. Big financial institutions such as Morgan Stanley, JPMorgan and Goldman Sachs are also getting involved.
Q: I imagine spreading the concept in Asia might be a bit slower?
A: Philanthropy in the U.S. consists of a larger and more sophisticated network of professional foundations. That has helped to lay a foundation for impact investing such as the social rating systems, technical assistance for social enterprises, among others.
That is one reason why there has been a slower development in regions where this foundation still needs to be built.
Q: How about in China? Are investors warming up to the idea?
A: Certainly, Hong Kong is a center of gravity because of the pioneer investors who are based there and the (favorable) government policies.
There is growing interest in impact investing in Mainland China. It’s still in its infancy, but we are seeing some institutions starting to do it. The You Change Foundation is looking at impact investing as a complementary strategy. The China Impact Fund invests in small and medium enterprises that provide environmental products.
There are also some individual investors, such as Hong Kong-based investor James Chen, who invested in a hospital in Shanghai that demonstrates a new model of healthcare in China.
Q: In the book, you also included Chinese venture firms Tsing Capital and Yimei Capital as examples of pioneer impact investors. China’s government has set ambitious goals to clean up pollution, which has created enormous investment opportunities for private investors here. Would any fund that invests in clean energy, for example, be considered also an impact investor?
A: Intentionality is integral to the definition of impact investing. So strictly speaking, we wouldn’t consider anyone whose investment happens to have a positive influence as impact investing.
But the trends such as resource scarcity and the need to invest in renewable energy are driving purely profit-motivated investments, which in turn is also making certain impact investment opportunities look more attractive.
Q: For an investment fund, its primary obligation is to realize returns for its investors. Why would a fund consider taking up impact investing, aside from doing good?
A: The Global Impact Investing Network and JPMorgan undertake an annual survey of impact investors globally. This year, investors are equally split between those who want a market rate of return and the investors who can take a below market rate of return.
Q: What are some encouraging signs you see in Asia and China that could drive impact investing growth in the future?
A: There are a total of US$10 trillion sitting in the bank accounts of high-net-worth individuals in Asia Pacific. That’s capital that is flexible (compared with other form of capital such as pension funds). At the same time, Asian social investment firm Avantage Ventures estimates that there is US$75 billion in demand for capital from social enterprises working on affordable housing, elderly care and primary education.
Q: What do you think are the biggest challenges for impact investors in Asia and China?