Published by Fund Selector Asia – 7th Aug 2018
Lack of successful examples for investment returns and weak corporate governance are key challenges for impact investment in Southeast Asia, according to the latest report by the Global Impact Investing Network.
Impact investing is different from ESG investing because with impact, financial returns are not the core reason for investing.
The GIIS report defines impact investors as a group that seeks positive social or environmental impact through investments while expecting “some financial return”.
In Southeast Asia, the largest impact investment sectors are financial services, energy, and manufacturing. They collectively account for 80% of total impact investments in Southeast Asia, which is mainly from institutional investors.
Since 2007, $904m has been allocated to Southeast Asian impact investment products, the GIIN report said.
The report highlighted that Indonesia, the Philippines, and Vietnam each have relatively mature ecosystems for impact investment and have attracted interest from fund managers, family offices and pension funds.
Weak governance
However, the strategy has a number of obstacles. A key issue is that region lacks examples of success in financial terms to demonstrate to potential investors.
Moreover, from a fund manager’s perspective, Southeast Asia is highly fragmented due to different levels of economic development and government openness to impact investing strategies.
Additionally, institutional investors report that a weak corporate governance culture is a major hurdle in due diligence. Foreign investors engaging in impact investing generally establish a limited local presence in the region, but the lack of transparency requires additional time for decision making.
In terms of local investors, the concept of impact investing is yet to be widely adopted because locals typically use traditional philanthropy as a tool to achieve social and environmental goals, the report said.
However, the research group found that an interest is gradually developing among local high net worth individuals and families in impact investing. In particular, from the wealthy in Indonesia, the Philippines, and Thailand.
The study also found more investors have increased awareness of strategies addressing gender disparities, yet the figure remains low with only $40m of such investments in Indonesia, the Philippines and Vietnam.
New York-based GIIN aims to advocate impact investing and has 260 members globally. Their members include asset owners, asset managers and investment services providers, such as BNP Paribas’ Impax Asset Management, Deutsche Bank and Allianz Global Investors.
