Impact investing is catching on, even as the pandemic has caused greater poverty, unequal access to healthcare and climate risks.
Impact investors, part of the wider sustainable investing universe, actively direct capital to ventures likely to make both measurable social or environmental impact and profits — ones that deliver a “double bottom line”.
The Global Impact Investing Network (GIIN), a non-profit focused on raising the scale and effectiveness of impact investing, says impact investments are defined by elements such as: a clear intention to create positive social or environmental impact; an expectation of financial return across asset classes; and a commitment to measuring and reporting the impact made.
Impact investing may be a small market niche today, but it is attracting growing interest, says the International Finance Corporation (IFC), the World Bank’s private sector investment arm.
It helps that the financial performance of such investments has been strong too.
“Despite the severity of the pandemic in the region, our impact portfolio has demonstrated strong resilience, with the overwhelming majority of our investees registering higher revenue growth,” says Mr Seah Kian Wee, CEO of UOB Venture Management (UOBVM), the private equity arm of UOB, which has more than $2 billion in assets under management.
“Some have gone on to raise additional financing at higher valuations, even during these challenging times,” he adds.
Pandemic: More opportunities for impact
Indeed, funding has gained traction despite the ongoing Covid-19 pandemic. The global impact investing market is now sized at US$715 billion (S$970b) — a 42 per cent jump from US$502 billion the year before, according to estimates from GIIN's 2020 report.
“[The pandemic] has sped up global focus on the urgency of core issues such as climate too. The poor are bearing an unequal burden of the negative pandemic impact,” Mr Seah adds.
By the end of the year, as many as 150 million people could be pushed into extreme poverty by the global pandemic, says the World Bank.
The good news? More and more investors are taking the opportunity to make a difference — while making a profit.
“Aside from the increasing investment activity from institutional investors and development financial institutions, we are seeing interest from family offices and the younger generation. They are seeking to invest in innovative solutions that address pressing environmental and social issues,” says Mr Seah.
This is where impact funds, such as the ones UOBVM runs, come in.
Making an impact in Asia
UOBVM raised US$55 million when it launched Asia Impact Investment Fund (AIIF) I in 2015. It partnered financial services company Credit Suisse, which acts as UOBVM’s impact adviser.
The fund focused on high-growth private ventures with sustainable commercial solutions that benefit low-income communities across the region.
In 2019, the partners launched a second impact fund — the AIIF II — which raised more than US$60 million by its first close in December. It remains open for subscriptions and has a target of US$100 million by its final closing, likely by year-end.
The goal of AIIF II is to make equity investments of US$1 million to US$15 million in high-growth companies in agriculture, education, healthcare and logistics, or ones that can boost accessibility of housing, sanitation, clean water and energy.
To date, UOBVM says AIIF I investees have provided healthcare or nutrition to more than two million adults and children from low-income households, enabled access to finance for more than 680,000 micro-entrepreneurs or farmers, and linked more than 12 million low-income young people up to quality education.
Managing and measuring good done
Such benefits to target beneficiaries are tracked closely, as impact measurement is a key facet of impact investing.
Impact measurement could even be a sign of the segment’s growing maturity. According to the IFC, clear impact metrics are crucial as they allow investors to measure their contributions, improve their effectiveness and demonstrate accountability.
It notes that more assets were invested with identifiable impact management systems in 2020, compared to 2019.
UOBVM also believes in the importance of impact measurement.
It was the first Southeast Asian signatory of the Operating Principles for Impact Management in 2019, the year the IFC launched it as an industry framework and reference. The nine principles cover the full investment cycle, from fund formation and deal sourcing to exit. It provides a systematic approach that allows funds to implement a variety of measurement frameworks and tools.
It also requires external verification, which Mr Seah says is key for transparency. “We believe this alignment is important to assure investors of the consistency in reported results and allay concerns over impact washing.”
“As an impact investor, we want to work with the global investment community in advancing best practices in impact investing and to share experiences,” Mr Seah adds. UOBVM is also a signatory to the UN-supported Principles for Responsible Investments and a member of the Asia Venture Philanthropy Network.
“We focus on tracking metrics that are meaningful to investees while illustrating the depth of impact on beneficiaries, enabling our investors to have a better understanding of the impact of the portfolio.”
Unleashing the power of capital for social good
Across emerging Asia, UOB Venture Management (UOBVM) has identified, and continues to see, opportunities for capital to improve livelihoods and reduce inequality, says Mr Seah Kian Wee, CEO of UOB Venture Management (UOBVM).
Its Asia Impact Investment Fund (AIIF) I was the lead investor in the 2017 Series B funding round of Ruangguru, an Indonesian education technology company. Ruangguru provides affordable digital education content to students, particularly those in remote rural areas.
Ruangguru has since expanded to Vietnam and Thailand, and now serves more than 20 million users.
“Even with the pandemic school closures, Ruangguru ensured students’ access to its learning platform and worked with large telecommunications companies to provide free internet access,” says Mr Seah.
More than 10 million children accessed the free online school that Ruangguru offered last year, while more than 200,000 teachers tapped on its free online training content.
UOBVM also adds value post-investment through active board participation and tracking the impact on target beneficiaries. For Ruangguru, this goes down to granular data such as student numbers in cities versus remote areas, affordability, improvement in test scores, and more.
Besides education, AIIF I is also helping to increase access to healthcare across Indonesia through its fund. It was the lead investor in the 2019 series B financing round of digital healthcare platform Halodoc.
More than 80 per cent of teleconsultations with the more than 20,000 licensed doctors on Halodoc are used by patients living outside of cities like Jakarta and Surabaya, some of whom would not otherwise have access to specialist doctors.
Another challenge faced by rural populations in Indonesia is access to banking services.
Recognising that need, AIIF invested in PT Amartha Nusantara Raya in 2019, before raising its stake in the company earlier this year. Amartha is a fintech microfinance provider that started in a small village in West Java in 2010 with a focus on female borrowers in rural areas.
It has since supported female micro-entrepreneurs in more than 23,000 villages in Java, Sumatra and Sulawesi, helping them through loans and financial education courses. Amid the pandemic’s challenges, Amartha continues to roll out help such as training support to launch new micro-businesses.
This is the 11th of a 15-part series in collaboration with