Impact Investors in Asia: Characteristics and Preferences for Investing in Social Enterprises in Asia and the Pacific
The aim of the research is to understand the “buy” side of the market for impact investing in Asia and the Pacific. Specifically, this project places emphasis on understanding the scale and scope of capital pools available for impact investment in sustainable social enterprises (SEs) 1 in Asia and the Pacific in the coming years, the interest of investors in utilizing a “social stock exchange” as part of their impact investment strategy in the region and the design features that such a social stock exchange must incorporate in order to attract these impact investors.
The research seeks to understand, “What engages investors in impact investment?”; What is the current and projected level of interest?”; “What is the need for and appeal of a social stock exchange?”; and “What are the operational requirements for each investor category to participate on a social stock exchange?” – all in the context of Asia and the Pacific region.
This report provides insights to investors keen to invest in the region, financial intermediaries that advise SEs on capital raising, and developers of platforms seeking to connect SEs in the region with impact investors. Impact Investment Exchange Asia (IIX), an SE based in Singapore, is applying the final outputs of this research as it finalizes the operating features of Asia’s first social stock exchange, which it is creating. The outputs of the research will also aid policy makers and institutional actors to better understand and foster an environment for sustainable development through impact investing.
Executive Summary - Background
Impact
investing has emerged
as an alternative
asset class that
channels large-scale private
capital into addressing the
world’s most pressing social and environmental challenges. J.P. Morgan
estimates that the impact investment market has the potential to absorb between
US$400 billion and US$1 trillion over the next decade, even when only including
five sectors (housing, rural water delivery, maternal health, primary education
and financial services) in the analysis.
While foundations, development finance
institutions and ultra-high net worth
individuals have been
the traditional pioneers
in impact investing,
there is a
large supply
of untapped impact
investment capital among
individuals and institutions
that can help
to meet this investment demand
over the coming years. Our hypothesis is that the development of a social stock
exchange serving SEs in Asia and the Pacific can help to unlock this supply of
impact investment capital. The capital
markets can play a critical role in sustainable, economic development in Asia.
753.5 million people in Asia and the Pacific region live on less than US$1.25
per day, and approximately 63% of the world’s
poor population (defined
as living on
less than US$2 per
day) live in Asia.
Possessing
huge growth potential in Asia, sustainable SEs are uniquely positioned
to address a wide range of economic, environmental, health, and social
challenges. Though a large
number of innovative
SEs address a
myriad of social
and environmental challenges throughout Asia,
a disconnect prevails
between the supply
of impact investment
capital from impact investors and the demand for growth
capital by SEs. This disconnect is presently curbing SE growth and inhibiting
the inherent potential of leveraging market-based capital for social impact.
The disconnect arises from the lack of information about the availability of
impact investment opportunities in the region as wellas the difficulty and high due diligence
costs incurred in accessing such opportunities; the high perceived risk
associated with impact investments, especially in emerging markets; and the
potential illiquidity of investments in SEs and limited range of exit options
for investors. This disconnect also arises from the lack of standardized impact
measurement and reporting as well as from a mismatch, in many instances,
between investors’ and SEs’ expectations for financial returns on impact
investments.
A regional social stock exchange may be
able to reduce this disconnect of supply and demand by addressing these
issues. In particular,
a regional social
stock exchange could
improve access to
and reduce due diligence costs for investment
opportunities in SEs; offer a variety of investment products that may mitigate risks; improve
liquidity in impact
investments; improve transparency
by establishing standardized reporting for
social and environmental
impact; and engaging
market intermediaries and
encouraging stakeholder participation.
IIX and its not-for-profit affiliate,
Impact Investment Shujog (Shujog), are
playing a critical role in the development of Asia’s first social stock
exchange. Recognizing that there is a need to build up the capacity of SEs in
Asia so that they can effectively absorb growth capital, Shujog focuses on
capacity-building, advocacy,
research and education
related to the
SE sector in Asia
and the Pacific.
In order to facilitate private capital raising by SEs in
Asia and the Pacific, IIX launched Impact Partners in March 2011, serving as
Asia’s first private placement platform connecting SEs and impact investors.