Since I was a teenager I’ve been interested in social entrepreneurship, particularly after I spearheaded a language arts program for elementary school children that evolved into a business. Now that I fell into the realm of venture capital, I’m paying careful attention to the evolving business of impact investing. Words are buzzing around today when it comes to impactful changes and making a difference. Think “green,” “clean” tech,
“(SRI), Social Responsible Investing, “or “Sustainable, Responsible, Impact,” among many, many others. I’ll cover sustainability later. In this post, I want to focus on impact investing and how Asia and the Pacific in general, are pioneering this innovation.
An article caught my eye this morning which discusses the hot topic on impact investing in Southeast Asia. I was particularly intrigued since it ties in with my past experiences of teaching abroad for several years post undergrad in Bangkok, Thailand. You don’t have to visit Thailand or Southeast Asia to recognize impoverishment and the urgency to improve standards of living in the pockets of inner city neighborhoods and outlying areas.
Majority of the poverty-stricken, or borderline poor, citizens are labor workers who are fishermen or field pickers. Ironically, unlike many high technology investors in Asia, tech was not at the core of impact investors’ business models. Instead, they were investing in micro businesses, wild fisheries, and agriculture and natural resources sectors.
Impact Investing differentiates from traditional investing in several ways. First, there is are two kinds of KPI: the financial return and a “key purpose indicator,” quite simply, a metric that measures the company’s positive impact. Impact and profit grow together, without sacrificing one over the other. Second, unlike tech startups where the innovative product is brand new and unknown to the consumer, (and also why tech venture portfolios account for high failure rates), impact companies focus on execution innovation, which means making historically successful businesses even bigger and better today, thus companies in impact portfolios are at a lower risk of failing.
The Bottom Line:
- The investor is looking to make a profit while also having a positive impact on the world
- Occurs in a developed or emerging market (think microfinance, improving employment and education opportunities, supporting sustainable agriculture, or developing clean technology, among others)
- Happens through private equity, debt, or fixed-income securities
- Impact is experiencing explosive growth where assets are expected to grow to $500 billion by 2019, some predict as high as $3 trillion
In my next discussion on this topic, I’ll feature impact investors pioneering the way for the positive social and environmental improvements.
Work Cited: (Freischlad, Nadine. October 3, 2016. The rise of impact investing in Southeast Asia. Tech in Asia. Retrieved from: https://www.techinasia.com)