24/05/23

HONG KONG: Impact investing grows as investors seek sustainability oversight.

As published on scmp.com, Wednesday 24 May, 2023.

Hong Kong can leverage its vibrant ecosystem for global family offices and asset owners and become a hub for the trillion dollar impact investing industry as investors embrace the fast-growing strategy, which produces social or environmental benefits while yielding profits.

The concept of impact investing, a term coined two decades ago by The Rockefeller Foundation, the US-based philanthropic organisation, has gained in popularity in recent years as investors have started to measure the effect their investments have on society and the planet, not just on corporate returns.

“In Asia, we are not starting from zero since we already have the basic ingredient for impact investing, which is our culture of philanthropy and responsibility to the community,” Katy Yung, managing partner at Sustainable Finance Initiative (SFI), an impact investing network established in 2018 by RS Group. “After the [coronavirus] pandemic, it is clear that more people are doing and thinking about impact investing seriously.”

Yung was speaking with the Post ahead of the two-day SFI Asian Family Impact Summit on Wednesday. RS Group is a family office chaired by Annie Chen, the youngest daughter of Thomas Chen Tseng-tao, co-founder of property developer Hang Lung Group.

Asia’s younger generation has greater awareness about sustainability issues, said Chen, whose RS Group focuses on sustainability. 91 per cent of the group’s portfolio is invested in sustainable and targeted impact strategies, across all asset classes. The remaining 9 per cent consisted of cash and legacy real assets.

“It is almost second nature to them,” she said. “However, they often struggle with how to implement the ideas in their businesses and family offices.”

Yung said there was a need to differentiate impact investing from environment, social and governance (ESG) investing. ESG investing explicitly takes environmental, social and governance factors into account while making investment allocation decisions, with the emphasis on risk management. Impact investing, on the other hand, goes beyond the “do no harm” considerations and seeks to generate positive measurable social and environmental impact alongside a financial return.

The Hong Kong government has hosted two events in the past two months to encourage impact investing, namely the Wealth for Good summit and industry body Global Impact Investing Network’s (GIIN) Asia impact investing conference.

The Wealth for Good forum in March focused on Hong Kong’s role in driving global green and sustainable development and philanthropy work. This was followed by the Navigating the Future of Impact Investing in Asia conference this month.

The government on its part can help further speed up the embrace of impact investing by easing information sharing and by providing incentives like education subsidies which would augment the city’s role as an investment and philanthropy centre for wealthy families, said SFI’s Yung.

Information about impact investing is fragmented and often inaccessible, Yung noted.

“The issue here is not insufficient deals,” she said. “Many people are not aware of them and they are not clear what they want to invest in.”

The SFI on Wednesday is set to launch SFI Hub, a curated directory of companies and fund managers for Asia-based impact investors.

The impact investing market is estimated at US$1.16 trillion in assets globally, overseen by 3,349 organisations, according to a 2022 estimate by GIIN, which says the market has grown from 226 organisations managing US$228.1 billion in 2017.

East, Southeast and South Asia together accounted for roughly 2.5 per cent of the total, or US$29 billion, compared with US$431 billion in North America and US$640 billion in Europe.
While Asia has lagged on impact investing, the opportunities are vast, Yung said.

“With an emerging middle class, a younger population, and a number of developing nations particularly vulnerable to climate change, Asia can achieve growth, job creation, poverty alleviation through entrepreneurship and innovation.”

Asian impact investors are attracted to sectors like agriculture, renewable energy, healthcare and financial inclusion, Yung said while indicating the funding opportunities.

The key to identifying investment opportunities lay in choosing areas that investors felt passionate about, said Vanessa Cheung, group managing director of conglomerate Nan Fung Development.

“Ask yourself, which is the area of impact that touches your heart the most,” said Cheung, granddaughter of the late textile entrepreneur and philanthropist Chen Din-hwa.

Cheung founded The Mills, a landmark revitalisation project which combines sustainable textile and agri-food technology start-ups incubation, heritage conservation and experiential retailing.
It is also important that the impact be measured and reported based on established frameworks, she said.

“Tracking your impact is not easy but it is a must, just not for performance reviews, but also to make improvements for the business and on its impact integrity.”