Impact investment in Asia: rising trend, lagging reality


Magazine article

There are three big ways in which private resources can be harnessed for meeting societal needs: through charitable giving and philanthropy, through corporate social responsibility programmes and through the latest arrival in the marketplace for doing good – impact investing. Impact investing is hip, it’s cool, it’s innovative and it’s very, very understudied and misunderstood.

Impact investment is becoming a staple on the speaker circuit. It’s sparking much interest from a financial services industry following the lead of wealthy clients. It even has the likes of illustrious institutions such as Harvard University and the University of Oxford offering courses on how to develop ‘business solutions to the world’s biggest problems’.1 But impact investing is also bringing some serious financial muscle to the table.

There is some US$502 billion allocated to impact investment worldwide, according to the Global Impact Investing Network (GIIN).2 To put it into context, this is 11 times the foreign aid flowing to the 15 Asian economies covered by the inaugural Doing Good Index and a third of the cost of achieving the Sustainable Development Goals by 2030.3 Impact investment’s popularity stems from how well it seems to straddle business and philanthropy.

By using financial investments as a vehicle for doing good, it comfortably embraces the double bottom line and embodies the concept of blended value.4 At a time of great wealth creation but also rising inequality and unmet socioeconomic needs, impact investment has the potential to help close the gap in unprecedented ways, potentially at an unprecedented scale.

Impact investment’s  popularity stems from how well  it seems to straddle business  and philanthropy.

In Asia, where wealth is growing faster than anywhere else in the world – the growth rate of Asian billionaires will outpace North America and Europe by a solid 10% over the next few years5 – one would expect to observe a commensurate deployment of resources towards impact investment. And yet, of the half trillion dollars’ worth of assets under management in the impact investment industry, Asia accounts for less than 10%. North America and Europe combined account for 79%.6

Reasons for lack of interest in impact investment

One reason for impact investment capturing the imagination but not yet wallets of wealthy Asians is that both large-scale wealth and the concept of impact investment are still relatively new to Asia. While almost all (98%) of next generation high net worth (HNW) and ultra high net worth (UHNW) individuals polled by Lombard Odier were looking to increase their portfolio allocations to impact investment, over half (56%) had yet to make a single impact investment, and a quarter (26%) were unfamiliar with the basics.7

Asian investors also often cite a lack of an investable pipeline of social enterprises that can absorb private investment. Interviews of Indonesian and Pakistani investors for an upcoming study by the Centre for Asian Philanthropy and Society (CAPS) spanning six Asian economies pointed to the gap between the ticket size that investors are willing to invest given the costs of screening and due diligence, and the needs and absorption capacity of small, mission-oriented startups. A survey of social enterprises averaging more than 100 responses each from Korea, Japan, Indonesia and Pakistan (part of the same study) shows less than a quarter have received any private investment. It doesn’t help that social enterprises in Asia can be business-oriented nonprofits or mission-oriented businesses, with divergent funding needs requiring  a diversity of financial instruments which investors  are not yet prepared or equipped to offer.

This mismatch between the type of financing needed versus what is available is also evidenced in a study of foundations in Singapore and Hong Kong, which found that social enterprises tend to look for uncollateralised loans while impact investors have a preference for equity investment.8 And finally, there is no industry standard for what impact investing means. Even GIIN admits that organisations participating in their surveys have different boundaries for their impact investment portfolios, with some counting ESG investing as impact investing, others classifying development finance as impact investment, and yet others selectively including (or not) green investments.

… there is no industry standard  for what impact investing means.  Even GIIN admits that organisations  participating in their surveys have  different boundaries for their impact  investment portfolios …

Our conversations with investors around Asia have yielded wildly different interpretations of impact investing. Some believe investments into businesses which have any degree of social impact is impact investing, others that only investment into businesses driven by a social mission can constitute impact investment. Some attach the impact investment label only to investments with measurable social or environmental impact, others use the length of divestment schedules as the yardstick to distinguish shorter-horizon commercial investments from longerterm patient capital impact investment.

Along the investment-return continuum, impact investment falls squarely to the right of traditional philanthropy which focuses on social impact with no expectation of financial return. It falls left of traditional commercial investment which focuses on maximising financial return, or sustainable/ environment, social and governance (ESG)/responsible investing which weave in varying degrees of purposive social impact or at least screen out negative social or environmental impact. Between these two ends of the spectrum, the boundaries of impact investment are less clear. In our conversations with, and surveys of, investors from across Asia, there is a great desire to engage in impact investment, but indecision on what that implies for the balance between social return and financial return.

In our conversations with, and  surveys of, investors from across Asia,  there is a great desire to engage in  impact investment, but indecision on what  that implies for the balance between  social return and financial return.

The challenge for advisers

Is it problematic that this confusion exists? Yes and no. Yes, it is true we cannot get accurate estimates of assets under management that are under impact investment and that grey areas abound in even defining what it is. And yes, the social enterprise ecosystem in Asia is still nascent, and the mismatch between social enterprises’ needs and investor offerings persists. On the other hand, none of this is preventing interest in impact investment from growing. In fact, this interest is breeding ideas for how to translate will into action. On the investor front, we observe Korean investors advising investees on how to measure social impact, Hong Kong investors offering high-touch mentoring and guidance, and Indonesian and Pakistani investors experimenting with smaller ticket sizes.

Philanthropists are making grant funding available to budding, cash-strapped  social enterprises. Companies are offering business expertise or incubation support. Governments have made grants available to startups, and are paying heed to calls for creating an enabling regulatory environment for social startups as evidenced by new laws in Thailand and Indonesia. The lack of clarity creates a challenge for advisers who, need to bridge the gap between how ‘thinkers’ are defining impact investment and the much wider range of interpretations the ‘doers’ are experimenting with. Another challenge is that traditional investment advisers may not be trained in identifying dual impact investments, or have the grassroots reach to access social venture startups. But one thing is clear: there is opportunity for functions servicing impact investment to grow if the right combination of reach, knowledge and talent can be nurtured.


Experimentation and innovation using business tools to address social challenges is widespread and exciting. Some of these initiatives will fail, some will succeed but the evolution of thinking around impact investing continues. The present may be marked by unrealised potential, but the future seems bright.

1 Said Business School. Oxford Impact Investing Program. (2018).

2 Global Impact Investing Network. Sizing the Impact Investing Market. (2019).

3 Centre for Asian Philanthropy and Society. The Doing Good Index.  (2018).

4 Swell Investing.  An interview with Jed Emerson. (2018).

5 Kwan, S. Asia still leads the world when it comes to minting billionaires. (2019).

6 Global Impact Investing Network. Sizing the Impact Investing Market. (2019). Global Impact Investing Network.

7 Lombard Odier (Press Release) Lombard Odier survey shows Asia’s young HNWI and UHNWI ready to gear their portfolios for impact. (2017).

8 Tan, P & Lam, S-S. Impact investments by foundations in Singapore and Hong Kong. (2017).