Cover Impact investing is on the rise in Asia and across the financial world. (Photo: Getty Images)
Impact investing is on the rise in Asia and across the financial world. (Photo: Getty Images)
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From green technology companies to businesses purpose-built for creating positive social change, impact investing puts a capitalistic spin on solving the world’s most pressing problems
If you’ve been hearing the term “impact investing” more and more lately, there’s a good reason for that. The size of the global impact investment sector was recently valued at roughly US$1 trillion (HK$7.8 trillion) worldwide and US$30 billion in the Asia Pacific region by the Global Impact Investing Network, a US-based non-profit organisation.
But what is impact investing, and what companies operate in the space?
At their core, impact companies produce social and environmental benefits as part of their business models. Such companies could be working on renewable energy or electric cars, for example, but could also be working in microfinance or even developing the next generation of meat alternatives.
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Millennial investors are particularly keen on the impact space as a way to align their portfolios with their values, with a growing number of family offices in Hong Kong getting into the space.
“Hong Kong is where wealth comes with power and influence. But for the next generation, there's also a growing sense of [social] responsibility, a sense of purpose,” Katy Yung, managing partner of Hong Kong’s Sustainable Finance Initiative (SFi), a platform for impact investors, tells Tatler. “That’s why impact investing is very much top-of-mind for the next generation of wealth owners right now.” In May, SFi launched Hong Kong’s first curated directory of companies and fund managers in the impact space for active Asia-based investors.
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Hong Kong is home to a wealth of impact-driven businesses, including Rooftop Republic, a social enterprise founded by 2018 GenT honouree Pol Fàbrega that focuses on urban farming and sustainability, and Lify Wellness, a producer of herbal tea blends with an emphasis on organic sourcing and fair-trade practices founded by 2021 GenT honouree Mazing Lee. On the sustainability front, Hong Kong’s Carbon Care Asia is a consultancy that assists organisations in measuring and reducing their carbon footprints.
In recent years, the Hong Kong Monetary Authority has been promoting the development of the impact investment market through initiatives such as the Green Finance Certification Scheme, launched in 2018, which certifies green and sustainable financial products.
Another draw of impact investing is the growing evidence that impact investments need not compromise financial returns. Studies have consistently shown competitive financial returns of the impact sector, measured by indices such as MSCI KLD 400, which helps investors weigh social and environmental factors in their investment choices.
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There is little question about the size of the audience for such investments in Hong Kong and in the region. The Bank of China Hong Kong, for example, reported that its number of private wealth clients has increased by more than 30 per cent this year.
Asia is also on the cusp of a historic generational transfer of wealth: 85 per cent of Asia’s billionaires are founders of their own family businesses, according to professional services firm PwC. As this wealth is inherited, a new generation of investors from Asia’s most influential family offices are intrigued by impact investments as a way to create positive, systemic change.
Beyond personal fulfilment, impact investing mitigates risks, as investors increasingly recognise the significant influence of environmental, social and governance (ESG) factors on a company’s financial performance. Incorporating ESG considerations protects and enhances investment portfolios, navigating emerging trends, regulatory changes and reputational risks.
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While presenting opportunities, impact investing requires careful measurement. Standardised frameworks like Impact Reporting and Investment Standards (IRIS+) guide the evaluation and reporting of social and environmental outcomes. Impact-focused advisors and funds offer expertise and diversified portfolios of impact investments.
Yung explains that the appeal of impact investing lies in its potential to combine financial profitability with purpose-driven outcomes. It drives systemic change and can deliver solid financial returns through diverse investment opportunities.
“At the end of the day, impact investing is just like any form of investing, meaning it will come with a whole spectrum of opportunities—some where you're seeing double-digit returns, others where you’re seeing single-digit returns," she says. "The key is that investors have to be very clear about what they're looking for and on what time horizon. That’s where we see profit and purpose fit."
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