Exploring the role of impact investing in ASEAN

As financialization of the economy continues to grow,  there has been a growing movement called ‘impact investing’, that is aimed at balancing the negative effects of global capitalism on people and the planet. Although the concept has existed for many years, the term itself was coined following the Global Financial Crisis in 2007 which exposed the fault lines within the international financial system. Impact investing rejects the traditional idea of separation between profit and social impact, which suggests that investing can (and should) generate positive social impact, alongside a financial return. 

Previously, investors hesitated before providing capital to high-risk individuals such as female entrepreneurs. However, increasing appetite for impact investing demonstrates a shift in preferences towards supporting social and environmental change. It has been gaining traction as a legitimate form of investment to fuel funding towards wicked policy problems such as climate change. The market has grown tremendously and now includes over 1,300 organisations managing $502 billion worth of impact investments globally.

ASEAN has been gaining recognition as a high-growth region with significant economic potential. The region has been making significant advances towards improving economic welfare. Moreover, entrepreneurship has gained momentum as governments support private-sector growth and integration with the global economy is encouraged. However, improvements to issues like gender equality have been stilted. Out of all the ASEAN countries, only the Philippines ranks within the top 20 of lowest gender gap index (World Economic Forum, Global Gender Gap Report 2020).  Addressing social issues through impact investing has significant economic potential, especially in the post-COVID recovery. But as local governments are strained fiscally, external capital will be required. 

So far, impact investing in ASEAN has been completed privately, with individuals putting money into organisations they deem worthy, or through the developing bond market that was formalised by the introduction of the ASEAN Social Bond Standards. A notable example is Impact Investment Exchange, a Singaporean based company which sold a $8 million 4-year bond in 2017 to be used by microfinance institutions in countries like Cambodia and Vietnam. Australia was involved in this transaction with the Department of Foreign Affairs and Trade guaranteeing 50% of that loan in partnership with the US Agency for International Development.

It should be noted that ASEAN as a region is not monolithic. Despite the growth of the impact investing ASEAN bloc, overall the industry remains highly fragmented. ASEAN countries are all at different stages of economic development, with various political structures and facing context-specific challenges. Countries like Indonesia and Vietnam have comparatively mature economies in comparison to smaller countries such as Laos. This creates a difference in investor preferences as naturally, investors would gravitate towards funding development in regions with conditions conducive to capital. 

Academics have also raised some valid concerns. As poverty becomes financialized and a shift towards market-based solutions occurs, the integrity of the industry remains questionable due to the number of intermediaries, lack of transparency of certain actors, and limited legal governance. Additionally, in typical neoliberal fashion, the responsibility of addressing social issues and creating economic development has shifted from the state to the individual, placing additional burden on individuals, especially women who already face socio-economic stress.

Current reforms suggested to continue improving the system include leveraging existing networks of investment recipients to open doors for incoming participants. This is particularly important in order to enable them to gain access to valuable knowledge and connections within the sector, thereby reducing barriers to entry and increasing transparency. In addition, investing in internal capabilities such as forums, knowledge banks and regulatory environments can build a future state ecosystem.  

As we look towards a sustainable post-COVID recovery plan, the role of impact investing in emerging economies can set the trajectory for future growth of the ASEAN region.