In recent years, corporate responsibility has become increasingly important in the business world as scrutiny of how businesses manufacture products, provide services, and operate has increased due to growing concerns about the environment and human rights. Most of the world’s biggest companies have been scrutinised for their environmental and ethical credentials, with many found wanting.
Nestle, one of the world’s largest food and beverage conglomerates, is one such example. It has been accused of environmentally damaging production practices, human rights violations, and unethical business policies. Other companies have attempted to improve their images in order to counteract such negative implications, with some, such as H&M, being accused of greenwashing.
With so much pressure to adhere to more ethical and environmentally-friendly standards, it is natural that many investors seek projects to fund that will improve their standing on such issues. The desire to invest ethically has resulted in an uptick in impact investing trends globally, and the ASEAN region is primed for such funding.
We explore the impact investing trends in Southeast Asia
As the region develops as a startup hotspot and moves toward increased digitalisation, the current impact investing trends in Southeast Asia are capitalising on available opportunities.
Investment potential in ASEAN
Southeast Asia’s developing region has a fantastic opportunity to establish projects that create fundamental change and impact. Investors have the opportunity to make real and lasting changes while making money by implementing environmental, social and governance (ESG) activities in tandem with the region’s digitalisation and socio-economic changes.
In recent years, the percentage of investors in East and Southeast Asia who support their ethical beliefs while seeking to achieve their financial goals has risen by 23%. This rise includes an increase from 21% to around 46% of regional investors who have added ESG requirements to their project fundings.
With many more entrepreneurs seeing the value in developing sustainable ventures that have the potential to improve the lives of their employees and consumers, investments in projects that reflect these values are also likely to continue to increase.
However, if the rate of investment in more eco-friendly and ethically oriented businesses does not increase, the region will face severe environmental consequences, food insecurity, and social issues. The Global Impact Investing Network (GIIN) released an update on its report from 2019, revealing that investments totalling more than $6 billion USD were made in the region between 2017 and 2019. This was more than half of what had been invested in the previous 10 years.
GIIN, whose mission is to “aspire to create a world in which all investments consider social and environmental impact alongside risk and return” has built a global network of over 30 thousand people. It estimates that the impact investment sector is worth more than $715 billion USD, with the majority of capital deployed from assets under management (AUM) in the energy sector (16%). Financial services are the second most funded sector (12%), followed by forestry (10%) and food and agriculture (9%).
According to research by GIIN, more than half of investors considered the United Nations’ Sustainable Development Goals (SDGs) when planning an impact investment. The UN’s Department of Economic and Social Affairs has identified 17 SDGs, which include eradicating poverty and hunger, as well as providing health, education, gender equality, and clean water. It also aims to achieve some of the world’s other goals, such as affordable, sustainable energy, fair work and economic prospects, responsible consumption and production of goods, and climate action.
Fintech and impact investments
The financial services industry is one that is making significant progress toward these objectives. Financial institutions in the region are already attempting to play their part, with the introduction of fintech options assisting in providing more equitable access to financial products and reducing carbon emissions through paperless transactions. Fintech investments contribute to this mission of limiting global warming and improving the region’s economic outlook.
By incorporating impact investment strategies into their business models, the finance sector can affect real change. By 2020, the International Finance Corporation (IFC) estimates that the industry will have invested$2.3 trillion USD into projects that will have a positive impact globally.
Meanwhile, Sembcorp, in conjunction with the IFC as an investor, issued the first sustainability-linked bond in 2021. The investment, which represents a significant commitment by the finance sector in the amount of $675 million SGD, will enable Sembcorp, a sustainable energy producer, to move closer to its net-zero emissions goal.
While there has been significant progress in ESG funding and the impact investing trends are beginning to reap benefits for all, there is still a great deal to be done to meet the UN’s goals. Impact investing trends in Southeast Asia must be allowed to flourish if we are to see a safer, more equitable world, reduce climate change, and secure a future for the planet.