Impact Investing
towards
ASEAN
Sustainable
Development
Goals (SDGs)

September, 2021

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Impact Investing towards ASEAN Sustainable Development Goals – by ASEAN-Japan CentreImpact Investing
towards
ASEAN
Sustainable
Development
Goals (SDGs)

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Table of Contents
Table of Contents 									

4Tables, Figures and Boxes								5Acknowledgement									6Notes											6About this Paper									7Acronyms 										8Executive Summary								
91. Introduction 									
101. Sustainable Development Goals and Investment				
122. Overview: The What and How of Impact Investment				
152.1. Definition and scope of impact investment in the capital spectrum		 15
2.2. Ecosystem: Impact investment actors					
19Table of Contents

2.3. Types of impact investment							
242.4. Key global initiatives covering elements of impact investments		
31
3. Impact Investment in the World, Japan and ASEAN				
363.1. Overview of global context 							
373.2. Overview of Japan context 							
413.3. Overview of ASEAN context 						
463.4. Case studies of impact investment in ASEAN				
593.5. Summary of challenges raised in case studies 				
804. Challenges and Recommendations for Impact Investment in ASEAN		825. Conclusion										
100Appendix 1.										
101Appendix 2.										
103References										108

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ASEAN-Japan Centre

FiguresFigure 1: The role of private finance for sustainable development (OECD 2019, 28)12

Figure 2: Spectrum of investment capital						
16Figure 3: Ecosystem of impact investing actors						
19Figure 4: The development impact bond model mechanism				
26Figure 5: The DIB operation in Cambodia						
28Figure 6: A glance of impact investment in figure					
36Figure 7: Global impact investment market scale, 2016 - 2020				
37Figure 8: Target financial returns for impact investors surveyed (n=294)			
39
Figure 9: Financial performance relative to expectations (n=282) 			
39Figure 10: SDGs used for impact measurement by impact investors surveyed		40Figure 11: Japanese impact investment market scale, 2016 - 2020			
41
Figure 12: Target financial returns for impact investors surveyed (n=25)			
43
Figure 14: Impact investment capital deployed in ASEAN, 2007 – 2016 and 2017 – 2019 

47

Figure 15: Number of impact investment deals in ASEAN, 2017 – 2019			
48
Figure 16: Private impact investment by sector, 2017 – 2019				
49Figure 17: Development financial institutions by sector, 2017 – 2019			
49
Figure 18: Financing cycle of new business ventures					
87Figure 19: Mechanism of Australia’s EMIIF						
98TablesTables, Figures and Boxes

Figure 13: Financial performance relative to expectations				
43Table 1: Sustainable investment activities and strategies (GSIA 2019)			
18
Table 2: Breakdown of impact investment activities in capital and deals, 2017 – 2019	48
Table 3: List of recommendations for area-specific challenges				
82Table 4: Analytical dimensions of the OECD Policy Framework for Social Impact Investment 94

Boxes
Box 1. Impact Investing and “ESG investing”						
18Box 2. Quality Education India DIB							
27Box 3. DIB Critiques									
30Box 4. Gender-lens investment (GLI)							
50Box 5. The world’s first social impact bond: Peterborough SIB				105Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Acknowledgement
This paper was prepared by Dr. Aya Ono under the direction of Mr. Masataka Fujita (AJC). Ms.
Rafaelita Lala Castro, Mr. Yasushi Ishida and Ms. Ani Zuraini Aziz and all from AJC provided
an input. The author wishes to firstly thank Mr. Ken Ito for the case studies and his expert
comments on this paper, and the Social Innovation Investment Foundation, K-Three, Asian
Venture Philanthropy Network and the Global Impact Investing Network for their practicalinsight in the current impact investing field. The manuscript was edited by Dr. Sophia Bilbroughand typeset by Nomura Design Desk. Any errors and omissions are those of the author’s andshould not be attributed to AJC.

A cknowledgement and Notes

Notes
The terms “country” and “economy” as used in this study also refer, as appropriate, to territories
or areas. The designations employed and the presentation of the material do not imply theexpression of any opinion whatsoever on the part of the ASEAN-Japan Centre concerning
the legal status of any country, territory, city, or area or of the authorities, or delimitations offrontiers or boundaries.
•
•
•
•
•

6

The following symbols have been used in the tables:
Two dots (..) indicate that data are not available or are not separately reported.
A dash (–) indicates that the item is equal to zero or its value is negligible.
Use of a (–) between dates representing years, e.g., 2015-2016, signifies the full period
involved, including the beginning and end years.
Reference to “dollars” ($) means United States dollars, unless otherwise indicated.

ASEAN-Japan Centre

ASEAN-Japan Centre

About this Paper
This paper, “Impact Investing towards ASEAN Sustainable Development Goals (SDGs)”, focuseson the essentials of impact investing in ASEAN, an emerging type of SDGs investment. The stateof global and Japanese impact investing market is also added. Goal 17 of the SDGs is particularly
central, as it is an independent sole objective in the SDGs dedicated to mobilising “additional
1
financial resources … from multiple sources”. Goal 17 stresses the pivotal role that private
investment plays for financing and sustaining the benefits achieved in the targets.
The ASEAN Comprehensive Investment Agreement (ACIA) Article 25 also recognizes the needto “create the necessary environment for all forms of investments” (Invest in ASEAN 2009). The
ASEAN’s biggest free trade pact, the Regional Comprehensive Economic Partnership (RCEP)
also stipulates the same in Article 10.12 Facilitation of Investment. This paper, Impact Investing
towards ASEAN SDGs, presents the latent potential of impact investment as a new, innovative
form of investment to promote private investment for realization of the SDGs in ASEAN.

Impact investing is distinct in its intentionality in creating societal impact along with financial
return beyond mitigating risk and incorporating factors related to environment, society
and governance (ESG). There are a range of scholarly and practitioner debates particularly
surrounding the distinction between increasing ESG ‘investment’ and impact investment. In
following the recent intellectual development by Japan Sustainable Investment Forum (JSIF 2021,
16-19) and for globally consistent conceptualization, this paper takes the view that ESG is a factor
to ‘incorporate’ and ‘integrate’ and that the ESG ‘integration’ is a strategy embedded within thesustainable investing category.

About this Paper

The objective of this paper is to present the current overview of the impact investment market
in ASEAN to spur progress towards the SDGs. While comprehensive market data is not
systematically available, this paper provides information on the definition and position of impact
investment, a snapshot of key global initiatives and case studies that demonstrate good practicewithin the region as well as recommendations to facilitate further investment for the SDGs.

With Japan as the second largest source of foreign direct investment (FDI) into ASEAN, it isimperative that ASEAN re-designs its investment policy strategy to enable Japan to increase its
contribution in the region through SDG investing. It is our hope that this paper contributes to2increasing impact investment in ASEAN, a potential market of high impact.
1 This report does not label ASEAN countries as “developing countries”, and AJC recognize that the SDGs are goals
for all.
2 This report does not identify SDGs investment gap but provides a landscape of impact investing activities in
ASEAN with the data available and indicate potential recommendations.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Acronyms

Acronyms

8

A-BAC

ASEAN Business Advisory Council

Lao PDR Lao People’s Democratic Republic

ACIA

ASEAN Comprehensive Investment Agreement

LDC

Least Developed Countries

ACGF

ASEAN Catalytic Green Finance Facility

METI

Ministry of Economy, Trade and Industry

ACSS

ASEAN Community Statistical System

MFI

Microfinance institutions

ADB

Asian Development BankMSME

Micro, small, medium-sized enterprise

AIIF

Asia Impact Investment Fund

NAB

National Advisory Board

AJC

ASEAN-Japan Centre

ODA

Official Development AssistanceAMS

ASEAN Member States

ODF

Open defecation free

AUM

Assets under management

OECD

Organisation for Economic Co-operation and

ASEAN

Association for the South East Asian Nations

AVPN

Asian Venture Philanthropy Network

PII

Private impact investment

B-CorpBenefit Corporation

PRI

Principles for Responsible Investment

CDFI

Community Development Finance Institutions

ROE

Return on equity

CLMV

Cambodia, Lao People’s Democratic Republic,

SDG

Sustainable Development Goal

Myanmar and Viet Nam

Development

SDGI

Sustainable Development Goal Investment

COVID-19 Coronavirus disease 2019

SIB

Social impact bond

DFAT

Department of Foreign Affairs and Trade

SIIF

Social Innovation and Investment Foundation

DFI

Development Finance Institution

SLB

Sustainability-linked bond

DFID

Department for International Development

SME

Small- and medium-sized enterprise

DIB

Development impact bond

SPV

Social purpose venture

EMIIF

Emerging Markets Impact Investment Fund

SRI

Socially responsible investment

ESG

Environment, Society and Governance

SVX

Social Venture Exchange

FDI

Foreign direct investment

UN

United Nation

GIIN

Global Impact Investing Network

UNCTAD United Nations Conference on Trade and

GLI

Gender lens investing

GPIF

Government Pension Investment Fund

UNDP

United Nations Development Programme

GSIA

Global Sustainable Investment Alliance

UNSIF

United Nations SDG Impact Finance/SDG

GSG

Global Steering Group for Impact Investment

G8

Great Eight

UOB

HNWI

High net worth individual

UOBVM UOB Venture Management

IADB

Inter-American Development Bank

USAID

IFC

International Finance Corporation

IIAF

Insitor Impact Asia FundIMP

Impact Management Project

IRR

Internal Rate of Return

WASH

JAWEF

Japan ASEAN Women Empowerment FundWGSDGI Working Group on Sustainable Development

JBIC

Japan Bank for International Cooperation

JICA

Japan International Cooperation Agency

JSIF

Japan Sustainable Investment Forum

KPI

Key performance indicator

ASEAN-Japan Centre

Development

Innovative Finance
United Overseas Bank

United States Agency for International
Development

US SIFThe Forum for Sustainable and Responsible
Investment in the United States
Water, sanitation, and hygiene

Goals Indicators

ASEAN-Japan Centre

Executive Summary
This report, “Impact Investing towards ASEAN Sustainable Development Goals (SDGs)”, focuses on the latentpotential and essentials of impact investing. It is an emerging, innovative form of SDGs investment for realization of
the SDGs in ASEAN. Impact investing is distinct in its intentionality in creating and measuring societal impact
along with financial return, beyond mitigating risk and incorporating factors related to environment, society
and governance (ESG).
This report aims to further mobilize financial resources that can be measured in terms of both financial and societal
performance to accelerate realization of the SDGs, as part of the “Decade of Action”.
ASEAN witnesses differing levels of progress in impact investing market building. Despite the lack of comprehensive
data, ASEAN as a whole captured over $6 billion through 298 deals made in the market from 2017-2019. Its
growth rate of impact investing market is remarkable. Within ASEAN, the largest amount of impact investing capital
went to Indonesia, both from private capital and development financial institutions (DFIs). Thailand and Viet Nam
are ranked second and third by capital value. Singapore is the only country that receives more private capital than
Ventures, Insitor Partners and UOB Venture Management—illustrated in this report also demonstrate its highly
promising potential of ASEAN producing strong financial and societal performance that contribute to the SDGs.
ASEAN shows its impact investing ‘ecosystem’ taking shape yet requires further institutional coordinationfrom all actors in transactional, facilitative, intellectual and government dimensions. Some of the major
challenges raised are further skills and expertise in impact measurement required in the market as well as SDGwashing. SDG-washing, in particular, refers to the misleading presentation as a marketing exercise of an investment
portfolio to demonstrate seemingly social impact and alignment with the SDGs, despite the lack of intentionality or

Executive Summary

DFI capital inflow. Five significant impact investing case studies in ASEAN—BlueOrchard, Garden Impact, ADB

the lack of capacity of investees in evaluating and reporting societal impact to investors. Skills required for impact
measurement will serve to mitigate the risk of SDG-washing which can discredit the overall work of impact
investing. To nurture impact investing activities for sustainable development, also stressed by the ASEAN Economic
Community Blueprint 2025, facilitative support—capacity building of investees—is imperative to promote‘investment readiness’ in aspects of business and impact measurement, leading to build the pipeline. This can raise
confidence of national or international impact investors to galvanize the impact investing market for SDGs financial
mobilization. Intellectual resources are integral to share the ASEAN- specific knowledge and taxonomy throughscholarly resource development that reflect evidence-based policy recommendations. Finally, ASEAN-driven
institutional effort and ODA-incorporated impact investing initiatives for Least Developed Countries in ASEAN
are suggested to spur progress to the SDGs.
This report unearths the highly fragmented understanding of the current impact investing market and ecosystem in
ASEAN and invites further research to compliment this research. Impact investing has an approach distinct fromother investment vehicles, which indeed symbolizes the ‘new normal’, aiming to deliver both financial andsocietal performance. Impact investing will only continue to grow, as is essential for sustainable development.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

1. Introduction
Year 2021 marks the beginning of a second quarter of the timeline towards 2030, as we entered
the “decade of action” towards the 2030 Agenda or the Sustainable Development Goals (UN2020a). Before the crisis of coronavirus disease 2019 (COVID-19), financing the SDGs required$3.3 to 4.5 trillion annually (UNSDG 2018, 3). The health and economic threat of COVID-19 iscontinually eroding three decades of global poverty reduction efforts (Sumner, Chris Hoy, andOrtiz-Juarez 2020), with the decline in investment relevant to SDGs greater in developing andtransition economies (UNCTAD 2021). Even though the current decline of ASEAN economies
is triggered by the repercussions of the pandemic, it implies that the previous businessmodels are not necessarily viable and adequate. Resilience of global value chains (GVCs) is
consistently challenged in ASEAN, and so too, is the relationship between ASEAN and Japan in
the way we reform and rebuild the ASEAN-Japan economy (Fujita 2020). There is urgent needfor adjusting and adapting the new normal of driving the renewed economic paradigm. Doing

1. Introduction

so in ASEAN would further nurture and benefit the ASEAN-Japan economy.
This paper serves to promote an emerging type of investment, impact investment between
ASEAN and Japan. The economic recovery from the COVID-19 shock is underway in ASEAN,
despite resurgent outbreaks that persist to be a threat. Indeed, the decline in SDG-specificprojects and finance is a matter of fact (UNCTAD 2021). However, Asian Development Bank
(ADB) found that while the progress of vaccine rollouts is at different speeds, Southeast Asia
is forecast to grow by 4.4% in 2021 and 5.1% in 2022 (ADB 2021a), which is positive forbusiness and investor communities.
The COVID-19 shock is accelerating positive forces to strategize a post-pandemic
economic recovery. The global effort to fight the pandemic was already visible in
the private sector where the total value of social bonds, $55 billion, issued in 2020
as a response to COVID-19 exceeded that of 2019. Stock exchanges have actively
supported the social bond market by waiving listing fees (UNCTAD 2020). Looking at
ASEAN alone, in April 2020, the Government of Indonesia issued the 50-year issue
3

of COVID-19 bonds, the largest tranche of US dollar bond in history (ADB 2021b).

With respect to bond issuance on the front of sustainable development, Asian Development
Bank (ADB) and ASEAN Catalytic Green Finance Facility (ACGF) published Green Finance
Strategy of Southeast Asia at the end of 2020 for a green and sustainable ‘recovery package’through bond issuance in ASEAN capital market (ADB and ACGF 2020).
3 See Asian Development Bank (ADB 2021b) for further information on social bond market in Asia.

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Similarly, many investments in ASEAN are increasingly taking environment, society andgovernance (ESG) into consideration for investment decisions (Korwatanasakul and Majoe2019). The COVID-19 crisis has clearly fuelled the need to mainstream investment that createsand sustains developmental impact and significantly contributes to the growth of sociallyoriented funds and bonds (UNCTAD 2020). The next 10 years, a decade of action will witness
the gradual growth of the SDG-oriented financing projects (UN 2020a).
To allocate capital for the SDGs, impact investment can be considered the next financial driver.
The world has reached an “inflection point” where innovative approaches are required. Thereis a thirst for new approaches to incorporate the private sector into public social development,
which is expected to increase in the post-COVID 19 world—because of the lack of publicfinance that was diverted to fight against the pandemic. Private finance has an influential rolein the effort to achieve the SDGs particularly through “steering the investment decisions” tobehaviours” for further sustainable markets (UNDP 2017, 3). While impact investment will
not replace the role of the public sector and philanthropy, with global wealth estimated at $399
trillion (Credit Suisse 2020, 8), there is substantial scope to attract the participation of theprivate sector in global sustainable development.

1. Introduction“fasten the realignment… to invest in the SDGs” and “foster change in company and consumer

As will be seen in this paper, impact investing is a growing field of practice, both globallyand in ASEAN. It has been over a decade since the term “impact investing” was coined by
the Rockefeller Foundation in 2007, and since its emergence as a concept, there has been aremarkable progress in its institutionalization. The field of impact investing is still fragmented
4

and complex, yet has displayed significant growth and momentum through the concerted effortof global and national policy-makers and increased attention from investor communities (Ono2020).
This paper provides an overview of impact investing practice that contributes to achieving theSDGs in ASEAN countries. It describes different types of impact investments and the global
actors that construct the impact investing architecture. Through selected case studies andrecommendations pertinent to ASEAN, this paper aims to encourage the involvement of more
actors into the impact investment field to facilitate resource mobilization for SDGs in ASEAN.
4 Impact investing first gained prominence in the philanthropy sector, as was first termed by the Rockefeller
Foundation in 2007 (IFC 2020).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

1. Sustainable Development Goals and Investment
Into the last decade of the milestone towards the SDGs, greater investment in sustainable5development is vital, and channelling sustainable investments to SDG-aligned opportunities
6

continues to be a critical discussion point. The increasing role of the private sector is essential.
Figure 1 illustrates a role of “private finance” for sustainable development (OECD 2019, 28).
The theme of sustainability must be embedded across all SDGs, as actions for one Goal affectoutcomes in other Goals. It is important to design holistic strategies for SDGs.
Figure 1: The role of private finance for sustainable development (OECD 2019, 28)

Green investment

1. Introduction

Transforming investments to alignwith green pathways

Effective solutions
to private financefor sustainable development
Blended finance(Social)
Impact investing

Mobilising additionalcommercial finance

Linking investments tomeasurable impact

Source: OECD (2019, 28)

5 Researchers such as Walkate and Krosinsky (2018) who acknowledge the vast pool of money already available
for renewable energy at the same time warn the use of SDGs as a simple tick-box of investment strategies. The
notion of “SDG-washing” is also discussed in Chapter 4.
6 In September 2017, the UNDP established the United Nations SDG Impact Finance (UNSIF)—a fund which
incentivizes various global funds and commercial investors as well as philanthropic foundations to mobilizefinancial resources to achieve the SDGs. However, the role of UNSIF has shifted more to engage with leading
global universities and academic research institutions to improve the analytical frameworks, evidence and policy
environment that supports its original purpose (Ono 2020).

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Impact investing as part of the effective solution to private finance for sustainable development
is a focus of this paper. Impact investing is of direct relevance to the focus of SDG 17:
Partnerships for the Goals, particularly the focus of additional financial mobilization (For more
information on blended finance and green finance, see OECD 2019). Increasing commitment ofprivate finance, in this case impact investing, is essential to the realization of the 2030 Agenda.
In fact, there is growing attention to Sustainable Development Goal Investing (SDGI),
re-defined and coined in 2017 in the discussion paper Advancing A New Normal in Global
Capital Markets commissioned by the Financing for Development Office and the Division for
Sustainable Development of the United Nations Department of Economic and Social Affairs.
SDGI is defined as “all investment strategies whereby sustainability and/or the SDGs form a‘material’ factor in investment decisions” (C-Change 2017, 4). SDGI is an umbrella term that
includes a full spectrum of impact investing as well as sustainable and responsible investing
7

more broadly (see Figure 2), and therefore brings vast amount of financial resources for SDGs.
gaps and directional trends based on the World Investment Report 2014. The areas that require8

the largest financing include energy (excluding renewables) estimated at $370-690 billion in
investment gap in developing countries and climate change mitigation at $380-680 billion indeveloped countries. As of 2017 (C-Change 2017), SDGI was estimated at $23 trillion globally,
which is composed of $15 trillion as responsible investing and $8 trillion as sustainable

1. Introduction

The World Investment Report (UNCTAD 2020, 182) shows the summary of SDG investment

investing, and $0.12 trillion of which was estimated to be impact investments. While this figureof impact investing within SDGI as of 2017 may be considered fractional, the global impact
investing market as of 2020 has grown by six times to $0.71 trillion (see Chapter 3). As will be
explained in the next chapter, this paper reveals the significant potential of impact investment
globally and ASEAN to mobilize resources for the materialization of the SDGs.
On the ASEAN front, the ASEAN Secretariat published the ASEAN Sustainable Development
Goals Indicators Baseline Report in November 2020. The Working Group on Sustainable
Development Goals Indicators (WGSDGI) within the ASEAN Community Statistical System

7 It is important to note that not all impact investments are SDGI. SDGI can be regarded as impact
investment if there is intentionality in creating social impact aligned with one or any of the 17 SDGs.
8 This pertinent explanation here does not refer to the SDGs per se as the figures of funding gap here($370-690 billion and $380-680 billion) are estimated based on the World Investment Report 2014, before theadoption of UN SDGs.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

9(ACSS) reviewed the ASEAN SDG indicators and provided
a list of 63 SDG main indicators along with sub-indicators,
forming 134 indicators in total in 2019. This 268-page Baseline
Report provides the baseline assessment and measurement of the
progress in achieving the SDGs in the region from 2016-2018,as well as relevant policy recommendations at the national and10

regional levels for the achievement of SDGs. In addition, theissue of limited data availability and/or poor data quality restrict
the ability to assess investment trends of emerging economies
such as ASEAN in all SDG sectors (UNCTAD 2020). Of
urgent importance is that investments in statistical capacity as well as increased coordination
between governments and the private sector for financing the SDGs are required to strengthen
institutional capacity and accelerate the efforts for materialising the SDGs (ASEAN Secretariat

1. Introduction2020).

9

The ACSS was established in 2011 as a partnership among each national statistical systems of the ASEAN
Member States (AMS), the ASEAN Community Councils and the ASEAN Secretariat to provide ASEAN
statistics in support of evidence-based policy and decision making and enhance the statistical capacity of the
AMS and the ASEAN Secretariat.

10 For more information, see ASEAN Secretariat (2020).

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2. Overview: The What and How of Impact Investment
2.1. Definition and scope of impact investment in the capital spectrum
Impact investment, in this paper, refers to an investment approach that generates positive
societal impact (social and environmental) alongside a financial return (GIIN 2020;
can include companies, organizations and funds that provide goods and services to recipients ofand independent asset class but rather, is made across diverse asset classes. Investment vehicles
used to practice impact investing are explained further later in this chapter.
The core characteristics of what constitutes impact investing are four-fold (GIIN 2019b):
1. intentionality in creating positive societal impact,
2. societal impact evidence in investment design,
3. managing societal impact performance, and
4. contributing to the growth of impact investing.
Impact investment sits within the spectrum of capital (see Figure 2).
On one end, there is a “traditional” segment where financial-oriented businesses have no regard
for the factors of environment, society and governance (ESG). From the left to the right, thesegments are classified according to the level of consideration for societal impact, within which,impact investing is positioned.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Overview: The What and How of Impact I nves tment

such “products” with a view to creating positive societal impact. Impact investment is not a new

2.

International Finance Corporation 2020). Investors make impact investment in investees that15

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Figure 2: Spectrum of investment capital

Traditional

Responsible

Impact investing

Sustainable

Delivering competitive financial returns
Mitigating Environmental, Social and Governance (ESG) risks
Pursuing Environmental, Social and Governance Opportunities

2.

Overview: The What and How of Impact Investm en t

Focusing on measurable high-impact solutions
Focus

No regard forthe factors of
ESG

Prioritize
financial
return,negativescreening ofharmful
products

Activeincorporationof ESG
factors ininvestment
consideration

Address
societalchallenges
that also
generate
competitive
financial
returns

Address
societalchallenges
that produce a
below-market
financial
returnAddress
societalchallenges
that may also
generate
below-market
financial
returnSDG Investing
11

Sources: National Advisory Board of Japan (2020b); Bridges Fund Management (2017); C-Change (2017)

Figure 2 shows that the second left “responsible” capital category is an investment approachthat conducts “negative screening”—to avoid investing in harmful products and practices
such as tobacco, firearms and military weapons. The responsible capital category mitigates thebroader issues that surround ESG factors into investment decisions. Responsible investment
brings enormous financial volume from the market. The estimated global value of responsible
investment globally is $89.6 trillion (Principles for Responsible Investment 2018a, 6) which, infact, is above the world’s total GDP, $87.27 trillion, according to the World Bank (2019).
The sustainable capital category refers to investment approach that conducts “positive
screening” i.e. actively invest in companies that work to mitigate issues surrounding the ESG
factors in the investment decision. The 2019 report on the future of finance by the Rockefeller
Foundation, Asian Venture Philanthropy Network (AVPN) and FSG state that 88 % of the 190
academic papers on sustainability and firm performance concluded that companies with robust
sustainability practices demonstrated better operational performance (Thuard et al. 2019). For
ASEAN, AJC’s paper on ESG “investment” (Korwatanasakul and Majoe 2019) confirms thatprofitability is high for ESG-implementing firms than non-ESG firms (see Box 1).

11 Author acknowledges that among other investment approaches, socially responsible investment (SRI)—which
has a long history—is now termed sustainable investment (JSIF 2021).

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The segments of impact investing—a focus of this paper—represents investments that haveclear intent of addressing societal challenges. As Figure 2 suggests, impact investing is distinct
from other investment approaches in its characteristic of intentionality in creating positive
societal impact. It is beyond mitigating risk, assessing companies’ non-financial performanceand incorporating the ESG-related factors and compliance in their investment decisions
alongside financial return (Principles for Responsible Investment 2018b; JSIF 2021; National
12

Advisory Board of Japan 2021). The practice of impact investing emphasizes the businessmodels, products and services of investees which contribute to generating financial and societal

2.

return, which is why the potential of impact investing is enormous (NAB of Japan 2021).

Overview: The What and How of Impact I nves tment

12 Impact investing encompasses both a finance-first segment to (societal) impact-first segment, emphasising theorientation that impact investors pursue to maximize (For more, see Monitor Institute by Deloitte (2009, 31)).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Box 1. Impact Investing and “ESG investing”
There is rapid intellectual development in this sphere among scholarly andpractitioner research. Most importantly, JSIF (2021) has just warned the use of
the term ESG ‘investing’ in April 2021. The often-raised debates surrounding thedifferences between ESG ‘investing’ and impact investing originates from this2.

Overview: The What and How of Impact Investm en t

confusion. In fact, six principles of the Principles for Responsible Investment (PRI)

18(See Appendix 1) does not list ESG as ‘investment’ in their definition. In addition,
the biennial report of Global Sustainable Investment Alliance (GSIA 2019) also
makes this point clear that ESG is not an investment approach but is a strategy for
integrating the ESG factors (see Table 1).
Table 1: Sustainable investment activities and strategies (GSIA 2019)
Activities and strategies of Sustainable Investment
1
Negative/exclusionary screening
2
Positive/best-in-class screening
3
Norms-based screening
4
ESG integration
5
Sustainability themed investing
6
Impact/community investing
7
Corporate engagement and shareholder action

Therefore, for consistent conceptualization, this paper takes the view that ESG isa factor to ‘incorporate’ and ‘integrate’. Figure 2 excludes ESG ‘investment’ asa category from the capital spectrum and instead, embeds the ESG ‘integration’within the sustainable investing category. Impact investing by definition includes
ESG factors as an integral part of sustainable investment.

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2.2. Ecosystem: Impact investment actors
Investing in SDGs and impact investing in particular, requires a diverse range of actors such as
investors, investees and intermediaries who are necessary in the impact investing architecture.
However, there are more variety of actors required to facilitate and lubricate the investment
flow. This overall framework composed of multiple forces as such is often referred to as an
ecosystem (Roundy 2019). The impact investing ecosystem involves cross-sectoral players(Schwartz, Jones, and Nicholls 2015, 489), who are also discussed extensively in the list of

The characteristics of actors can be categorized into four groups that are: transactional,
facilitative, governmental and intellectual (Schwartz, Jones, and Nicholls 2015, 489; National
Advisory Board of Japan 2020b, iii; OECD 2019). Figure 3 shows each category with multiple
characteristics that feed into differing categories.
Figure 3: Ecosystem of impact investing actors

Source: AJC

13

Overview: The What and How of Impact I nves tment

2019, p. 167).

2.

recommended domestic policy instruments in the OECD’s Impact Imperative Report (OECD13

Based on Schwartz, Jones, and Nicholls (2015); OECD (2019); National Advisory Board of Japan (2020b).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Transactional:♦ Impact investors
Investors take diverse forms that range from companies, institutional investors, fundmanagers, family offices, foundations, banks, pension funds, individual investors that
include small-scale investment via crowdfunding platforms or funds as well as highnet worth individuals (HNWIs) including angel investors and development finance14

institutions (DFIs).

2.

Overview: The What and How of Impact Investm en t

While inclusiveness of investors can be contested, particularly in relation to DFIs, thispaper takes a holistic view that any entities that make investment that fall under thecriteria of impact investment (intentionality of societal impact creation, expectationsof differing degree of financial return as well as commitment to impact measurement)
can be viewed as impact investors. In the context of ASEAN, DFIs as governmentfunded financial institutions are important to finance the MSMEs in the private sector
15

to promote developmental impact (see Chapter 3).
♦ Impact investees
Investees include any entities deemed as “social purpose ventures” (SPVs) (OECD2019, 66)—be it for-profit or not-for-profit entities that operate on new businessmodels to actively address societal challenges. For-profit businesses can range frommicro, small and medium-sized enterprises (MSMEs) to larger enterprises. Somecan be called social enterprises where market-oriented companies approach social
16

development with an emphasis on social innovation. Not-for-profit — or “forpurpose”—entities can also be included that create societal impact, raise profit to reinvest into future impact-creating activities. The investee category may also include“start-up” companies designed to grow fast, but there needs to be an emphasis that17

they address societal challenges. SPVs are the essential actor that creates societal
impact to contribute to achieving the 2030 Agenda.
14

For a comprehensive list of types of potential social impact investors, see OECD (2019, 69-70). IFC (2020) alsosuggests a convergence of investment practice between private investors and DFIs which were previously considered to be different.

15
16

However, DFI’s bilateral or multilateral assistance may not always fall under the category of impact investment.
Social innovation refers to innovative activities and services that are motivated by, and developed for, the creationof “long-lasting outcomes” that aim to solve societal challenges (Voorberg, Bekkers, and Tummers 2014, 2). It is
often practised by any organizations or individuals—including social enterprises—whose primary focus is societal good (Yunus 2006).

17

There is no universal definition of a number of years categorizing a company as a start-up, hence we do not know
when a start-up company stops being one. For reference, the recommendation report on start-up investment inSoutheast Asia and India by METI and PwC (2020) defined the start-up to be those in operation within 15 years
for the research purpose.

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ASEAN-Japan Centre♦ Sources of aftermarket liquidity
Sources of aftermarket liquidity can be a liquidity provider such as the stock
exchanges. Aftermarket liquidity platforms for the impact investing ecosystem can
include socially-focussed stock exchanges (See further in this Chapter for examples).
These platforms perform to support development of the impact investing ecosystem
to facilitate smooth transaction and investment.

2.

Facilitative:

Intermediaries can take two forms that are financial intermediary and non-financial
intermediary.
□ Financial intermediary represents entities such as venture capital, banks,
securities or local financial service agencies that serve as financial “middlemen”
for financial transactions. They provide services of creating impact investment
product for investors. These are investment dealers essential for both impact
investors and investees in Japan and ASEAN to galvanise the investing market
and offer potential investors expert investment advice on financial risk and return– and in some occasions, societal risk and return as a package.
□ Non-financial intermediary represents entities such as generalist and specialized
consulting firms, industry support associations, lawyers, accountants, designers,
engineers, evaluation institutes and/or foundations. These actors connect
impact investors and impact investees through a) the provision of networking
opportunities and conferences as well as b) the opportunity to enhanceinvestment-readiness of impact investees. For the aspect of a), non-financial
intermediary organise sector conferences, investment pitch, and businessmatching events to fill the gap between investors and investees. Awards and18

challenges, once granted, simultaneously promote SPV’s investment readinessthrough recognition and reputation (Schwartz, Jones, and Nicholls 2015, 489;

Overview: The What and How of Impact I nves tment♦ Intermediaries

National Advisory Board of Japan 2020b, 7). For the aspect of b), initiatives to

18

There is a wide range of social business and social impact-related awards and competition around the world.
Relevant to ASEAN can include ASEAN Impact Challenge, ASEAN Social Entrepreneurship Innovation Challenge, ASEAN Social Impact Awards, Impact Investment Summit Asia Pacific, to name a few. The prominent
one in Japan is Social Business Contest, organized by Nikkei Newspaper, encouraging Japanese SPVs to enterand compete for business models that create SDGs impact. The ASEAN Social Entrepreneurship Innovation
Challenge Another is, organized by Research Synergy Foundation, Prokompas, Ubud Cycling Bike Education
Program in Indonesia and Macquarie University students in Australia.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

promote investment readiness include technical assistance, capacity building,incubation and acceleration service which include mentoring on commercialisingsocially oriented activities, advising approaches to governance and due diligenceof societal impact and finance to increase data transparency and interoperability,
advice on public relations and communication campaigns.

Firstly, the government sector—national and intergovernmental—has the
public authority to effect the necessary regulatory environment through policies
and financial services legislation. These are critical to establish conditions
conducive to “enhance policy coherence” for sustainable development (UNDepartment of Economic and Social Affairs 2015 Goals 17.13 and 17.14). Eachnational government acts to formalize national strategies and plans applicableto facilitate the promotion of impact investing. It is a first step that assists
enforcing legislation and regulation, which includes fiscal incentives such as
tax and investment relief. It is also important to “harmonize, where possible,
investment policies and measures to achieve industrial complementation” (Invest
in ASEAN 2009, Article 26). Key global governance structures can play a rolefor coordinated policy guidance. In addition, establishing a certification system
for SPVs (See “B-Corp” further in this chapter) can also assist in strengthening
their legitimacy and credential, hence further financial resource (UN Departmentof Economic and Social Affairs 2017 Goal 17).

Intellectual:
The intellectual infrastructure represents academic institutions, sector conferences2.

Overview: The What and How of Impact Investm en t

Governmental:

and networks, media publications and sector websites, in order to accelerate
the ecosystem development of impact investing through increased research,studies and data publication. The body of knowledge, expertise and technology
shared across sectors will be used as best practices and/or guidelines which willtranslate into more improved policies and practice. Communication campaigns
and consulting with external stakeholders in advance can effectively raiseawareness and bring more actors into the impact investing field, in order to“enhance the global partnership for sustainable development, complemented by

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multi-stakeholder partnerships that mobilize and share knowledge, expertise,technology and financial resources” (UN Department of Economic and Social
Affairs 2015 Goal 17.16).
Finally, needless to say, outside these categories are “product recipients” as direct
and indirect beneficiary population of the impact investing ecosystem.

product recipients make up for the overall impact investing ecosystem. The next section details
context that can be utilized by current and future impact investors.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Overview: The What and How of Impact I nves tment

types of impact investment, introducing potential investment vehicles applicable in the ASEAN

2.

These transactional, facilitative, governmental and intellectual groups of actors as well as

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

2.3. Types of impact investment
This section focuses on the types of impact investment practiced globally. The list below is not
exhaustive but has relevance to the context of the ASEAN region for applicability in practice(see Appendix 2 for detail). Impact investments cut across differing asset classes. While thespectrum of capital detailed in Chapter 1 only describes the extent to which capital is deployedpertinent to types of financing categories, this section explores the types of impact investing
19

Overview: The What and How of Impact Investm en t

vehicles which can potentially be considered and utilized.
Types of

Descriptions

investment
vehiclesLoan

A loan is frequently utilized through mediums such as crowdfunding/
crowdlending, microfinance institutions (MFIs) and community

Publicly

development finance institutions (CDFIs).
Publicly traded bonds or loans, can often be seen in green, social ortradedsustainability bonds. Green bonds gained prominence particularly after

debt
Equity2015, marking the Paris Agreement.
Equity investment takes the form of both publicly traded shares/stocks
and private stocks. It is one of the most often practised instruments by
impact investors. Through private equity, impact investors can shape a
portfolio of companies’ strategies and work directly with companies to20

2.

help them meet the intended impact.

19 This report, like other scholarly reports, does not include grants as part of the impact investing instrument, sincea grant does not need to be repaid, time-bound and restricted to projects. However, the concept of venturephilanthropy is an additional mechanism for consideration in the broad spectrum that use grants for early-stage
seed funding as well as investors’ voluntary engagement to enable new social purpose organizations to start up
their operation. Capital used in venture philanthropy is of ten called “patient capital” as the investors employing
this type of capital maintain greater patience for risk. Investors do not expect an immediate financial return witha purpose to support the early stage of their operation. For further, see John (2015); and Thuard et al. (2019).
20

Occasionally, impact investors wish to work closely with impact investees to co-create the impact-making
processes (IFC, 2020).

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Types of

Descriptions

investment
vehiclesDebt-equity Debt-equity swap is a type of financial mechanism for debt relief
swap (Debt- practiced since the 1980s as part of the official development assistance(ODA) funding. It is a mechanism to mobilise finance for development

swap &

in debtor countries (aid recipient countries) by converting a portion

Debt-for-of external debt owed to the creditor countries into funds for new

Climateand existing aid programs in the debtor countries. In other words, theswap)mechanism turns the debt into another financial resource to contribute to

ImpactImpact bonds provide public-private-non-profit partnership. The impact

bonds

bond models aim to tackle the funding shortfall by engaging with private
investors as resource-mobilisers to deliver financial returns measured
against the level of societal impact created. The impact bond model iscommonly referred to as ‘pay for success’. A financial return is distributed
based on the societal impact performance delivered by social service
21

providers. Notable impact bonds are social impact bonds (see Appendix
222) and development impact bonds. In ASEAN, there is one case ofdevelopment impact bond practised.

Development impact bondDevelopment impact bonds (DIBs) are results-based instruments that transform development
challenges into ‘investible’ opportunities. Combined actors of public, private and social service
delivery stakeholders agree on measurable, prevention-oriented objectives and a method formeasuring success in ‘cross-sectoral’ partnerships. The DIB working model involves holistic
multi-sectoral partnerships—impact-oriented investors, intermediary, social service delivery
and outcome funder. The intermediary agency secures working capital from investors—
in the case of DIB, usually philanthropic foundations—and provides allotted capital to the

Overview: The What and How of Impact I nves tment

development programs.

2.

for-SDG

service delivery organization to produce the development outcome, which is to be audited by
the independent evaluator. Once the intervention is deemed successful by the auditor, outcome
21 Similar activity was launched in Singapore as the world’s first “Social Impact Guarantee” through the program
enhancing support for youth at risk – unemployed or out of school (Ang 2021). This model employs “money
back guarantee” for donors that provided grant if predefined and agreed outcomes are not achieved.
22 The model of social impact bond is explained in detail in Appendix. There is also humanitarian impact bondlaunched in 2017 by the International Committee of the Red Cross (ICRC), Physical Rehabilitation Programme.
See the website of ICRC for more information.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

payers—commonly donors or philanthropic foundations—are to repay investors with interest;
as pre-agreed according to the level of development performance (see Figure 4).
Figure 4: The development impact bond model mechanism

1. Sets outcome,payment levels
timeline

Private investors

Intermediary agency
2.
Performance-ba
sed payments

Verify the outcome to theoutcome funder todetermine the rate of
returnProvide direct
working capital

Bond issuance
Negotiate a
rate of return

Development Purpose
Ventures (service delivery)
Run “intervention” program

Independent auditor

Verify andevaluateoutcomes

Beneficiary population

Source: AJC

This model is used in existing DIBs such as one for quality education (see Box 2) and maternal
and newborn health in India (International Network for Data on Impact and Government
23 24

Outcomes 2021). The development of DIBs is reflective of significantly growing interestin this model as an approach to monetising development impact that can contribute to global
sustainable development.

2.

Overview: The What and How of Impact Investm en t

Outcome funderProvideworking capital

23 See more at https://golab.bsg.ox.ac.uk/knowledge-bank/case-studies/utkrisht-impact-bond/
24 The DFID in the UK announced in April 2014 that it would launch the world’s first DIB project to tackle African
sleeping sickness in Uganda, and the Inter-American Development Bank (IADB) pledged US$5.3 million for thedevelopment of a DIB market to address high priority social issues in Latin America and Africa (Social Finance,2014). However, this project launched as DIB is now termed SIB, according to the DFID website (DFID 2017),
as this was a feasibility study project to develop a new outcome instrument to address sleeping sickness.

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Box 2. Quality Education India DIB
This was a three-year project to address the challenges of high dropout rates andeducation quality. The UBS Optimus Foundation provided upfront capital of$267,000 from UBS clients to Educate Girls, an NGO that works in public schoolsin Rajasthan to improve results in basic English, Hindi and mathematics for 20,000
students in roughly 150 of the most poorly performing schools (Instiglio 2015, 5).

2.

The Children’s Investment Fund Foundation pays investors back with returns ataround 7% to 13%, depending on the rates of retention and academic achievement.
profit intermediary, is the project manager in this pilot project.
Since the launch in 2015, this DIB project has demonstrated strong performance,
resulting in the financial return to investors in the form of an ‘outcome payment’.
The UBS Optimus Foundation (2018, 5) reports that the service provider Educate
Girls has achieved 116% of the enrolment target and 160% of the learning target
in its final year—owing to its child-centric curriculum and improved outreach tochange the community mindset toward education. The Children’s Investment FundFoundation as the ‘outcome payer’ has repaid the UBS investment with a 15%
return—$144,085—due to the initially set outcomes being exceeded (Saldinger
2018, 5). The total payout, according to the UBS Optimus Foundation report, will
be reinvested into further development programs, of which 32% will go to Educate
Girls and the remainder to UBS Optimus Foundation initiatives (UBS Optimus
Foundation 2018, 5).
In the same province in India, another impact bond was launched in 2017. In
November 2018, the world’s first healthcare development impact bond, Utkrisht
was launched by Palladium, an international advisory and management business.
It aims to improve the quality of maternity care providers in Rajasthan, India,
with a view to reducing mother and baby deaths. It is a three-year project inpartnership with the UBS Optimus Foundation providing initial capital as an

Overview: The What and How of Impact I nves tment

ID Insight is an external outcome evaluator, and Instiglio, a Boston-based non-investor, Palladium as an intermediary manager, HLFPPT as a service provider,and the USAID and MSD for Mother in India as outcome payers. The Governmentof Rajasthan also participates in the program in a non-executive role and lays theground for government outcome funding.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

As of April 2021, within ASEAN, there is only one DIB case in progress—in Cambodia. Figure
5 illustrates the operation of the first ASEAN example of DIB. This, the world’s first DIB in thewater, sanitation and hygiene (WASH) field responds to SDG 6: Clean Water and Sanitation.
It is a market-based financing structure launched with $10 million, to enable 1,600 villages
in six selected provinces (Svay Rieng, Kandal, Prey Veng, Kampong Thom, Siem Reap and25

Oddar Meanchey) to become open defecation free by the end of 2023. This DIB is a significant
driving force for the government of Cambodia that has made a commitment to eradicating the2.

Overview: The What and How of Impact Investm en t

high rates of open defecation by 2025, as per the National Strategic Plan for rural water supply,
sanitation and hygiene (RWSSH) 2014-2025 (World Bank 2015).
Figure 5: The DIB operation in Cambodia

Sets outcome, payment
levels, timeline

Outcome payer

Investor
Half of performance-based
financial return

Verify the outcome to theoutcome payer to determine therate of financial return

Provide direct working capital

Development Purpose Venture(service delivery)

Run a development program

Beneficiary population(Svay Rieng, Kandal, Prey Veng, Kampong
Thom, Siem Reap and Oddar Meanchey)

Source: AJC

Unlike the described DIB model (see Figure 4), this DIB only entails a three-party collaboration
between the Stone Family Foundation, International Development Enterprises (iDE) and theUnited States Agency for International Development (USAID). The Stone Family Foundation,
specialized in WASH in countries including Cambodia for over 10 years, serves as an impact
investor that provides upfront capital. The iDE as a service-delivery agency is a non-profit

25 To further understand the rural sanitation context in Cambodia, see the website of the Stone Family Foundation athttps://www.thesff.com/system/wp-content/uploads/2021/03/Development-Impact-Bond-lessons-learntMarch-2021.pdf

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ASEAN-Japan Centreorganization that promotes a market-based model in approaching development challenges. TheiDE also has a proven model for building sanitation markets in Cambodia since 2006 where
they train sales agents to sell toilets to households in communities and works closely withbusinesses of cement and materials to expand the toilet business (International Development
Enterprise 2021). Finally, the USAID works as an outcome funder to release payment asfinancial dividend relative to the level of development outcome achieved by the iDE.
This DIB model is innovative not only because of the world’s first WASH impact bond, but
auditor. Based on the detailed feasibility study by Social Finance Inc., an intermediary agency
appropriate to have only three parties for two reasons (Social Finance 2021). Firstly, thedevelopment of the DIB model was relatively simple, building on USAID’s internal precedents
as an outcome payer. Secondly, there is a long-standing partnership between the Stone Family
Foundation and iDE on the work of WASH in countries, including Cambodia. An independent
auditor was unnecessary because of “historical performance and cost data… that the partners
were able to confidently price the outcomes, which to date have tracked as forecast” (The
Stone Family Foundation 2021, 8). In addition, the DIB leveraged the official government ofopen defecation free (ODF) claim process, verified using iDE’s data—clear performance, cost
data and real-time updates (The Stone Family Foundation 2021). Therefore, without having
to engage an independent auditor as well as the intermediary agency, this DIB model enabledsmooth negotiation for outcome agreements and simpler governance arrangements and reduced
significant transaction costs.
As of March 2021, about 500 villages—31% of the overall goal of 1,600 villages—has been
impacted to ensure ODF. These villages hold 88,738 households which have all confirmed
to have safe access to sanitation, aligned with the Royal Government of Cambodia’s ODF
guidelines (The Stone Family Foundation 2021). The fact that 31% of the overall goal has beenreached means that 31% of the total pre-agreed return has been paid out by the outcome funder,
equivalent to $3.1 million in outcome payments disbursed by USAID (The Stone Family

Overview: The What and How of Impact I nves tment

specialized in impact bonds and impact investments, this particular DIB project was deemed2.

also because of this operation involving neither the intermediary agency nor independent

Foundation 2021). This DIB model has agreed to innovatively split up the outcome payment,
bringing half, $1.55 million each to the Stone Family Foundation and the iDE (Social Finance2021). It project had marginal interruption by the influence of COVID-19, as a result of few
cases identified in Cambodia. This project is set to conclude in 2023, by which time, in theory,
the remaining 1,100 villages can ensure ODF and if so, the total of $10 million will be paid out
to both the Stone Family Foundation and the iDE.
This DIB project can be taken as an example in ASEAN that demonstrates an innovative
instrument that can source finance for SDGs.

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Box 3. DIB Critiques
Similar to the SIB model, the DIB model also presents several challenges. Firstly,
the complexity of functions involving actors across sectors blur the boundary
between grant making and investment. As John, Chia, and Ito (2017, 53) claims,
DIBs can be a mere example of “outcome-based grant making in the context of2.

Overview: The What and How of Impact Investm en t

international development”. In the SIB model, national government commissions
service providers to deliver the agreed social outcomes, but in the context ofdeveloping countries, where the government capacity needs to be considered,the DIB model configures the “philanthropic capital investors” such as the UBS
Optimus Foundation as in the example (John, Chia, and Ito 2017, 53). In addition,
DIBs may not necessarily harness greater public-private collaboration without
involving the government in developing countries (Gustafsson-Wright, Gardiner,
and Putcha 2015). While impact bonds as a financing mechanism have the potential
to instigate cross-sectoral collaboration, the degree of public-private collaboration
may be low in the DIB model.
The introduction of market principles into welfare service provision fundamentally
illustrates the privatization of public policy and shifts the relationship between
the service provider and user. Such approaches that monetize the benefitsof tackling complex societal impact is generating a fundamental shift in thelandscape of investment. Impact bond model can transform not only citizens into
“commodities” as “payment triggers” but also the ideology of public policy thatis configured to the needs of private investors (Roy, McHugh, and Sinclair 2018).
Private social investment can potentially corrupt the “integrity of outcome-based
commissioning” by altering such a relationship with supremacy of market-basedmodel (Edmiston and Nicholls 2017). Bond models could appear to seek evidencebased interventions with proven track records rather than encouraging financing
innovation (Corry 2016). All in all, it is important to be judicious regarding thecritiques when employing the impact bond models and strategizing instruments for
SDG financing.

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2.4. Key global initiatives covering elements of impact investments
The potential of impact investment is sufficient to warrant serious attention, due to active
initiatives by several global groups and agencies that include the following:

Global Steering Group for Social Impact Investment(GSG)

policy making and galvanise the development of impact
investment markets globally. The GSG can be a platformthat provides organizational legitimacy conveyed throughresponses such as new laws, regulations and accreditation
processes. The GSG is a successor of the G8 Social Impact
26

Investment Task Force, comprised of the Group of Eight (G8)
, which was launched in 2014 and modelled on the UK’s
Social Investment Taskforce. In 2014, the G8 Social
Impact Investment Taskforce transformed into the GSG toaccommodate the evolving initiatives of established andemerging economies worldwide.
As of April 2021, there are 33 countries/regions involved in the
Global Steering Group. These include Argentina, Australia,
Bangladesh, Brazil, Canada, five Central American countries,
Chile, Colombia, the EU, Finland, France, Germany, Ghana,
India, Israel, Italy, Japan, Republic of Korea, Mexico, New
Zealand, Portugal, Spain, South Africa, Sweden, the UK,
Uruguay, the UK, the US and Zambia (Global Steering Group

Overview: The What and How of Impact I nves tment

for Social Impact Investment aims to have input into national2.

As part of the governmental actor, the Global Steering Groupfor Social Impact Investing 2021). Argentina and Uruguay as
well as five Central American countries are combined to makeup one National Advisory Boards (NAB) under the group’s
26 The G8 Taskforce included the US, the UK, France, Canada, Italy,
Germany, Japan and Australia. Russian Federation is excluded on thebasis that its participation has been suspended since 2014 and instead,
Australia has joined the G8 Taskforce due to its active development ofsocial impact investment market.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

umbrella. While none of the ASEAN Member States is part of the GSG, the potential of impact
investment in ASEAN is sufficient to warrant serious attention, due to its active promotion of
the use of impact investing as a way to finance sustainable development.
Socially oriented stock exchange initiatives
As an aftermarket liquidity platform, socially-focused stock exchanges were launched in South

Overview: The What and How of Impact Investm en t

Africa, the UK, Canada, Kenya and Singapore to support the growth of impact investors in
the field. While these are not necessarily active in practice, they are introduced as a concept
through which galvanization of the impact investing market can be made possible. The South
African Social Investment Exchange was launched in 2006, and the Social Stock Exchange
was launched in the UK by private fund managers in 2013 (Social Stock Exchange 2015). In
the same year, a group of Canadian fund managers launched the Social Venture Connexion(SVX), a local, impact-first platform linking social enterprises, funds and investors to catalyse
new debt and equity investment capital for local ventures that have demonstrable social andenvironmental impact (Social Venture Exchange 2021). The Impact Investment Exchange wasestablished subsequently by fund managers in Singapore and is the only public social stock
exchange that lists, trades, clears and settles securities issued by social enterprises across Asia
and Africa. This enabler is also considered to assist social enterprises to become “investor
ready” (Logue and Hollerer 2015 para 9).
Similarly, knowledge-sharing contributing to shared models of sustainable investment practiceis promoted by the Sustainable Stock Exchanges Initiative, created by the UNCTAD. The
Initiative claims to provide “a peer-to-peer learning platform” for “investors, regulators andcompanies” to explore how exchanges among them “can enhance corporate transparency
and performance on ESG issues and encourage sustainable investment” (Sustainable Stock
Exchanges Initiative 2021 para 1). Private social stock exchanges are a response fromunconventional ‘development’ actors, principally private sector fund managers, who see latent2.

value in impact investing. These platforms help impact investors register and publicize theirimpacts as evidence of their social and environmental credentials (Global Impact Investing
Network 2016).
The following aftermarket liquidity platforms facilitate an increase in liquidity, transparency
and efficiency, opening up impact investment to retail investors, and making it more attractive
to mainstream investors.

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B-Corp Certification
B-Corp certification is a “mediator icon”, equivalent to fairtrade certification which produces cross-sector legitimacy. This27

is a certification system which enables actors in the emerging
field of impact investment to negotiate their legitimacy and toprovide the B Impact Report, which is “a rigorous assessmentof a company’s impact on its workers, customers, community,2.

and environment and make their B Impact Report transparent
on bcorporation.net” (B Corporation 2021). Just as there isbenefit, B-Corp is a logo for business to certify their sociallyoriented operations which then provides acknowledgement
and endorsement from their potential customers to purchasetheir product and from potential investors to provide further
capital to scale their business (B Corporation 2021). In order
to be certified as a B-Corp, companies must have a “B Impact”
score out of 100 and details of their performance evaluationin environmental impacts, governance and stakeholder
engagement with workers, customers, community andgovernance.

Global Impact Investing Network
Global Impact Investing Network (GIIN) is a non-profit
organization in the US established in 2009. Its core mission
is to build infrastructure and support activities, guide andresearch that help to increase the scale and effectivenessOverview: The What and How of Impact I nves tmenta fair trade certification logo on products to promote socialof impact investing. The GIIN’s Annual Impact Investor
Survey is published annually, frequently cited by scholars andpractitioners globally.

27 B-Corp certification was created by the non-profit B Lab in the US,
established in 2010 to promote purpose-driven entrepreneurs using theirbusiness for social good.

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IRIS + system for Impact Measurement
IRIS+ is a system that provides resources for measuring,
managing and optimising impact, managed by the GIIN. IRIS+
is generally accepted and publicly available in the impact
investing community to promote transparency, credibility
and accountability necessary for impact measurement andOverview: The What and How of Impact Investm en t

metrics sets to increase impact data clarity and comparability

2.

management of impact investment. IRIS+ provides core

to mainstream impact measurement and management forand thematic taxonomy. The catalogue of metrics is frequently
updated and aligned with SDG goals and targets. IRIS+ alsooffers interoperability with third-party data platforms andsystems that use IRIS metrics. By promoting data reporting,
IRIS+ facilitates capital mobilization as it enables investors
to view their investment progress in societal impact in theirinvestment portfolio. It also enables investees to use wideranging impact metrics on IRIS+ in reporting their businessactivities for investors who wish to translate their impact
objectives into investment outcomes. This is particularly
critical as the definition of impact investing does requiremeasurable societal impact to be reported in their investment
operation.

Impact Management Project
The Impact Management Project (IMP) is a global
network and forum of leading organizations which aims
sustainability. There are GSG, UNDP, IFC, GIIN, PRI,
and other leading businesses and investors for their ESG
integration and impact investment activities. The IMP aims
to build global consensus by having over 2,000 leading
practitioners who share their best practices to continue
improving impact measurement and management and identify
areas for restructuring and standardization. While IRIS+
provides the what of measurement, the IMP provides five34

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28

dimensions that stipulates how impact needs to be measured.
The IMP is a global public interest project funded by global
donors from Europe, the US and Asia.

OECD Social Impact Investment Initiative
The Organisation for Economic Co-operation and2.

Development (OECD) started a Social Impact Investment
Initiative in 2013 when the G8 Social Impact Investment Task
ground-breaking report “Social Impact Investment: Building
the Evidence Base” in 2015 that aimed to develop global
standards on definitions of social impact investment, datacollection, impact measurement and policy development.
A 2019 report “Impact Imperative” emphasized impact infour areas: financing, innovation, policy and data to provide
recommendations for delivering on the “impact imperative” offinancing sustainable development.
The next chapter highlights the overview of impact investment in global, Japan and ASEAN
contexts.

Overview: The What and How of Impact I nves tment

Force was developing. This resulted in OECD publishing a

28 The IMP stipulates how impact can be measured across five dimensions:what, who, how much, contribution and risk. See further at https://
28 The IMP stipulates how impact can be measured
across five dimensions: what, who, how much, contribution andimpactmanagementproject.com/impact-management/impactrisk. See further at https://impactmanagementproject.com/impact-management/impact-management-norms/
management-norms/

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

3. Impact Investment in the World, Japan and ASEAN
This chapter provides an overview of the impact investment landscape in global, Japan and
ASEAN contexts. The supply of capital is calculated based on the aggregate assets undermanagement (AUM) that satisfy the core characteristics of impact investing according to eachreport used in the source (US SIF 2020; GIIN 2020; Responsible Investment Association

3. Im pact Investment in the World, Japan an d ASEAN

Australasia 2020; National Advisory Board of Japan 2020a; Big Society Capital 2020).
Figure 6: A glance of impact investment in figure

UK: $7 billion
US: $266 billion

Japan: $5.6 billion

ASEAN: $6.7 billion (accumulative of 2017-2019)

Global Market: $715 billion

Australia: $15 billion approx.

Sources: US SIF (2020); GIIN (2020); Responsible Investment Association Australasia (2020); Big Society Capital (2020); Prasad, Gokhale, and29 30

Agarwal (2020); National Advisory Board of Japan (2021)

29 The impact investing figure in ASEAN is extremely limited and therefore accumulative data is the only one
available.
30 Note: The figures in the UK (£5 billion), Japan (512.6 billion yen) and Australia (A$19.9 billion) were all
converted into USD figure according to Morningstar as of March 28, 2021.

36

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3.1. Overview of global context
There is limited statistical data that accurately shows the volume of all impact investments
currently pooled in the global market. Whilst it was stated in Chapter 2 that $120 billion is
impact investment out of SDGI, diverse sources point out differing figures on the impact
investing market scale. As acknowledged by many agencies and institutions (International
Finance Corporation 2019, iii), this can be attributed to different survey samples and size, andperhaps most importantly, understanding, definition and spectrum of impact investment, which
31

However, according to the GIIN whose signature Annual Impact Investor Survey is often citedby practitioner and scholarly reports, the global impact investment market volume (n=294)
32

reaches $715 billion (GIIN 2020). Clearly the impact investing market is “growing steadily”(GIIN 2020, iii) and in June 2020, when the Report was published, no respondents saw impact
investment declining, even amidst COVID-19.
Figure 7: Global impact investment market scale, 2016 - 2020
800

$715
$502

600
400

$228
$114

200

$15
0
2016
2017
2018
2019
2020
（n=157） （n=208） （n=226）（n=266） （n=294）

3 . Imp act Investment in the World, Japan and ASEA N

is currently patchy.

Sources: GIIN (2016, 2017, 2018, 2019a, 2020)

31 For example, authoritative agencies such as the OECD (2019), Global Impact Investing Network (2020),
International Finance Corporation (2019) have slightly differing emphasis in their definitions.
32 All samples are engaged in “meaningful investment” activities, meeting the criteria of either 1) managing at least$10 million in impact investing assets and/or 2) having made at least five impact investments (GIIN 2020).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Of $715 billion, 45% or $321 billion was confirmed to be allocated over 75% of their AUM toemerging markets such as Sub-Saharan Africa, Latin America and the Caribbean, South Asia
and South East Asia (GIIN 2020). Although only 1.7% of 294 respondents invested in South
East Asia, it is recognized as one of the fastest-growing regions of impact investment as overhalf of respondents (52%) plan to increase allocations to South East Asia over the next five
years (GIIN 2020, xvi).
Impact investment, as explained before, is not an independent asset class. Impact investors make3. Im pact Investment in the World, Japan an d ASEAN

investment across diverse asset classes, and globally private debt is the major asset allocationsin terms of AUM, whereas private equity is the most common asset class in terms of percentageof respondents (GIIN 2020 p. 36). In addition, about 51% of the total respondents come fromfor-profit asset managers (including fund/investment managers), followed by not-for-profit asset
managers (including fund/investment managers), foundations and DFIs (GIIN 2020 p. 36).
Notably, over half of the respondents (61%) make only impact investments, whereas 9% makeboth impact and conventional investments.
On the global stage, impact investment by sector is diverse. In 2020, the energy sector appeared
to receive the most uptake of impact investment, followed by financial services excluding
microfinance, forestry and food and agriculture. Looking at the percentage of respondents, foodand agriculture tops the momentum, followed by healthcare energy and education (GIIN 2020 p.
3333) as well as other sectors.
One of the most important factors determining the choice of investment is the level of financial
return on top of societal impact. While the practice of impact investment may no longer be
nascent, challenges remain in generation of investment outcomes—both in terms of financial
and social return.

33 Other includes real estate, tourism, community development, retail, and sector-agnostic investment.

38

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Figure 8: Target financial returns for
impact investors surveyed (n=294)

Figure 9: Financial performance
relative to expectations (n=282)

n=294

15%

n=282

12%

20%

18%

68%
Risk-adjusted, market-rate returns
Below-market-rate-returns (closer to market rate)
Below-market-rate-returns

Outperforming

Source: GIIN (2020)

In lineUnderperforming

Source: GIIN (2020)

Figures 8 and 9 illustrate the target financial returns and actual financial performance relative
to expectations. A clear majority, 67% of 294 respondents surveyed globally (GIIN 2020) seek
34

risk-adjusted market rate returns. In contrast, 68% expressed that their financial performancehas outperformed relative to their expectations. This is an evidence that demonstrates impact
investing globally is delivering financial track record.
Interestingly, the demonstration of financial results was not identified as a major challenge for
impact investors globally but rather, the consideration for impact performance, measurement
and management was of greater concern (GIIN 2020 p. 10).
As illustrated in Chapter 2, one of the four core characteristics of impact investing includes
management and measurement of the societal impact created to determine the investment
performance alongside financial return. Over half of the total respondents sought to generate

3 . Imp act Investment in the World, Japan and ASEA N

67%

both social and environmental impact, whereas 34% focused on social impact and just 6% on
environmental impact (GIIN 2020, 44). Just over half, 57% of investors focused on emerging
market (including ASEAN) target for both social and environmental impact, followed by 47%
on social impact and just 2% solely on environment.
34 The level of financial return varies according to asset class, organization size and type—for example, over 80%
of private equity-focused investors target market-rate returns, compared to only 48% of private debt-focusedinvestors. About 25% of the latter, private debt-focused investors tend to opt for capital-preservation strategies,
whereas only 6% of private equity-focused investors choose capital preservation.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

The SDGs are often used for the scope of impact investment measurement. Roughly 70% of the35

respondents used the SDGs for at least one measurement purpose (GIIN 2020).

3. Im pact Investment in the World, Japan an d ASEAN

Figure 10: SDGs used for impact measurement by impact investors surveyed

Source: GIIN (2020)

In particular, nearly three-quarters of respondents targeted SDG 8: Decent Work and Economic
Growth in their investment, yet the average of eight SDG-aligned impact themes is used fortheir impact investment goal (GIIN 2020). Investors focused on developed markets tend toseek to achieve SDG 11, Sustainable Cities and Communities, whereas a greater proportionof investors focused on emerging markets including ASEAN target SDG 5: Gender Equality
and SDG 1: No Poverty. 70% of large investors who make impact investment AUM over $500
million have a higher preference to focus on SDG 13: Climate Action, SDG 7: Affordable
36

and Clean Energy, compared to Small and Medium investors. Figure 10 clearly evidences theorientation of impact investors increasingly relying on the SDGs as an impact measurement
framework. The goals and indicators are an important reference point that enables to further
institutionalize the impact investment field.

35 The SDGs are used to identify what to measure but not how to measure it.
36 Small Investors are those with total impact investment AUM less than $100 million. Medium Investors are thosewith total impact investment AUM > $100 million and AUM ≤ $500 million (GIIN 2020, x).

40

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3.2. Overview of Japan context
Japan has experienced an unprecedented rate of growth in the sphere of impact investment
and is therefore drawing global attention. According to the National Advisory Board(NAB) of Japan, Japan’s impact investing ‘market scale’ as of April 2021 is nearly $5.6
billion or 512.6 billion yen (National Advisory Board of Japan 2021). The scale in Japan
displays a drastic growth from $307 million in 2016 to $655 million in 2017, doubled
in just one year. Following this, there was a fivefold increase from $655 million in 2017
37

38

that the impact investment market in 2020 showed a spike, doubling to $5.6 billion.
Figure 11: Japanese impact investment market scale, 2016 - 2020
$5,6256000
4500$3,1383000$2,862

1500

$307

$655

0
2016
2017
2018
2019
2020
（n=21） （n=46） （n=20） （n=16） （n=26）
39

Sources: Japan NAB 2016, 2018, 2019, 2020, 2021

37 Notably, as pointed out by the NAB report (2021 p. 39), due to the limitations of methodology taken in reaching

3 . Imp act Investment in the World, Japan and ASEA N

to $3.1 billion in 2018. While the figure decreased in 2019, the Japan NAB concluded

the figure, the figure does not show comprehensive state of the market, hence it is difficult to conclude thatthe figure is the current “market scale”. For further explanations, see http://impactinvestment.jp/user/media/
resources-pdf/gsg-2020.pdf
38 The SIB market in Japan also witnesses remarkable developments. As of 2019, there were roughly 20 SIB projects,
pooling 900 million yen (SIIF 2020). 20 as the number of “current SIBs” is a rough figure because some ofthem are in the planning stage. As explained in Chapter 2, SIBs are indeed difficult to materialize as it requires
cross-sectoral coordination and consensus. Japanese SIBs are mainly preventive measures in the areas of health,education and aged care (See NAB 2020 for further details).
39 Figures in Japanese yen are 33.7 billion yen in 2016, 71.8 billion yen in 2017, 344 billion yen in 2018, 317.9 billion
yen in 2019 and 512.6 billion yen in 2020. Note: these figures are converted into USD based on the Morningstar
rate as of March 28, 2021.

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41

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

National Advisory Board of Japan (2021, 65) reveals that by value, over half (52%) of impact
40

investors in Japan surveyed in 2020 invest in companies within Japan, followed by Europe(32%), North America (9%) and Asia excluding Japan (6%). Yet, by volume, Japan is the major
destination, accounting for 83%, followed by the rest of Asia, North America, Europe andCentral America and in Africa.
Japanese impact investors surveyed tend to have private equity (40%), followed by public
equity (28%) as their allocation by number of responses. By contrast, greater assets by value
are allocated to private debt (52%) and public equity (33%). The major type of investees are

3. Im pact Investment in the World, Japan an d ASEAN

commonly private companies (56%) by volume, whereas publicly listed companies (80%)
gained the most confidence as investees by capital value deployed, followed by privatecompanies (13%).
By value, the thematic areas of impact investments are concentrated in climate change
adaptation and mitigation (28%), followed by renewable energy and health (13%). On the41

other hand, quality education and childcare (70%), health (65%) and women’s empowerment(61%) appear to be more urgent themes by the number of responses. Some of these thematic
areas are naturally in line with focus of SIBs in Japan (See Footnote 38).
Japanese impact investors overall can be deemed more risk-tolerant investors in considerationof the degree of financial return, compared to the findings of global annual impact investor
survey. As can be seen in Figure 12, 60% of the impact investors surveyed in Japan seek risk42

adjusted market rate returns, compared to 67% of the impact investors surveyed globally.
Twelve percent pursues below-market rate (close to market-rate) and 8% aims for below-market
rate. Similarly to impact investors surveyed globally, Japanese impact investors would also
target risk-adjusted market-rate returns.

40 Out of 591 companies to which the survey was distributed, only 75 responded, of which 26 fit the category as
impact investors, according to the criteria consistent to the global impact investor survey (GIIN 2020).
41 Literal translation is close to “promotion of female participation and career advancement”.
42 In particular, just over half, 59% of the equity-focused investors seek risk-adjusted market rate returns, whereas
80% of global impact investors in general pursue risk-adjusted market rate returns.

42

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Figure 12: Target financial returns
for impact investors surveyed (n=25)

Figure 13: Financial performance
relative to expectations

20%

16%

24%

8%

4%
60%

Risk-adjusted, market-rate returns
Below-market-rate-returns (closer to market rate)
Below-market-rate-returns
Other
Source: Japan NAB 2021

56%

Outperforming

In lineUnderperforming

Do not know

Source: Japan NAB 2021

In turn, Figure 13 illustrates the actual performance of financial return. This is reported not by
the market rate but is whether or not “financial expectations were met”. Similarly to the global
impact investing report, 56% of the Japanese impact investors surveyed expressed that it was inline with their expectations. While 24%, the next majority answered that they do not know, 16%of them considered it to have outperformed.
Finally, the 2021 Report on impact investment by the Japanese NAB presented a dramaticincrease in impact investors’ alignment with the SDGs (Japan NAB, 2021). The similar pattern
can be observed in the global impact investor survey in terms of the SDGs framework used for
impact measurement. The Japanese NAB report indicated that the number of respondents thatalign all SDGs with indicators for societal impact grew from 23% in 2018 to 39% in 2020%(Japan NAB, 2021). This is primarily because the SDG framework is employed globally,

3 . Imp act Investment in the World, Japan and ASEA N

12%which provides a recognized indicator showcasing the societal impact evaluated. The second
reason was that the investors surveyed recognized the importance of their investment closely
linked to the realm of international development. For investees, the SDG framework could
43

potentially attract further investors who may want to diversify their respective portfolios.

43 National Advisory Board of Japan (2021) details impact measurement mechanisms in the report (p. 70-76) inJapanese.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

43

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Japan’s alignment with the UN SDG agenda is also reflected in its explicit actions in other44

aspects. First, at the time when the UN SDGs were declared and adopted in 2015, the Japanese
Government committed its Government Pension Investment Fund (GPIF), the world’s largest
pension fund worth $1.5 trillion, to become a signatory to the Principles for Responsible
Investment in 2015 (GPIF 2015). Second, the former Executive Management Director of the
GPIF, Mr. Hiromichi Mizuno was appointed by the UN Secretary-General António Guterresin December 2020 as the Special Envoy on Innovative Finance and Sustainable Investments,emphasising the leading role Japan plays on the global stage (UN 2020b). The Special

3. Im pact Investment in the World, Japan an d ASEAN

Envoy will serve to strengthen engagement in global public-private dialogue to pool various
instruments of sustainable finance toward the SDGs.
When the bill for the use of dormant account funds—The Act on Utilization of Funds Related
to Dormant Deposits to Promote Public Interest Activities by the Private Sector—was passedin the National Diet in 2016 (Japan Times 2016), it generated over $727 million per annum,
scaling Japan’s impact investing market at an unprecedented rate. This act is used for financing
public interest activities in Japan (Cabinet Office of Japan 2020), with under 4 billion yenof dormant account funds in FY 2021 projected to fund NPOs, institutions and for-purpose
enterprises serving to promote greater social good. While the use of dormant account funds was
initially expected for loans and investment, this practice currently is used only for providing$33 million or 3.6 billion yen in grant (Cabinet Office of Japan 2021). Further discussions on
this possibility will determine the possibility of potentially pooling the fund for investing in the
SDGs.
The survey conducted by Social Innovation and Investment Foundation (SIIF 2020) in Japan
showed that while only 6.8% of the surveyed population (n=3,098) understand the meaningof social impact investment, 20.7% of the surveyed population—mainly millennials in their45

twenties and thirties, high-income groups and those experienced in investments —is interested
in purchasing impact investment product. This survey also demonstrates that the interest for
impact investment in Japan will only continue to grow, and more investors are aligning theirinvestment with the SDG framework.

44 Further, the Japanese Prime Minister Suga has unveiled $19.2 billion (2 trillion yen) of green technology fund as
part of a COVID-19 stimulus package (Cabinet Office, 2020), reflecting the policy direction of investments inJapan.
45 The survey also exhibited that 500,000 yen is the amount most commonly considered for the initial ticket for
impact investment product (SIIF 2020).

44

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Major challenges described by Japanese impact investors (SIIF 2020) surveyed are as follows:
1. Fragmented impact measurement and management approach
2. Profit maximization of impact investees and lack of human resource that supports successful exit
3. Lack of impact investment ‘product’ or lack of product information
4. Lack of investees that fit the definition of impact investees
46

The undercoordinated impact measurement and management appears to be the major obstacle.
Impact investment requires due diligence and evaluation of not only financial performance but
also societal impact. The approach to impact measurement remains diverse and patchy. This
47

coordination and impact investment promotion policy from the central and local government.
Promotion policy would work as an institutional force to legitimize impact investing practiceand raise awareness of such investment approaches to pave the way for accelerating theachievement of the SDGs. This will encourage the increase of more investment product,
information disclosure and commercialising SDG-specific projects with the aim of creating
impact investment products.
However, it is imperative to bear in mind that not all projects can be investment product. Somedevelopmental challenges can be scalable through impact investment, but other challenges
cannot necessarily be addressed through monetizing development work. Impact investment
does not—and will not—replace the work of philanthropy (Ono 2020), and this will be further
discussed in Chapter 4. Awareness of impact investment as an approach must come with acareful consideration of societal risk that market development brings.
On a positive note, amidst the COVID-19 crisis, 75% of the current Japanese impact investors
express their willingness to increase their impact investment, and no respondents expressed48

their intention to withdraw or decrease it (National Advisory Board of Japan 2021, 68). This isa valuable finding that presents greatest opportunity to increase further ASEAN-Japan impact
investment and accelerate the realization of the SDGs–with a careful plan and coordination. For
this, the next section focuses on the overview of impact investing in ASEAN, along with five

3 . Imp act Investment in the World, Japan and ASEA N

reflects the fragmented nature of the impact investment market in Japan, which requires further

case studies and challenges.

46 Globally, the major challenge was raised as the risk of ‘impact washing’—a misleading portrayal or“selective disclosure” about unsubstantiated claims that promote non-impactful initiatives of businesses inexchange for their public reputation (Steinberg 2015, 81). This will be further discussed in Chapter 4.
47 Policy support for impact investment promotion (such as tax relief system) is considered the most importantby those who practice impact investment in Japan, according to the Japan NAB research (2021, p. 57). Refer tothe report for further market development challenges listed.
48 The survey by the Japanese NAB was conducted from September to December, 2020.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

3.3. Overview of ASEAN context
Similarly to the global overview, there is a lack of comprehensive data on the impact
investment market particularly in the ASEAN region. In such a diverse and fast-growing
region as ASEAN, a challenge lies in data collection that presents an adequate measure of
the market scale. Nevertheless, the most pertinent, recent report published in 2020 on the49

Advance of Impact Investing in South East Asia (Prasad, Gokhale, and Agarwal 2020)

3. Im pact Investment in the World, Japan an d ASEAN

reveals a steep growth trajectory. This section provides the overview of impact investment
activities in ASEAN, based mainly on data by this Report, as well as GIIN and Intellecap
50(2018).
Both the amount of investment capital and number of deals continued to grow in South East
Asia, as the amount of impact investing capital deployed in the region within a 3-year
51

period between 2017-2019 reaches up to $6.7 billion through 298 deals, nearly half of$11.3 billion made through 449 deals in the previous decade in 2007-2016 (GIIN and Intellecap2018). Figure 14 shows the comparison of overall impact investing activity in ASEAN between
a decade in 2007-2016 and a three-year period in 2017-2019. The comparison of amountand deals is made with only available data. In this figure, the data on Brunei Darussalam wasundisclosed in the report by Prasad et al. (2020).

49 This report was carried out with Investing in Women, an Australian Government initiative.
50 This report presents insights from impact investments and gender lens investments across 11 countries (ASEAN
plus East Timor) between 2017 and 2019, with focus on Indonesia, the Philippines and Viet Nam.
51 Additional $736 million (or just over 10% of the impact capital) was made through co-investment by non-impact
investors.

46

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Figure 14: Impact investment capital deployed in ASEAN, 2007 – 2016 and 2017 – 20193743.82800

n=2982417.3

2520
2240

2067

1662.91680
1420.4

343.5

1400

1287.71250.2

1049

1120

31.1

840

627.4

560

355.9

343.5

280
31.1

116.9

112.6 85.5

Malaysia

Myanmar Philippines Singapore

47.90BrunelCambodia Indonesia

Lao PDR

Capital Development in 10 yrs (2007-2016)

Thailand

Viet Nam

Capital Development in 3 yrs (2017-2019)

Sources: Prasad et al. (2020); GIIN and Intellecap (2018)

Figure 14 shows the significant momentum of impact investment activity in ASEAN between
a past decade and a recent three-year period. Impact investment as a practice in ASEAN isundoubtedly an emerging—and in specific countries more established—practice. In addition,
Figure 15 shows the volume of impact investments in ASEAN.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

3 . Imp act Investment in the World, Japan and ASEA N

1960

47

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Figure 15: Number of impact investment deals in ASEAN, 2017 – 2019
86

90

68

46

3. Im pact Investment in the World, Japan an d ASEAN

45

36
31
23

23

17

13
4

0

0

Brunel Cambodia Indonesia Lao PDR Malaysia Myanmar Philippines Singapore Thailand Viet Nam

Source: Prasad et al. (2020)

Table 2 shows the breakdown of impact investment activities divided into private impact
investments (PII) and DFIs.
Table 2: Breakdown of impact investment activities in capital and deals, 2017 – 2019
Private Impact
Investors (n=159)

Development FinanceInstitutions (n=141)

Country

Investment
Capital($ million)

Numberof deals

Investment
Capital($ million)

Numberof deals

Total amountof Investment
capital($ million)

Cambodia

$54.9

11

$301.120$355.931

Indonesia$138.561$1,928.925$2,067.4

86

Lao PDR

$10

1

$21.1

3

$31.1

4

Malaysia

$45.5

10

$71.2

3

$116.7

13

Myanmar$18.6

15$816.331$834.946

Philippines$105.428$522.316$627.443

Singapore

$45.1

19

$40.4

4

$85.5

23

Thailand$5.2

3$1,282.5

14$1,287.7

17

Viet Nam$7.7

11$1,242.5

25$1,250.236$430.9159$6,226.3

141$6,657.2

298

Total

Source: Prasad et al. (2020)

48

43

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Total
numberof deals

ASEAN-Japan Centre

Within ASEAN, the largest amount of investment goes to Indonesia, both from PIIs and DFIs,
exceeding $2 billion. Thailand and Viet Nam are ranked second and third in terms of the total
investment capital deployed, whereas there is an imbalance where DFIs are over 99% of thetotal inward capital. Thailand receives the least PIIs, whereas Lao PDR receives the least DFI
capital. Finally, Singapore is the only country that receives more PIIs than DFI capital inflow,
followed by Malaysia, which is relatively overshadowed by DFIs.
The number of deals is another factor that reflects the level of interest in investing and financing
any given country. While the above table shows DFIs to be significant key players in terms ofoutweigh DFIs. Myanmar receives the greatest number of DFI deals, followed by Indonesia andViet Nam, whereas in terms of the number of PII deals, Indonesia tops ASEAN, followed by
the Philippines, Singapore and Myanmar. Lao PDR receives only one PII deal but the capital
deployed from one PII deal is $10 million, which nearly doubles that of Thailand from three
PII deals. Finally, it is also encouraging to see that the total number of deals is, in fact, higher in
PII than DFIs despite the lower capital investment deployed in total—as it suggests a growinginterest by private investors.
In looking at both investment sources, PIIs and DFIs by sector, the distinctions are evident.
Figure 16: Private impact investment
by sector, 2017 – 2019

Figure 17: Development financial
institutions by sector, 2017 – 2019

PIIs
16%

5%

DFIs
3%

1%

5%

6%

5%

n=141

3%

1%

5%

8%

3%

36%

4%

3%

3 . Imp act Investment in the World, Japan and ASEA N

the amount of capital deployed, the number of deals shows that the private impact investments

7%
49%

4%

Agriculture (32)
Energy (13)Healthcare (6)Infrastructure (1)Services (9)Education (5)Financial Service (41)
ICT (25)
Retail (3)Other (24)Source: Prasad et al. (2020)

35%

Agriculture (15)Energy (24)
Healthcare (7)Infrastructure (7)Services (5)Education (1)Financial Service (65)
ICT (2)Retail (2)Other (14)Source: Prasad et al. (2020)

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

As illustrated in Figures 16 and 17, nearly half of the PIIs appear to be interested in financial
services; this is the sector that receives the greatest capital from the highest number of deals.
According to Prasad, Gokhale, and Agarwal (2020), this is concentrated on fintech, which
includes online financing/insurance marketplaces, crowdfunding/P2P lending platforms,
digital payments and credit scoring solutions. The second largest fraction, “other” include
forestry, industrial trading, logistics, manufacturing and waste and water. Recently, some
impact investment has been directed to the gender dimension of SDG factors, including women

3. Im pact Investment in the World, Japan an d ASEAN

empowerment (See Box 4).
Almost 70% of the total number of DFI deals and over 85% of the total private capital were
deployed as debt. While equity investments started to show steady growth since 2015, a largepart of DFI investments go to lending institutions such as banks or MFIs, large-scale energy
projects or traditional agriculture businesses where debt is deemed more appropriate forinvestment.

Box 4. Gender-lens investment (GLI)
Gender-lens investment (GLI) is the “deliberate incorporation of gender factors
into investment analysis and decisions” for improved social and business outcomes(Australian Aid, Investing in Women, and Value for Women 2021). GLI has an
explicit focus on gender-relevant factors, much like incorporating the ESG factors
in investment decisions.
GLI has increased significantly in ASEAN, particularly in the financial services
sector, followed by agriculture in terms of capital deployed. There are 39 GLI deals
deploying over US$350 million in ASEAN within the last 3 years. GLI in ASEAN
is predominantly invested by DFIs in terms of capital, whereas PIIs outweigh in thenumber of deals made. Thailand has the highest GLI capital, whereas Indonesia
has the highest number of deals of GLI. 22% of impact investing deals (19 out of
86 deals) in Indonesia is GLI, which is the highest proportion in ASEAN.
Women in Indonesia, the Philippines and Viet Nam are particularly significant
players in the SME market, where over half of SMEs are run by women. These
three countries account for over 80% of GLIs in ASEAN by volume, although
Thailand and Cambodia are the majority by value. As such, “gender-lens investment”
can be a potential source of financing the SDGs.

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3.3.1. Overview
3.3.1 Overview
of activities
of relevant
activities torelevant
impacttoinvesting
impact investingin ASEAN
in52

Member States
ASEAN Member States
52

Brunei Darussalam, a high-income country with small population, is among
the least active of the ASEAN Member States on impact investing activities.
Awareness of impact investing is low compared to other ASEAN countries
53

and impact investing data on Brunei Darussalam is difficult to identify.

investment is not explicitly identified, the private sector appears more active
to drive socially-responsible initiatives. Companies such as Shell and Brunei
Gas Carriers conduct social investment as part of their corporate social
responsibility for environmental conservation, education, and community
development. The country’s limited commitments to responsible investments
such as ESG (Korwatanasakul and Majoe 2019) suggest that the national
priority be placed on the development of green economy only in the medium
to long-term. Brunei’s interest in Islamic finance—in particular social or green
sukuk (See Malaysia) can be a starting point. Zakat-based microfinance is apractice gaining traction in community development (Nurhayati, Safei, andOno 2020) and is a potential area for further exploration in driving progress of
the SDGs.

Cambodia showcases a rapid growth of impact investing. Cambodia has
a burgeoning impact investing ecosystem with an active presence of thosefrom foundations, impact investment funds (a Japanese social investment
fund, ARUN LLC or Insitor to name a few) to SPVs. Cambodia receives thethird highest amount of PII capital in ASEAN. Its open and common use of
US currency can be attributed to this. In addition, due to its history of aid

3 . Imp act Investment in the World, Japan and ASEA N

While the government’s commitment to SDG-aligned initiatives throughflows into the national economy, as many as 3,500 NGOs in Cambodia
pursue diversification of their funding structure and channels (AVPN 2019a).
Key actors in impact investing appear to concentrate on micro finance and
52 The level of detail in this section is varied relative to the activities as well as data availability.
53

The Sustainability Fund Act from the Ministry of Finance and Economy is mainly for the
purpose of sustaining the national economy to “reduce oil revenue shortfall” and broadens
the revenue base (Ministry of Finance and Economy 2021), which is indeed an importantdevelopment agenda for all countries and responds to the SDG 8: Decent Work andEconomic Growth.

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debt capital (AVPN 2019a), yet the presence of the ASEAN’s first DIB (seeChapter 2) signals Cambodia’s great potential of being the next hub for impact
investment.

Indonesia is the largest impact investing market in ASEAN—both in terms ofcapital and deals. Its abundant natural resources, presence of unicorns and aworkforce dominated by MSMEs present opportunities to maximize national
capital and bring financial capital and sustainable development impact into the54

3. Im pact Investment in the World, Japan an d ASEAN

country. Natural resources such as palm oil or natural gas present significant
potential for renewable energy. Further, Indonesia appears to be the “nextfrontier” for the major US Tech companies (Tani 2020). Unicorns such as
GoJek as well as e-commerce platforms Tokopedia and Bukalapak are set toreceive significant investments by Microsoft, Google and Singapore’s Temasek(Tani 2020). These investments raise the profile of Indonesian unicorns among
global investors and facilitate an accelerated digital transformation acrossIndonesia. However, intentionality of investing in SDG-aligned opportunities
needs further exploration.
Seventy-two percent of impact investing deals in Indonesia are under $10
million, most of which are in the seed or early to growth stage (Prasad,
Gokhale, and Agarwal 2020). Investments made are in energy, financial
services as well as healthcare. Sixty percent of PII deals use equity,whereas 34% of DFI deals are debt instruments. The country’s major
55

workforce dominated by micro, small, medium enterprises (MSMEs)

reflects challenges and opportunity. Research concludes that MSMEs accountfor almost 100% of all existing firms in Indonesia (Seno-Alday 2017;
Tambunan 2019). Yet they contribute only about 60% of national GDP due to56lack of technology, access to credit, market access or so-called funding gap for
scaling and upgrading their business capacity (Tambunan 2019). There remains
a $54 billion financing gap of MSMEs doing activities pertinent to SDGs in

54 Islamic finance is one of the long-standing financial transactions that intentionally seek socialand environmental objectives. Further exploration of impact investing through the
deployment of Islamic finance is recommended for future study.
55 In Indonesia, Ministry of Cooperatives and SMEs defines MSMEs in terms of the assets andrevenues as per SME Law 20/2008, Ministry of Cooperatives and SMEs.
56 Lack of technology leads to transactional record and data which most banks require to assess
their credit status and ability to manage and repay loan.

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the country (Thuard et al. 2019).57 58 Unlocking investment capital for MSMEs
through innovative, sustainable financing models such as impact investing canbe the key driver for Indonesia to scale and create sustainable developmental
impact.

Similarly to Cambodia, Lao PDR is one of the CLMV59 countries that haverelatively less private impact investing capital compared to DFI capital
inflows. GIIN and Intellecap (2018) note that the majority of the private impact
with the 8th National Socio-economic Development Plan (NSEDP). The DFI
capital, similarly, has also been in the energy sector, followed by financial
services and manufacturing. There are no policies that promote and arrangesocially oriented or SDG-relevant investment activities. However, with theintroduction of the 9th NSEDP, Lao government can be encouraged to play
an active role in promoting and increasing impact investment that specificallyachieves the goals of NSEDP, SDGs and beyond. This transition presents anopportunity.

Malaysia is a key leading figure in socially responsible investing market in
Asia. Malaysia issued its first ever green sukuk—sharia compliant bonds—
worth $58 million in the world60, and its active corporate engagement withsocietal impact is noteworthy (AVPN 2019b). Malaysia remains at the forefrontin Islamic finance in Southeast Asia, as it became the first country to sell adollar sukuk linked to the theme of sustainability in April 2021 (Flynn and
Suhartono 2021). Looking at the impact investing landscape, Malaysia slightly
57 The key issue in the persistent funding gap of MSMEs reflects its informal and unorganized
nature of the business scheme (Tambunan 2019), where a collective group of these busines-

3 . Imp act Investment in the World, Japan and ASEA N

investment capital and deals as of 2018 were deployed in clear energy, in line

ses are often uncoordinated.
58 MSMEs are considered as high risk for loan due to their inadequate credible information of
their business or their capacity in managing loans and repayment are questioned. The segment, so called the “missing middle” (Oliver Wyman 2016) is estimated to reduce Indonesia’s GDP by $130 billion. While the figure is from the pre-COVID period, this significant
segment that contributes centrally to the national GDP demonstrates an area of improvement.
59 The term for four less developed countries of ASEAN (Cambodia, Lao PDR, Myanmar andVietnam)
60 Mainly these funds go to financing major solar-power project in the state of Sabah (TheASEAN Post 2020). In addition, 82% of the total sukuk outstanding in Southeast Asia iswithin Malaysia.

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lags behind. By value, Malaysia is ranked seventh in ASEAN, and it shows
remarkable progress and development of the impact investment market.
Although 10 out of 13 deals made are sourced by PIIs, 3 deals made by DFIs
are higher in value—$71.2 million by DFIs compared to $45.5 million by PIIs
(Prasad, Gokhale, and Agarwal 2020). Key sectors of impact investment are
undisclosed.
Malaysia established the Social Enterprise Accreditation in 201961 to guide andgrant accreditation status to Malaysian businesses to become social enterprises
for a period of not over three years. The definition of social enterprise in

3. Im pact Investment in the World, Japan an d ASEAN

Malaysia is an entity that earns more than half of the total revenue throughtheir business with simultaneously contributing to societal impact creation(Malaysian Global Innovation and Creativity Centre 2015). The benefit of thisaccreditation is mainly eligibility to apply for tax deduction to be considered by
Ministry of Finance as per Section 44 (11C) Income Tax Act 1967.
Impact investees tend to be either in not-for-profit or for-profit structures, as
there is no legislative framework as of 2019 (AVPN 2019b). The 2018 study
on 122 Malaysian social enterprises found that the majority of them surveyed
are young (55% under 40) and female (54% of them run by women) (British
Council 2018). Many SPVs face challenges of investment opportunities, andtherefore require direct financial and facilitative support to run, sustain andscale their businesses.

In 2020, Myanmar was one of only 2 countries in ASEAN—aside from Viet
Nam—that recorded positive growth during the COVID-19 shock (World Bank2021). Its strong industrial performance, particularly in garment manufacturing
steadily supported the economic growth in the country (AVPN 2019c).
Myanmar’s impact investing market showed signs of growth, as it was ranked
second in ASEAN, followed by Indonesia, in terms of the number of deals. Outof 46 deals made, two-thirds was from DFIs, mobilizing over $800 million,
whereas 14 deals from PIIs mobilized $18.6 million. Even by total investment
value, Myanmar is positioned fourth, followed by Indonesia, Thailand, andViet Nam. The incubation and acceleration programs for impact investees
were on the rise, and large local corporations displayed their move towards
61 This came after the three-year roadmap called Malaysia Social Enterprise Blueprint 20152018. This outlined a range of policy measures to build human capital for social
entrepreneurship and accelerate the development of social entrepreneurship in Malaysia(UNESCAP 2017; Kadir et al. 2019).

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more strategic social investment aligned with community needs (AVPN
2019c). There is great potential in harnessing the impact investment market in
Myanmar, with more central support and coordination in place. The politicalturmoil since February 2021, however, casts a shadow to the growth of suchinvestment, let alone traditional investment.

The Philippines has one of the most active impact investing markets in
ASEAN (AVPN 2019d). The Philippines is ranked highly in terms of thecapital deployed. The Philippines was the second largest impact investing
market in ASEAN according to the study in 2018 but lagged behind with the
influx of impact investing capital flowing into other ASEAN countries such as
Indonesia and Thailand. The study by Prasad, Gokhale, and Agarwal (2020)
reveals that the key sectors attracting impact investing in the Philippines
include financial services (typically microfinance and SME financing
institutions or fin-tech companies) and energy (solar and renewable energy),
both of which account for 84% of capital deployed. Foreign investors camefrom European countries such as Belgium, France, Denmark, the Netherlands
and the US, mostly providing equity investments. Major DFIs are FMO, a
Dutch development bank and IFC, of which, 90% of deals using debt capital,
with an average ticket being $27 million.
GLI (See Box 4) has gained a remarkable traction in the Philippines, signallinga significant source of finance to drive investments for the SDGs. Eight out of
43 impact investing deals (18.6%) made within 2017-2019 were GLI62. The
proportion of women-owned SMEs is higher than men-owned SMEs in thePhilippines and yet, women face more structural barriers, ranging from family
constraints, limited access to finance, technology and relevant skills training
to safety issues (Australian Aid, Investing in Women, and Value for Women2021). Skills training, is required to build the pipeline for impact investing and

3 . Imp act Investment in the World, Japan and ASEA N

number of deals yet sits in the middle within ASEAN in terms of the total

investment readiness of impact investees i.e. SPVs must be harnessed throughfacilitative support, which equates to capacity building in the ecosystem.

Singapore showcases its strong leadership in terms of ecosystem maturity—
institutional, human and technical capacity to galvanize the market. Singapore
62 Patamar, Capital 4 Development Partners, SEAF and Calvert Impact Capital concluded GLI
deals.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

has been named as one of the most innovative economies—evidently,
Singapore is ranked third in the world in the International Property Rights
Index 2020 (International Property Rights Index 2020)63 and eighth in the
Global Innovation Index 2020 (World Intellectual Property Organisation 2021).
With its strength in innovation, venture capital penetration is among the highest(World Intellectual Property Organisation 2021), and as of 2018, 75% of
all start-up funding deals in Southeast Asia went through Singapore (AVPN
2019e). Although the ability of investors to maintain a presence in the investee
country is increasingly important in light of the current pandemic challenge,

3. Im pact Investment in the World, Japan an d ASEAN

many PII funds are headquartered in Singapore–the region’s financial capital.
Singapore holds offices of major impact investing ventures that include
Aavishkar (Indian impact investing fund), the Aspen Network of Development
Entrepreneurs (ANDE), AVPN, BlueOrchard, Bamboo Finance, Impact
Investment Exchange and Omidyar Network, all of which are critical actors thatshape the impact investing ecosystem on a global stage. In addition, since 2015,
banks in Singapore are required to incorporate some level of ESG standards intheir financing decisions under the Guidelines on Responsible Financing. These
factors include but not limited to GHG emissions, deforestation, corporate
ethics and integrity (Associations of Banks in Singapore, 2018). With its strong
institutional infrastructure, Singapore can possibly remain an effective gateway
to ASEAN impact investing markets. Further cross-sectoral harmony between
the public, private and civil society can drive social innovations to sustain
developmental impact.

Thailand has a relatively coordinated environment to enhance the impact
investing ecosystem. The Government of Thailand has established the National
Taskforce on Social Impact Investment in 2016, in collaboration with thecurrent Global Social Impact Investment Steering Group to accelerate
the development of an effective social impact investment market (UNESCAP
2017).64 Three years later in 2019, it has also established the Social Enterprises
Promotion Act in February 2019. The Social Enterprise Promotion Act was
critical to build the pipeline of impact investment—impact investees—togalvanise the market. This Act established three new entities that are 1) the
63 The Index measures the strength of a country’s property rights regime, including both intellectualand physical property rights.
64 However, Thailand is not part of the GSG (Global Steering Group for Social Impact Investing2021).

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Social Enterprise Promotion Committee, responsible for policy design andrecommendations, 2) the Office of Social Enterprise Promotion, and 3) the
Social Enterprise Promotion fund, providing loans and grants for registeredsocial enterprises (British Council 2020). The Office of Social Enterprise
Promotion is the registrar of social enterprises, assessing businesses to qualifysocial enterprises—either non-profits or for-profits.65 The 2020 study on thestate of social enterprises in Thailand shows that there are 141 registered social
enterprises (British Council 2020).
Despite its national institutional effort, however, access to funding, network and2021). As Figure 14 shows, the volume by PIIs trails behind as the majority
comes from DFIs, accounting 14 deals worth $1.8 billion, while 3 deals arefrom PIIs, mobilising $5.2 million. Nevertheless, Thailand is ranked second in
ASEAN, followed by Indonesia by value of impact investment capital.66 67
As explained in Chapter 1, as part of the activities in ASEAN’s Catalytic Green
Finance Facility (ACGF), the Government of Thailand shows its commitment
to the achievement of the SDGs in the way it aligns their COVID-19 recovery
framework design and monitoring schemes with the SDGs and the 2015 Paris
Agreement (ADB 2020). Overall, Thailand enjoys relatively solid institutional
structure placed in aligning activities with SDGs and societal impact, andthis will continue to facilitate and build the pipeline of impact investees for abroader ecosystem in Thailand.

As a country next to Myanmar that maintained positive economic growth
despite the pandemic crisis, Viet Nam remains to be a strong and stableeconomy (World Bank 2021). It has great potential in turning its economy
into a social one, by further driving financial and facilitative actors in theecosystem. Viet Nam is the third largest impact investing market by value in
ASEAN. In fact, Viet Nam has passed the 2015 Law of Enterprise to legally

3 . Imp act Investment in the World, Japan and ASEA N

a lack of public understanding of their impact remain major challenges (Joffre

recognize social enterprise as business committed to address societal issues
65 It also facilitates tax relief for businesses establishing social enterprises as well as tax incentives
for impact investments.
66 Although the key sector of investment is not disclosed, the major sectors in which Thai social
enterprises operate entail agriculture, fisheries and livestock, education and health (British
Council 2020).
67 In addition, ESG integration is growing to be a mainstream activity in Thailand, as theThailand’s largest institutional investor, Government Pension Fund launched an ESGfocused portfolio and mobilising other funds to join the momentum (AVPN 2019f).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

for public benefit and re-invest at least 51% of profit in the business conductsthat fulfil social and environmental needs (AVPN 2019g).68 The market is
predominantly invested by DFIs by value, although the volume of deals is
outweighed by PIIs. The key sectors of impact investment include financial
services and energy which account for around 80%. The source of impact
investment in these sectors is largely DFIs by volume, using debt by IFC and
ADB. 20% of the total impact investing deals (7 out of 36) are GLI (Box 4),
primarily in the agriculture and financial service sector.69 GLI is slowly gaining

3. Im pact Investment in the World, Japan an d ASEAN

momentum in Viet Nam, making this a critical source for financing the SDGs.

All in all, the impact investing ecosystem in ASEAN is taking shape, yet
it requires further institutional support coordination from all actors intransactional, facilitative, intellectual and government dimensions. Thailand
and Viet Nam in addition enjoys relatively more coordinated institutional
support with its legal definition and framework for SPVs. The group of CLMV
witnesses differing levels of progress. Cambodia receives the third highest
amount of impact investing capital and represents the only DIB project. Lao
PDR is ranked the lowest in terms of value and volume—yet there is potential
in turning the next NSEDP more SDG-relevant. Myanmar has the second
highest number of deals in ASEAN as well as increasing incubators andaccelerators in place.

Facilitative support,
Facilitativein particular,
support,is a inkeyparticular,
word in ASEAN,
is a keyessential
word in to
ASEAN,
promoteessential
investment
toreadiness of impact
investees
in many
aspects,
leading
to buildthe pipeline.
This canpromoteinvestment
readinessof impact
investees
in many
aspects, leadingtoraise confidencebuildof national
or international
impactinvestors—transactional
contribution—
the pipeline.
This can raise
confidenceof national or international
impactto strengthen theinvestors—transactional
impact investing market.
Further intellectualand government
commitment
iscontribution—to
strengthen
the impact investing
market.
critical to institutionalize
Further intellectualand shape theandoverall
government
impact commitment
investment ecosystemis criticalintoASEAN.
institutionalize
and shape the overall impact investment ecosystem in ASEAN.
The next section introduces five case studies of existing impact investing practice to illustrate
the most up-to-date experience of impact investing in ASEAN.
68 However, many enterprises choose to remain informal due to the lengthy process ofregistration, which remains to be one of the challenges. Majority of social enterprises in Viet
68 However, many enterprises choose to remain informal due to the lengthy process of registration, which remains
Nam are in agriculture, education and skill training, non-farm livelihoods, business support
to be one of the challenges. Majority of social enterprises in Viet Nam are in agriculture, education and skill
and consultancy, and handicrafts sectors.
training, non-farmlivelihoods,
supportcase,and consultancy,
handicrafts
sectors. are Patamar, SEAF and
69 Similarly tobusinessthe Philippines
GLI private andimpactcapital investors
69 Similarly to the Philippines
Thrive.case, GLI private impact capital investors are Patamar, SEAF and Thrive.

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3.4. Case studies of impact investment in ASEAN

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

3 . Imp act Investment in the World, Japan and ASEA N

All ASEAN member countries

59Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

1. BlueOrchard (ASEAN)

3. Im pact Investment in the World, Japan an d ASEAN

1. General description of the fundJapan ASEAN Women Empowerment Fund (JAWEF) is a blended finance fund thatprovides loans to microfinance institutions (MFIs) that serve female entrepreneurs in the
ASEAN region and beyond. Launched by BlueOrchard in 2016, with support from the Japanese
government, JAWEF is a three-tiered fund that leverages first-loss and mezzanine tranches tomobilize institutional investors in the senior tranche.
JAWEF achieved its first close in 2016, raising $120.5 million from Japan Bank forInternational Cooperation (JBIC) and Japan International Cooperation Agency (JICA), as wellas institutional investors. In 2019, JAWEF underwent a second fundraising round that increased
its total size to $241.0 million with repeat commitments from investors including JBIC, JICA,
and Sumitomo Life Insurance Company, and a new partnership with The Sasakawa Peace
Foundation.

2. Theme/sector and relevant SDGs
JAWEF aims to empower women through increasing their access to financial
services, by investing in microfinance institutions (MFIs) that serve female
entrepreneurs primarily in ASEAN countries. The MFIs need to be equippedwith products that include credit and leasing, savings, insurance, payments andremittances, pensions services, or mobile banking for the purposes of income-generation,
housing, education, health, water and sanitation, or energy efficiency. The fund has priority on
SDGs #5 (Gender Equality).

3. Size and type of investment
JAWEF provides debt finance to MFIs. The uniqueness of the fund is in its three-tier capital
structure—$1 million first loss capital by BlueOrchard and Summit Financials, $120.5
mezzanine tranche provided by JBIC and JICA and $120 million senior shares by Sumitomo
Life, the Japanese Pension Fund Association and The Sasakawa Peace Foundation. The below

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image captures the breakdown of JAWEF portfolio (as of Q4 2020).
SENIORSHARESPRIVATEINVESTORSPUBLICINVESTORS~$120M~$120M

DEAL SPONSOR

JUNIORMEZZANINE
SHARESFIRST-LOSS SHARES~$1M

Image: Convergence

4. Financial return
Financial return is undisclosed.

5. Social Impact Measurement
The fund takes measurement of the number of borrowers and ratio of female and rural clients.
As of December 2020, the fund has 432,597 microentrepreneurs, of which 77% are ruralclients and 92% are female. BlueOrchard uses its proprietary B. Impact Framework to evaluate
the social and environmental performance of JAWEF’s investees pre-and post-investment,
which is aligned with the International Finance Corporation’s Operating Principles for Impact
Management (Principles).

3 . Imp act Investment in the World, Japan and ASEA NSENIORMEZZANINE
SHARES

6. List of Investees (Case Study)
As of Q4 2020, JAWEF has made 77 loans
since inception and active investments
to 29 MFIs. Almost all loans are senior(approximately 98% of investments), withthe remainder being subordinate. Most loans
are invested in the agriculture sector, followed
by trade.

37.54%
22.56%
11.76%
6.70%
6.59%
5.97%
4.79%
3.49%
0.59%
0.00%

Agriculture
Trade
Service
Other
HousingIndustry
ConsumerTransport
Construction
Tourism

Image: ConvergenceImpact Investing towards ASEAN Sustainable Development Goals (SDGs)

61

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

7. Target beneficiaries
The Fund aims at providing improved financial access to female entrepreneurs in ASEAN
countries. The MFIs must either disproportionately target female borrowers (at least 60%), or
have or intend to develop a specific product for women’s empowerment.

8. Accomplishments

3. Im pact Investment in the World, Japan an d ASEAN

The Fund has been an enormous accomplishment due mainly to:•a fast ramp-up (in less than 1 year all committed capital initially mobilized was invested);•success in using capital by JBIC and JICA to mobilize private commercial capital (best casein blended finance with more than 50% of total Fund assets from commercial capital); and•demonstrated track-record of delivering on its impact objectives (direct outreach toapproximately 400,000 female microentrepreneurs as of Q4 2020).

9. Perspective of stakeholders (investors, investees, intermediaries and beneficiaries)
The direct testimonial from each stakeholder is undisclosed, but JAWEF investors are impactdriven investors who share with BlueOrchard the ambition to provide social impact tounderserved communities in developing countries. (not a woman)

Image: Sasakawa Peace Foundation

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2. Garden Impact (Singapore, Indonesia, Malaysia and Thailand)
1. General description of the fundin Singapore to deploy catalytic capital into scalable impact-driven businesses. Their aim was
to invest in a set of portfolio companies that bring sustainable positive social change to lowincome communities and those living in disadvantaged circumstances, elevating their quality oflife. Garden Impact targets Southeast Asian countries including Singapore, Indonesia, Malaysia
and Thailand.

2. Theme/sector and relevant SDGs
The fund is sector-agnostic and considers any sector that creates
sustainable social impact.

3. Size and type of investment
Garden Impact provides capital to early-stage impact ventures in the form of equity andconvertible debt with the average ticket size of $500,000.

4. Financial return
The fund has made one full investment exit, but the financial return was not disclosed. The fundis targeting a 5% annual return to investors.

3 . Imp act Investment in the World, Japan and ASEA N

Garden Impact was founded in 2013 by a team of social impact investors led by Mason Tan

5. Social impact measurement
Garden Impact focuses on poverty alleviation by increasing livelihood opportunities andincreasing accessibility to necessities. The key social impact metrics include number of jobs
created, number of people living in affordable housing, number of beneficiaries completing
tertiary education and access to education for remote communities.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

6. List of investees
Until December 2020, Garden Impact invested in 11 companies including the following

3. Im pact Investment in the World, Japan an d ASEAN

companies.
•

Agape Connecting People (Singapore)•

DANAdidik (Indonesia)•

Mahoni Edukasi Digital (Indonesia)•

Greenhope (Indonesia)•

Affordable Abodes (Malaysia)•

Kestrel Bio Sciences (Thailand)
Image: Garden Impact

7. Target beneficiaries
The fund assumes the beneficiaries to be low-income communities and people living in
disadvantaged circumstances such as those with disabilities or former prisoners.

8. Challenges and accomplishments
Following challenges were mentioned in the interview:•

Being a pioneer in social impact investing in Southeast Asia,
they had to overcome many hurdles such as lack of trackrecord, skepticism, relatively high transaction costs (due tothe small ticket size) and lack of manpower.

•

Paradigm shift of mindset from profit-driven to purposedriven investments.

•

Negative stigma that all social enterprises are loss-making
and thus unsustainable.

•

Market was unprepared for an integration of doing well (profit)and doing good (helping others), since charity/philanthropy
seemed like the only way to help vulnerable communities.

Image: Garden Impact

9. Perspectives of stakeholders (investors, investees, intermediaries and beneficiaries)•

Investor, Anita Fam: ‘I think for me, the proudest moment
was seeing these organizations really growing from strength
to strength. I use the example of Agape, which is a call centerand it actually employs persons who come from vulnerable
backgrounds.’
Image: Garden Impact

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ASEAN-Japan Centre•

Investor, Song Tjoa: ‘Using business, to fight poverty, resonates with me because it truly
gives a sustainable model, but beyond a sustainable model, we understand that people needwork for dignity.’•

Investee, Joseph See (CEO) of Agape Connecting People: ‘Garden Impact, they came at atime where we really needed their help. At the end of the day, we look at the lives that wehave impacted, and we are so grateful.’•

Beneficiary (employee) Nur of Agape Connecting People: ‘I was grateful that I was
employed, people like us also will need the opportunity to develop ourself and look forfinance to support our family. Working at Agape is really like a family to me.’

The following points were mentioned in the interview with Garden Impact.
•

It is impossible to achieve profit maximizing with above market returns and impact
maximizing at the same time.

•

Many social enterprises failed not because of business models but due to lack of capital
since these social enterprises do not have appropriate creditworthiness to access traditional
financing.

•Since social impact investing in unlisted instruments involves a longer maturity period (10years), we need to exercise discretion when it is time to cut loss (fail early, fail small).

•

Impact investing is more than just pure positive financial returns. It also provides positivesocial impact returns and legacy through the investment portfolio therefore we need totake social impact outcomes into critical consideration when managing the portfolio.

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10. Lessons learned

Image: Garden Impact

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3. ADB Ventures

3. Im pact Investment in the World, Japan an d ASEAN

1. General description of the fund
ADB Ventures is the Asian Development Bank’s (ADB) venture arm, targeting more than
$1 billion in impact investment into technology-driven businesses delivering solutions which
contribute to the Sustainable Development Goals (SDGs) in developing Asia-Pacific markets by
2030. ADB Ventures provides a range of financing instruments (equity, debt and grant) as wellas technical assistance and access to ADB’s networks and partnerships to facilitate the entry of
impactful technology companies into key emerging Asia-Pacific markets.
Aside from its inaugural investment fund which provides equity, ADB Ventures currently
operates its 12 million technical assistance program implemented across both a Seed andLabs program. Seed Program provides grant funding for rapid market and product validationin developing Asia-Pacific markets. Seed grants are provided in exchange for future
investment “rights” to receive additional finance opportunities to scale successful
investments while also increasing potential return at the Fund level. Labs Program
complements Seed by playing a critical role in matching demand for impact technology bysourcing Fund level and Seed investment opportunities and connecting potential investees withvalue added technical assistance and commercial partnerships.
ADB Ventures is supported by Finland’s Ministry for Foreign Affairs, the Clean Technology
Fund, the Nordic Development Fund, the Republic of Korea’s Ministry of Economy and
Finance, the Korean Venture Investment Corporation, and E-Asia and Knowledge Partnership
Fund.

2. Theme/sector and relevant SDGs
ADB Ventures focus on technology-oriented ventures suchas cleantech, agritech, fintech or healthtech. Its initial focus
is in climate and gender impact in Southeast and South Asiaand it has intention to gradually expand operations into newgeographic regions and SDG themes. Currently, the fund
focuses on SDG #1, #3, #4, #7, #8, #9 and #13.

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3. Size and type of investment
ADB Ventures provide multi-tier funding to different levels of its investees, which consistsof grant, equity and debt financing. Seed Program, which has $5 million fund size, focuseson pre-series A ventures and makes funding available up to $200,000 per grant. These products
enable early-stage companies to validate and commercialize their products and services in theemerging Asia-Pacific. Its $60 million equity fund (Fund 1), which targets at pre-Series A toseries A stage ventures plans to provide up to $4 million funding to around 20 investees. ADB
Ventures launched fundraising for its $100 million debt fund (Fund 2) in February 2021, which
will be for venture companies at series B or later stage ventures. The fund will provide debt

Funding Vehicle

Seed Program

Equity Fund

Debt Fund

Market Gap*Diverse and fragmented
small markets. Hign
market entry costs*Growing but limited
pool of patient capital*Incumbents with longand risk-adverse
development cycles*Capital intensive businesses*Banks reluctant to lend
*Nascent venture debt
marketObjective

Market validation

Commercialization

Scaling deployment

Instrument

Up to $200k
Future equity rights

Up to $4 million
Equity financing

Indicatively up to $8 million
Debt financing

Fund Size$5 million(during 2020-22)$60 million(around 20 investments)

Target min. $100 million

Stage Fit

*Seed to pre-Series A*Prototyping andcompleted production
development*Some revenue traction*Pre-Series A to Series A*Product-market fit
established*At/near positive unit
economics

Indicatively Series B andbeyond*Broad(er) market
penetration*At or near breakeven

Sector Fit

Cleantech/Agritech/Fintech/Healthtech

Cleantech/Agritech

Southeast Asia / South Asia

Geographic Fit
Impact Fit

Climate Mitigation / Climate Resilience / Climate Adaptation (gender investment lens)Type Fit

Technology-enabled business models; commercially feasible and scalable

Image: ADB Ventures

3 . Imp act Investment in the World, Japan and ASEA N

funding up to $8 million.

4. Financial return
ADB Ventures distinguishes itself from other impact investment initiatives through theprovision of financing options in all stages of a company’s life cycle. Although target returnis not specifically disclosed, ADB Ventures takes a longer-term view than contemporarycommercial and impact investment funds with individual Fund longevity up to 17 years
providing greater strategic patience in investment combined with a higher risk to return
ratio than most contemporary funds.

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5. Social impact measurement
As the fund has only recently been capitalized and the assessment of the first tranche ofinvestees is ongoing, the facility does not have any specific impact metrics to report at thisstage.

6. List of investees and a case study: Smart Joules
ADB Ventures’ investees for the Seed program

3. Im pact Investment in the World, Japan an d ASEAN

in ASEAN include Otago (Cambodia) andDuithape (Indonesia), among other regions from
Captain Fresh (India), Three Wheels United(India), Zaroor (India), Pinatex by Ananas
Anam (UK), Kiu (Hong Kong, USA, with backoffice operations in Vietnam) to Good Bricks by

Image: ADB Ventures

InnoCSR (Republic of Korea).
ADB Ventures announced the first investee for their Fund 1 in March 2021. Smart Joules isa relatively young Indian company (founded in 2015) that increases the energy efficiency
of commercial and industrial buildings through smart equipment management and retrofits
received capital from Fund 170. Smart Joules offers CAPEX-free (capital expenditure) retrofits
of aging energy-intensive equipment in commercial and industrial facilities and replaces themwith a smart system comprised of design and equipment improvements. The system utilizes
various sensors to track and manage individual equipment performance and overall facility
performance in real-time. This technology enabled Smart Joules to guarantee its clients 15%
energy savings.

7. Target beneficiaries
ADB Ventures has an initial focus on specific geographies and SDGs but no particular focus ontarget beneficiaries.

8. Accomplishments and challenges
ADB Ventures’ key accomplishment has been structuring multi-tier funding scheme with
70 While this company is not from ASEAN, this presents a good reference point for ASEAN countries. As observed
by ADB, Smart Joules has the potential to scale into markets throughout the Asia-Pacific region (BW Online
Bureau 2021). As explained above in the general description of fund, ADB Ventures takes the financing form of1) grant and 2) equity investment. Other “grant investees” have obtained the “right” to receive the next phase offinancing which is equity investment.

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support from different bi-lateral and multi-lateral funders leveraging ADB’s resources indevelopment finance. A challenge for ADB, mentioned in the interview, was establishing aventure arm in a multi-lateral development bank more accustomed to large-scale investments,
which has different expertise and culture.

9. Perspectives of stakeholders (investors, investees, intermediaries and beneficiaries)
The direct testimonial from each stakeholder is undisclosed as the assessment of the first trancheof investees is ongoing.

ADB Ventures found that there was a strong synergy between the grant program/technicalassistance and equity/loan investment programs. The grant program helps pipeline development
while the technology-matching program helps validation of investee’s potential forcommercialization and scaling in the process of technology matching. This ensures a portfoliowith double-bottom line—social and financial returns.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

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10. Lessons learned

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4. Insitor Partners (Cambodia and Myanmar)

3. Im pact Investment in the World, Japan an d ASEAN

1. General description of the fund
Insitor Partners (hereafter Insitor in this paper) is a Singapore-based and regulated regional
impact fund manager established in 2009 by two founders, Micaela Ratini and Nicholas Lazos.
The fund invests in Cambodia, Myanmar, India and Pakistan as of 2020. Insitor has closed two
funds, Insitor Seed Pilot ($15 million) and Insitor Impact Asia Fund ($33.2 million) and they
are in the process of raising $70 million for Insitor Impact Asia
Fund (IIAF) II as of January, 2021.

2. Theme/sector and relevant SDGs
The fund works across sectors with the unifying theme of investing incompanies that directly provide critical goods and services to the lowincome population. The fund complies with IFC’s Operating Principles
for Impact Management to ensure its position as an impact fund.

3. Size and type of investment
The funds at Insitor Partners provide capital to impact ventures at an early stage in the formof equity or convertible debt. At the same time, the fund provides non-financial assistance toenhance management capability in governance, financial management, ESG, fundraising, andstrategy development. These efforts have resulted in multiplied additional funding by external
investors totaling $85 million versus $16 million invested by Insitor Impact Asia Fund as of2020.

4. Financial return
As of March 2020, Insitor Impact Asia Fund has 21% of gross internal rate of return (IRR)
which includes realized and unrealized returns. $8 million was repaid to investors through theseexits.

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5. Social impact measurement
Insitor Partners set different impact metrics depending on the field of impact by the investee
companies. The example of impact metrics includes number of jobs created, ratio of female
hires, number of students of education companies, number of patients for healthcare companies,
number of borrowers of financial services and so on. The fund reports that 38 million
beneficiaries are served by its investees and 13, 500 new jobs were created by December 2019
through the investees’ business activities.

The target of the investment includes low-income housing developers, education providers,
healthcare providers, diagnostic companies and micro and mini-water infrastructures for basic
services. The target for the financial inclusion portfolio focuses on specialty finance companies
such as housing microfinance, education finance, agriculture inputs and machinery on credit,and microinsurance.
The list of investees includes following companies:•

Khmer Water Supply Holding (Cambodia)•

Boost Capital (Cambodia)•

SolarHome (Myanmar)•

Alliance MFI (Myanmar)•

Drishti (India)•

Edubridge Learning (India)•

Aviom India Housing Finance (India)•

WizKlub (India)

Image: Insitor Partners

7. Target beneficiaries
The fund aims at serving low-income customers’ broad demand for critical goods and services
and financial products.

3 . Imp act Investment in the World, Japan and ASEA N

6. List of investees

8. Challenges and accomplishments
Insitor Fund has successfully invested $48million in South and Southeast Asian companies
and achieved 21% internal rate of return as of March 2020. The following challenges werementioned in the interview.
•

Raising capital for new Funds is a key concern. The supply of capital to emerging market
impact funds is still concentrated amongst DFIs and a small number of progressive family
offices. As such, raising new capital is extremely difficult and time-consuming. At the same

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time, there are ample new startups in need of capital, but not enough supply.
•

Exiting investments takes time and must be planned years in advance. The secondary
market for shares in these types of companies has not developed yet, so exits primarily
come in the form of a trade sale of the entire business to a strategic buyer.

•

Strong human capital. In some sectors and countries, there is a lack of strong human capitalfor specialized/technical positions in portfolio companies. This can typically be managed by

3. Im pact Investment in the World, Japan an d ASEAN

outsourcing or bringing in expatriates but is not ideal.

9. Perspectives of stakeholders
Investee: Josephine Price, Managing Partner, Anthem Asia, Myanmar:‘Insitor has been involved in this sector for many years, backing sustainable businesses
with real social impact before it became mainstream. Senior management have operated
in the commercial world and bring a very solid understanding how businesses operate.
They help create real value in scaling up and not just measuring impact.’
Investee: Ravi Bahl, former head of financial services ChrysCapital, India:‘Insitor is one of a small handful of VC funds in multiple Asian markets, each being
complex. They truly are pioneers... Many qualities [include]: a passionate andcommitted team and leadership, highest standards of governance, a long-term viewbalanced between the interests of investors and of portfolio companies.’
Investee: Khurram Zafar, Managing Partner, 47Ventures, Pakistan:‘Great companies are about great people and that’s precisely what differentiates Insitor
from its peers. The management is deeply committed to social impact but knows how todelicately balance that with fiscal responsibility towards the fund’s investors. Everyone
at this company has impact on their minds, empathy in their hearts, clear burden of
fiduciary responsibility on their shoulders, and most importantly, thrift in their stride.’

10. Lessons learned
Two valuable lessons were learned from Insitor’s investment strategy.
First, the application of follow-on investment accelerates the investment growth and exit
process. Insitor Impact Asia Fund has validated its effectiveness on follow-on investment,
to make additional investment when the investee companies perform well after the firstinvestment. The 12 companies initially invested in by IIAF I were provided with followon investment of 70% value of the initial investment. This approach will reduce information

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asymmetries and enable the investors to allocate larger funds to more mature and liquid assets.
Secondly, the investment strategy can increase the potential of the exit strategy. It is important
to start planning for the exit strategy in the early phase, such as conducting a scenario analysis
on liquidity options, holding open discussion with stakeholders and putting investees on theradar of investment banks and private equity investors. Larger investment makes exits more
likely—usually exits worth more than $15 million have more potential buyers.

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5. UOB Venture Management (Indonesia)

3. Im pact Investment in the World, Japan an d ASEAN

1. General description of the fundUOB Venture Management (UOBVM) is a wholly-owned subsidiary of the United Overseas
Bank (UOB) Group headquartered in Singapore. UOBVM manages private equity/venture
capital funds that provide equity financing to privately-held companies across Southeast
Asia and Greater China. Engaged in responsible investing since 2004 integrating ESG into
its investment evaluation, UOBVM took a step further in 2015, moving into investing witha positive social intent by launching its first impact fund, Asia Impact Investment Fund I(AIIF I). The fund’s objective was to invest in companies in Southeast Asia and China that
seek to improve the wellbeing and livelihoods of lower income communities at the base of theeconomic pyramid.
UOBVM offers institutional and high-net-worth investors a strong value proposition to
support sustainable growth businesses with impact-driven business models through this double
bottom line focused fund which values both financial return and social impact. UOBVM
also demonstrated its commitment to responsible investing by being the first signatory to the
Operating Principles for Impact Management71 in Southeast Asia, completing its externalverification and disclosure in September 2020. In addition, UOBVM is also a signatory of
UN Principles for Responsible Investment (PRI). Riding on the success and experience of its
first impact fund, whose portfolio companies have reached more than 16 million low-income
individuals72, UOBVM launched its second impact fund, AIIF II, which shares a similar
investment mandate as AIIF I.

2. Theme/sector and relevant SDGs
In executing its investment mandate, the AIIF Funds strive to contribute towards SDGs #1,#2, #3, #4, #6, #7, #8, #10 and #11. UOBVM believes in generating both social impact andattractive financial returns at the same time through deploying capital into private companies
71 The initiative to develop the Impact Principles was led by the International Finance Corporation (IFC) in consultation
with leading impact asset managers and asset owners. For more information, please refer to https://www.impactprinciples.org/.
72 As at 31 December 2020 and since AIIF I’s investment into these portfolio companies

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in Southeast Asia and China. Hence, AIIF I and AIIF II Funds
aim to make investments in sectors most likely to generate
positive impact for the lower-income groups including, but
not limited to, agriculture, education, healthcare, affordable
housing, sanitation and water management, logistics, clean
energy and financial inclusion.

3. Size and type of investment
investments that typically range from $2 to $15 million.

4. Financial returnAs at 31 December 2020, AIIF I has a gross internal rate of return of more than 30%73.

5. Social impact measurement
As at December 2020, more than 16 million low-income individuals have been reached by
AIIF I’s portfolio companies. Through the efforts of portfolio companies, for example, in thearea of education, 11 million+ youths from low-income households have gained access toquality educational resources, improving individual learning outcomes and national education
outcomes. AIIF I also conducts social impact measurement and tracks meaningful indicators
at portfolio companies, such as improvement of income of beneficiaries like farmer groups,
women borrowers who have benefited from microfinance loans and financial education
programs, etc.

6. List of investees (Case Study)
AIIF I has invested in more than 10 companies in five countries across various impact

3 . Imp act Investment in the World, Japan and ASEA NAIIF provides growth capital to small- and medium-sized companies through equity

sectors—two cases of which from Indonesia are selected and featured as below.
1. Halodoc (Indonesia)
Indonesia has a population of 274 million, and similarly to many fast-growing developing
countries, providing affordable and quality healthcare at scale remains a significant challenge.
Based on the World Bank data, there are only four doctors per 10,000 individuals in Indonesia,

73 Based on total portfolio value of realized and unrealized investments on a fair value basis.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

compared with the OECD average of 34 doctors per 10,000 individuals.
Owing to the skewed distribution of medical personnel, gaining access to a doctor is notalways easy especially for communities located outside major cities. More than 80% of teleconsultations with doctors on the Halodoc platform are utilized by patients located outside
Jakarta and Surabaya, some of whom do not have access to specialist doctors otherwise.
Halodoc aims to simplify access to healthcare services by integrating online and offlinecomponents of the healthcare ecosystem. Leveraging technology, Halodoc’s app and website
now enable patients in Indonesia to gain access to doctors, including specialists, within a minute

3. Im pact Investment in the World, Japan an d ASEAN

through online consultations, and to have their medication delivered to them within an hour.
This significantly improves the patient experience. Halodoc also enables midwives, many ofwhom are located in city fringe areas or rural regions, to provide a better quality of ante-natal
care through its suite of services and products.
2.Ruangguru Pte. Ltd. (Indonesia)
The Indonesian education technology company Ruangguru was co-founded in 2014 by two
young Indonesians aiming to address and solve the nationwide gap in the quality of education.
Indonesian students often rank among the lowest globally in the Programme for International
Student Assessment (PISA) tests. The disparity of the quality of teachers and teaching resources
varies widely across the Indonesian Archipelago. Ruangguru combines pedagogy withtechnology and focuses on providing affordable digital education content across the education
verticals, starting from Grade 1 to 12. For a few dollars a month, students get access to a wholeyear of learning resourcecs for their level covering all core subjects, affordable even for lower
income households.
The UOBVM team saw the potential of the commercially scalable Ruangguru model inenabling access to affordable quality education and became the lead investor in Ruangguru’s
Series B financing in 2017. Since then, Ruangguru’s revenue has grown by more than 200
times, cementing its position as the leading education technology platform in Indonesia. In
2020, Ruangguru also brought its affordable and scalable learning solution to new markets like
Viet Nam and Thailand. Covering a wide spectrum of education needs for the population, its
product offerings have now expanded beyond K12 to adult short courses and language training.
Against the backdrop of education disruption with school closures due to the pandemic,
Ruangguru enabled students to continue learning through its free online school that was
broadcast daily covering Grades 1 to 12. The company ensured students’ access to its learning
platform would not be hampered by financial concerns by working with large telcos in the
country to provide free internet data when accessing the Ruangguru platform. More than 10
million students had accessed the online school in a mere five months. More than 200,000
teachers across the country benefited when Ruangguru made its teachers’ training programavailable for free in the midst of the COVID-19 pandemic. Even though its core learning

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platform is priced affordably, it is shown to be effective as more than 85% of its paid subscribers
said their grades improved after using Ruangguru.74
Though a relatively new business unit, Skill Academy by Ruangguru, became a leading
course provider in the Indonesian government’s pre-employment training program, which
was launched in 2020 in the midst of COVID-19 to realize the vision of a trained workforce.
Through user surveys, more than 35% of Skill Academy users reported that they weresuccessful in getting additional income or a new job after the completion of their courses.

AIIF Funds’ target beneficiary group is the population living at the bottom of the pyramid inSoutheast Asia and China, as the funds seek to invest in companies that can help to improvetheir livelihood and well-being.

8. Challenges and accomplishments
The following challenges were mentioned in the interview.
•

Finding and backing the right—mission aligned—team. For impact deals, it is crucial
to ensure that the founders and senior management are aligned on the mission and visionof the company and solving social challenges in commercially feasible ways. It is hence
important to find entrepreneurs with genuine passion and motivation to avoid mission drift.
They find that it usually takes them longer to get to know the founders and undertake due
diligence before committing to the investments. Their management process is to get toknow the entrepreneurs early and tracking them over a period of time where possible.

•

Impact measurement. This is not a simple process where standard metrics can be used
as a wide range of sectors are involved, and each business model can be quite different.
AIIF therefore, try to utilize a mix of industry standard metrics like IRIS plus (see Chapter2), and develop other meaningful tracking metrics and indicators in discussion with theirportfolio companies. AIIF also combine qualitative and quantitative approaches to provide

3 . Imp act Investment in the World, Japan and ASEA N

7. Target beneficiaries

their fund’s investors with a better view of how target beneficiaries have benefitted throughthe efforts of AIIF Funds and their portfolio companies.

74 In subscriber surveys carried out in the first half of 2020 covering more than 30,000 students in total.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

An Indonesian youth using the Halodoc app
Source: UOB Venture Management

9. Perspectives of stakeholders
Investee—Jonathan Sudharta, Founder&CEO of Halodoc:‘We are delighted to have UOBVM on board,
their sustainable and impact investing DNA
is something we appreciate and resonate with.
Halodoc is committed to simplifying andimproving healthcare access in Indonesia, andvalues the support of like-minded partners
and investors.’

Primary School students discussing while
watching a learning video on Ruangguru’s
platform

Beneficiary—Ibu Junengsih, Bogor, Indonesia:

Source: UOB Venture Management‘I used to walk three kilometres to get clean water. After I received a loan... I started
earning more money from farming. I used the extra income to build a toilet and a well at
home.’

10. Lessons learned
AIIF had a dual objective of financial returns and positive social outcomes with particular
scrutiny on the sustainability of the business’ social impact generation. AIIF found thatcommercially scalable models with a strong management team leads to success. The
company emphasizes that they will not prioritize models which focus on social enterprise where
impact may be deep but only target a relatively small beneficiary pool.
* * *

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Myth buster: There are investible opportunities with track record in
ASEAN
As these five case studies illustrated, there are investible fund opportunities in ASEAN.
Impact investing is a diverse marketplace. However, discerning the legitimacy of funds isonly possible through being an active part of the impact investing community and accessing
up-to-date reports such as this one. This paper showcased examples of funds with a highfinancial track record. Insitor Partners active in Cambodia and Myanmar (See Case Study 4)
served through the investee companies. Their 11-year experience in impact fund management
is well-reflected in the successful closure of two recent funds worth over $48 million. TheUOB Venture Management active in Indonesia (see Case Study 5) has a gross IRR of over
30%. Over 16 million low-income individuals have been reached through their Asia Impact
Investment Fund and provided access to quality educational resources to more than 11 million
youth.
In addition, the case studies showed investment funds that have high legitimacy and grant a
choice of smaller ticket size and multi-tier funding structure. BlueOrchard’s ASEAN Women
Empowerment Fund (see Case Study 1) impacted over 430,000 microentrepreneurs of whom,
92% are female and 77% are in rural areas. Despite the rate of financial return undisclosed,
they present significant legitimacy through their partnership with JBIC, JICA and Sumitomo
Life Insurance from whom they raised over $240 million. Garden Impact provides a relatively
smaller ticket size (see Case Study 2), and the ADB Ventures’ multi-tier funding structure
consists of grant, equity and debt financing (see Case Study 3), allowing more social ventures
to take part to grow and scale their financial and societal impact. These are good examples offinancial intermediary (see Chapter 2), which has a role in the design of investment products.
These selected funds currently active in the ASEAN impact investing market are criticalevidence that there are investible investment opportunities with strong financial track record.

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

3 . Imp act Investment in the World, Japan and ASEA N

produced 21% of gross IRR and created over 13,500 new jobs with 38 million beneficiaries

79Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

3.5. Summary of challenges raised in case studies
This section showcased five case studies of impact investing activities currently in progress in
ASEAN. ASEAN’s diversity in economic and social development as well as the capacity of
ecosystem reflects the differing challenges of impact investment, which simultaneously can also
bring opportunities. The list below is a summary of challenges currently experienced in the five

3. Im pact Investment in the World, Japan an d ASEAN

case studies featured in this section – reflective also of impact investing ecosystem in ASEAN:
1.

2.

Financial:•

Lack of strong track record of financial return,•Lack of capital pooled in general in the market,•

Foreign exchange risk,•

Potential high transaction costs to accommodate for smaller ticket size and•Risk-avert investors mainly unwilling to take concessionary return

Facilitative:

Logistical considerations such as time difference need to be considered. Human capitaland organisational capacity need more expertise for:3.

•

Design of commercially scalable business models•

Coordination of impact measurement•

Large-scale, infrastructure investment projects•

Support of successful exit process•

Full consensus on mission alignment•

Logistical considerations such as time differenceIntellectual:•

Scepticism toward impact investment as a result of instilled perspectives
that integration of financial performance into societal performance is
impossible

4.

Governmental and intellectual:•

Lack of data and case studies in ASEAN for a better grasp of regional
progress•

Lack of impact investment-specific policies to enable new impact investors
to scale the impact

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These challenges demonstrate that in ASEAN, impact investment is in the early stage wheregenerally the market requires a pool of financial capital. Scepticism and risk-aversion areof common concerns in ASEAN regarding impact investing. However, there are funds in
ASEAN that deliver well in both financial and societal performance. Building on thesechallenges in ASEAN, Chapter 4 further illustrates main challenges for consideration andcorresponding recommendations.

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4. Challenges and Recommendations for Impact Investment in ASEAN
Impact investing is a symbolic approach that negates the long-held views that businesses should
solely maximize financial profit. For impact investing, “return” signifies not only financial

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

75

return but also societal impact and beyond. However, there are still varied challenges for impact
investors globally to fully engage in impact investing as an approach to realize the SDGs. This
paper does not provide all the answers to strategize risk management and financial and societal
performance, but rather, it maps out some of the major challenges highlighted in ASEAN, along76

with possible recommendations.
Table 3 below summarises recommendations that respond to challenges identified per area andrelevant stakeholders that can be considered for recommended actions. Further explanations
follow in this chapter.
Table 3: List of recommendations for area-specific challenges
Relevant
stakeholders

Areas

Challenges

Recommendations

Transactional

1.1 Lack of investible

 Actively source information Investors

impact investment

and strategies by learning(finance

products

from early adopters andmobilisers)

innovators.
 Seek latest information e.g.
1.2 Lack of track

record of financial
returnAVPN and/or Toniic.
Accept differing degrees ofinvestment readiness.



Identify each role to play.
(pre-seed, seed, early, later
to initial public offering) angel investors.

Combine grant and investment.

75

Research shows that the form of return does not only entail financial and societal dimensions but also personalthrough intangible gains from the impact-creating journey shared—such as a degree of emotional fulfilment,
reputation, knowledge, experience and newly built relationship network (Epstein and Yuthas 2014; Ono 2020).

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Recommendation numberings do not necessarily respond to challenge numberings.

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Areas

Challenges

Recommendations

Facilitative

2.1 Coordination



Relevant
stakeholders

Identify non-financial inter- Investees
mediaries (mainly incubator

impact measurement

and accelerator programs)

and managementthat builds investees’ capac-

approach

ity in impact measurement& management.
Gain better access to capitaland mentoring programs.

2.2 Inadequate skills

Increase legitimacy byand expertise required

actively joining competitivein human capital

events and pitch opportuni

ties.
Implement, increase andInvestees

Intermediaries

promote opportunities for
2.3 Societal risk of

impact investment
Intellectual

3.1 SDG-washinginvestees.
Promote use of certification Policy makers
for legitimacy.

Demonstrate evidence andAll actors

commitment to intentionali3.2 Lack of researchty.
Seek performance-basedIntellectual(understanding) of

grant capital in research and actors

impact investing indevelopment activities (e.g.

ASEAN and beyondsocial impact guarantee).


Incorporate education of impact evaluation in Business
Schools

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

and sophistication of83

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Areas

Challenges

Recommendations

Governmental

4.1 FragmentedMust formulate engaged

Relevant

policy development at

public policy to encourage

institutions

different speeds

demand, supply, intermedi-

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

aries (e.g. tax relief, certification, dormant account,stock exchange amongothers).
Consider joining the inter-

Relevant

national frameworks (e.g.

institutions

GSG)


Establish the NAB under
the GSG.



Institutional effort for national and regional policy,
regulatory and legal frame-

works (certification).
Create an ASEAN Impact

ASEAN

Investment Hub (tentative)
to harness coordination ofregional effort and build
ecosystem.


Coordinate with ODA donor Least
countries to increase pub-

Developed

lic-private initiatives (e.g.

Countries inAustralian Government’s
EMIIF)


Initiate to discuss the use ofdevelopment impact bondSource: AJC

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Relevant
stakeholders

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ASEAN

ASEAN-Japan Centre

Transactional:
Challenge 1.1: Lack of investible impact investment products
Lack of accessible impact investing products is a perceived gap for impact investors who areinvestors, and by less than a quarter of impact investors globally. Yet, the question lies in
77

whether it refers to availability or investability. If the former, availability is of concern, the issue
is inadequate number of actors and activities in the market or the criteria that qualifies products
as impact investment. For the latter, investability, the issue signifies inadequate information
about the investment product for assessment or the absence of ‘high-quality’ investment with atrack record of generating finance and societal impact worth investing. Similar to Challenge 1(financial track record), investability is a significant gap perceived by impact investors globally(International Finance Corporation 2019).

Challenge 1.2: Lack of track record of financial return
A financial instrument is mainly driven by a financial priority that values transactional recordand financial return; this should also be the criteria for impact investment. While Japanese
impact investors do not see the lack of a track record of financial return as a major issue, as
expressed by Japanese impact investors (Japan NAB 2021), an inadequate financial track record
appears to be a significant gap for impact investors particularly focused on emerging markets
such as Africa and Asia (GIIN 2020). Lack of financial track record can lead to general lack offinancial capital pooled in the emerging markets, hence the persistent funding gap for SDGs.
While financial return can be used as a track record to sustain cash flow for financing SDGs,
the key is to inform current and existing impact investors active in the ASEAN market that themarket is still in relative infancy.

4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

willing to make investment. This was the third major challenge identified by Japanese impact

77 Foreign exchange risk, lack of small ticket sizes and/or high transaction costs for availing small ticket sizes arealso of consideration.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Recommendation 1.1: Actively source information and strategies through network
opportunities and associations
To identify such investment opportunities and fully engage in impact investing, one must bepart of active communities to seek up-to-date investment opportunities. In any investment

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

endeavours, information is critical in making investment decisions. There are two practical78

platforms to pursue this. Firstly, Toniic, a membership-based global community of active impact
investors, is a useful platform that provides education, direct access to fund and investment,
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and impact measurement support. Secondly, Asian Venture Philanthropy Network (AVPN)
is another membership-based network group that connects all actors of social investment
ecosystem and provides funding and collaboration opportunities through services such as Deal
Share platform. There are at the forefront in the impact-creating market, actively working tospur progress towards the SDGs. Learning from early adopters and innovators who managed
difficult stages in the impact investing journey will pave the way to prepare for new andemerging practice such as impact investing.

Recommendation 1.2: Accept the differing degree of investment readiness in the impact
investing market and identify each role to play.
While there are indeed investible opportunities in ASEAN, it is true that not all SDG-driven
businesses are investment-ready. Turning SDG-driven business into commercially viable
investment product is extremely challenging—particularly if they cannot be monetized. Markets
usually fail to serve low-income and marginalized groups (International Finance Corporation2020), and for this, more risk-tolerant capital is required where the combination of grantand follow-on investment such as the ADB Venture case (see Chapter 3) can be encouraged.
ASEAN requires more concerted effort for overall eco-system building.
Secondly, identifying the stage in the financing cycle can inform the role that actors needto play. The conventional five-stage venture capital financing model is applicable to impact
investing in ASEAN—starting from pre-seed, seed, early-stage, later-stage to initial public
offering (IPO) (Figure 18).

78 https://toniic.com/
79 https://avpn.asia/

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Figure 18: Financing cycle of new business ventures
Equity Crowdfunding & Crowdlending

Angels, FFF

Co-founders

Seed Capital

Later Stage
Early Stage

Public Market
Mezzanine

IPO

3rd

Break even

2nd
1st

Valley of Death

TIME
80

Source: AJC

In the seed-capital stage, angel investors who see the benefit of impact investing can be apotential source of funding, filling the “valley of death” (see Figure 18). Angel investors withan expectation of financial return are commonly successful entrepreneurs themselves—someof whom may be HNWIs—therefore, more risk-tolerant and experienced in navigating through81

the early stage of business ventures (John 2015). While grants are not part of the spectrum ofimpact investment, grant as a financing tool can help develop the pipeline for more investible
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opportunities. Angel investors and DFIs can serve to provide proof of financial viability
while targeting SDGs. An evolving market requires more impact investors willing to take onconcessionary return and to value societal priorities in addition to financial priorities, as this iswhere impact investment is distinct from conventional investments.

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4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

Pre-seed

Secondary Offerings

VCs, Acquisitions/Mergers &Strategic Alliances

Accelerators

FFF refers to friends, family and fools. https://en.wikipedia.org/wiki/Venture_capital
See John (2007) for the idea of venture philanthropy—philanthropy adopting venture capital practice—which
may be of benefit, if one is seeking non-equity seed capital to increase commercial value of companies. Venturephilanthropists provide performance-based development finance and voluntary professional service.

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The beneficial reading for this is (AVPN 2020).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Facilitative:
Challenge 2.1: Coordination and sophistication of impact measurement and management

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

approach
The facilitative issue of impact measurement is regarding the capacity of impact investees to83report impact measurement. The greatest challenge perceived by Japanese impact investors
is fragmented use of impact measurement and management (Japan NAB 2021). This is alsoechoed by impact investors globally, although sophistication of measurement and management
practice is of greater concern. It is an essential factor to bring and ensure confidence for impact
investors because impact investees need to be able to ‘demonstrate impact results’ and ‘compare
impact results with peers’ to highlight their investability (GIIN 2020). Investability refers toboth financial and societal performance and data for both is imperative (OECD 2019; IFC
2020).

Challenge 2.2: Expertise required in human capital
Investees must be trained to design and manage commercially scalable business models
converted from SDG-pertinent challenges. The capacity for investees to navigate ways tomanage and scale businesses is another aspect of investibility. Human resource with a highlevel of technological and sector-specific expertise is a key to successful delivery of impact
investment projects with a positive financial and societal performance. Investment fundmanagers or advisors must also have a high level of technical capacity to manage investment
exit process, as reflected in the case studies, global impact investor survey and the Japan NAB
report.

Challenge 2.3: The societal risk of impact investment
As explained in Chapter 3, it is imperative to bear in mind that not all projects can be investment
product. This is particularly the case if the SDG-relevant projects are focused on working
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If fragmentation of impact measurement and managing is the issue, global consensus may be the answer.
Standardization of impact metrics is considered to advance financing the SDGs, as it promotes transparency,
data analysis, and interoperation(OECD 2019), yet it is also important to bear in mind that standardization may
not always be the answer due to continued innovation in impact measurement and diverse impact target. It stillis ‘not at the stage of standardized metrics and accounting standards’ (IFC, 2020, 70). Ecosystem development
requires exploration, debates, and resources to address this conundrum.

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with vulnerable communities. Impact investment is essentially a market where the seemingly
incompatible—financial metrics and the welfare of vulnerable people and the planet—intersect(Ono 2020; Nicholls and Huybrechts 2016). By prioritizing the need to commodify suchprojects into investment product, the real need and voice of the disadvantaged may be ignoredand diminished.
Lack of both financial and social return indicates that there is no positive ‘impact’ made fromgood intent, unintended negative consequence may be inevitable without open communication(IFC 2020). These may heighten societal risk to the beneficiary population—with and forwhom societal impact must be created. Impact investment will not replace the work ofphilanthropy, funded by grants (Kobayashi 2016), yet where PIIs and DFIs both play significant
roles in the ASEAN impact investing market, this is a critical aspect that requires commitment
from all actors to reconciling the incompatible priorities and align united missions. A carefulconsideration for societal risk as a result of investment commodification is an urgent agenda for
the field of impact investment.

Recommendation 2.1: Fuelling non-financial intermediary to build capacity of investees
The creation of intermediaries and further fuelling existing ones is central to understandto appropriately respond to the needs of actors at a local level and provide capital access(OECD, 2019). Intermediaries can provide capacity building of investees for every step of
impact investing endeavours for building a pipeline in the ASEAN impact investing market.
Running a business in itself is difficult, yet running a business aligned with SDGs is evenharder. For investees as social purpose ventures, the non-financial intermediary should playa role in building capacity to measure, manage and report societal impact performance.
Investees can pursue training of impact measurement and management by joining forces suchas Impact Management Project (see Chapter 2) and the Social Value International (SVI). SVI
is a membership-based global network with over 20 country chapters around the world that
supports and connects through training, knowledge-sharing and networking for social value
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measurement. Japan, Indonesia and Thailand have chapters: Social Value Japan, Social Value85

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Indonesia and Social Value Thailand respectively. Increasing such intermediaries in all ASEAN
countries is encouraged to fill the resource gap for investees.

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http://socialvaluejp.org/

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https://socialvalue.id/

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https://socialvaluethailand.org/

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the investment, despite the intentionality by which impact investing is defined. Even with a89

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Investees can, in addition, join incubator and accelerator programs to enhance their investability
as viable businesses. Through incubator and accelerator programs, young social purpose
ventures can obtain relevant mentorship and training to strategize business operation andgovernance.
Access to investment to scale their business can be granted to all accelerator programs, but

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

not all incubator programs do. With over hundreds of thousands of accelerator programs
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worldwide, platforms such as the Global Accelerator Learning Initiative that investigate
program effectiveness can be useful. Investees are required to cultivate their manpower aspart of the resource environment to achieve double bottom line—the delicate balance between
commercialization and societal loss.

Recommendation 2.2: Promote existing competitive events and increase pitch
opportunities
Promoting existing events related to SDG impact and increasing such opportunities in
ASEAN will lead to increasing talent in the ecosystem and promoting investees’ investability.
Investbility is closely linked to legitimacy. Legitimacy can be gained through winningcompetitive events and investment pitch which are a popular means for certifying or rating
businesses to demonstrate their social credentials. Such endorsement will enable them to secure
finance to drive their social ventures. Regionally in ASEAN, two major contests are the ASEAN
Impact Challenge, managed by Impact Hub in Malaysia and the Social Entrepreneurship
Virtual Innovation Challenge, managed by the Indonesian and Australian institutions—bothwith a specific focus to contribute to the SDGs. In Japan, there were 43 events specific tosocial ventures in 2018 alone, some of which include the Social Venture Competition (the firstin Japan since 2002), Nikkei Social Business Contest (since 2018) and U-25 Tohoku Social
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Business Contest (since 2017). While it is not about numbers, events as such will enable
investees to increase exposure and test their social business ideas to increase investability.

Recommendation 2.3: Promote use of certification for legitimacy
To reduce societal risk, commitment from all actors to manage financial and social priorities is
integral. As a response, the use of certification is recommended to demonstrate the commitment.
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https://www.galidata.org/

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It is important to bear in mind, however, that the real value of business can be visible and substantiated only
when the business comes into existence. Endorsement is deemed a step to gaining legitimacy and access toinvestment.

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The SDGs icons are a symbolic example; many companies and initiatives utilize SDGs icons
to increase awareness of their commitment and worthiness. Certification such as B-Corp and
GIIRS perform as a mediator icon that softens competing priorities through cross-institutional
legitimacy. It enables common rules and practices to be co-designed to reflect hybrid priorities,
sustain cross-sectoral collaboration and grant access to further resources and finance (Ono 2019;
Nicholls and Huybrechts 2016). In addition, social enterprise certification practiced in Thailand
hybrid activities to embed double bottom line in the principles of impact investing actors.

Intellectual:
Challenge 3.1: SDG-washing
Investments without the intentions to generate societal impact—and increasing financial returnin particular—cannot represent impact investing. This leads to the need for countering the riskof impact-washing or rather “SDG-washing”. Impact/SDG-washing appears to have comefrom the synonymous term, greenwashing. Greenwashing refers to information asymmetry;a misleading portrayal or “selective disclosure” about unsubstantiated claims that promote
non-impactful environmental initiatives of businesses in exchange for their public reputation(Steinberg 2015, 81). Similarly, SDG-washing refers to “scaffolding for corporate branding
and easy fodder for Public Relations departments” for their contributions to spur progress
towards SDGs (Chakravorti 2017 para 1). Impact- and SDG-washing involve the misleading
presentation of an investment portfolio to demonstrate social impact and alignment with SDGs,
despite the lack of intentionality or the lack of capacity of investees in evaluating and reporting
societal impact to investors. The importance of impact measurement, as heralded by the OECD(2019), is to mitigate the risk of impact/SDG-washing as a mere marketing exercise which candiscredit the overall work of impact investing. Once again, one of the characteristics that fits
impact investing requires intentionality in generating societal impact, alongside financial return.

Challenge 3.2: Lack of research of impact investing in ASEAN and beyond

4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

(and on a global stage—Republic of Korea and the United Kingdom for instance) also promotes

Further research and study of impact investing is required in such a diverse region as
ASEAN. For market development, newly market entrants must assess the current overview
and progress to gain confidence and make judgments. Practitioner reports that provide
a set of recommendations to span cross-institutionally are central to overall ecosystem-

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

building. Knowledge and knowledge sharing construct and re-construct a significant resource
environment to harness the impact investing ecosystem. However, knowledge sharing is as
yet intangible and cannot be scaled as a commercial action, which in turn means that is not an
incentive for investment.
An emerging practice such as impact investing entails boundary-spanning actors across sectors:

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

the public, private, and civil society. Where diverse actors join forces, a balance of financial

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and societal priorities is a major hurdle in the market beyond ASEAN. Impact investing helps
finance the SDGs for all, and further research, with the aim of promoting more inclusive
thinking, ideas and policy is needed to contribute to building a more holistic, harmonious
ecosystem.

Recommendation 3.1: Mobilize performance-based grant capital in research anddevelopment activities to shape the ecosystem
For research and development activities, increased grant capital—specifically “social impact
guarantee”— can be employed (see Footnote 21). Similarly to the Singaporean way of
performance-based grant schemes, social impact guarantee can be used to contract research
institutes, research centres in universities and agencies that pursue interdisciplinary research
activities for themes surrounding impact investing with research grant funders. The pre-definedachievement can be the level of research outputs and if applicable, existing impact indicators
used in the international university ranking. Scholarly and practitioner research on data, casestudies of best practice, and stories of success and failure specific to ASEAN contexts is criticalto increase understanding of regional impact investing activities across multi-disciplines.
Secondly, new and existing sector conferences, consultations and networks must also be
funded to feed and share up-to-date knowledge to policy makers. Essentially, the ASEANspecific knowledge shared through these activities would strongly influence policy that reflectevidence-based recommendations. In addition, scholarly researchers can play an active rolein collaborating with impact investees to develop capacity of impact investees in impact
measurement and management (NAB of Japan 2020)—countering the risk of impact/SDGwashing. Successful partnership between public-private-academic sectors will lead to acceleratemarket development and ecosystem-building.

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Recommendation 3.2: Education for Impact Measurement in Business Schools
In order for the academic sectors to contribute to the impact investing ecosystem, it is essentialthat universities with Business Schools actively incorporate societal impact measurement andmanagement into their education curriculum and cultivate the mind of creating, scaling andmeasuring societal impact in their future business. Typical Business Schools in universities do
and its related areas. Curriculum development to increase impact-focused entrepreneurs is nota mainstream yet. There are relevant short courses of Business Strategies for Social Impact in
the Wharton School (online) at the University of Pennsylvania, for example, or the School for
Social Entrepreneurs in the UK and India, which perform to be an incubator or accelerator for
those who come with intentions to build and run a socially oriented business. While the primary
focus can be to build economic benefits for the purpose of business sustainability, it is importantfor universities with universities with Business School to integrate the idea of societal benefits
into the business vision and contexts.

Governmental:
Challenge 4.1: Fragmented policy development at different speeds
The impact investing market in ASEAN is characterized by diversity and fragmentation thatneeds institutional forces to support policy formulation and ecosystem coordination. No
ASEAN countries are currently part of the Global Steering Group (GSG) of impact investment,
yet there are policy developments evident particularly in Malaysia, Thailand and Viet Nam,pertinent to impact investment as well as potential impact investees—social enterprises. Fiscal
incentive policy instruments such as awards, certification and tax relief (see Chapter 2) areoverall absent yet necessary to help build public trust in impact investors and their projects.
As explained in Chapter 3, Japanese impact investors, in particular, wish to see more impact
investment-specific policies to invite new impact investors and enable them to expand theirinvestment activities and scale the impact.
Identifying the needs and agenda of all actors in the ecosystem (see Chapter 2) is necessary

4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

not always have the educational curriculum established to teach and discuss impact investment

to inform how the market actors need to be coordinated. More institutional support to set thepolicy levers and promote and legitimize impact investing practice would lead to mobilizationof finance for the SDGs.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Recommendation 4.1: Institutional effort for national and regional policy, regulatory andlegal frameworks
The role of government is market regulator, participant and facilitator (OECD 2019). In
addition to each country’s engagement in impact investing in ASEAN, more concerted effort

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

for engaged public policy is central to nurturing impact investment, and for this, two immediate
steps are recommended.
First, ASEAN countries can consider the benefits of becoming part of the internationalframeworks of impact investment such as the GSG. Joining the GSG and learning from theglobal learning of impact investment can be used as the analytical basis for international
comparison and assisting in national-level policy formulation.
Secondly, the establishment of NAB under the GSG will become critical as a contact point fornational impact investing activities and to mobilize all actors within the country to promote
impact-creating initiatives and accelerate the realization of SDGs. The established NAB in
AMS can build the nationally agreed definition of impact investing strategies and identify eachkey actor’s function and possible stakeholder partnerships. Policy makers can devise fiscal
incentives, legislation for unclaimed assets (e.g. dormant accounts), regulation for pension andreporting standards as well as initiatives such as impact bonds, investment readiness fund grant,
and social impact incentives.
Table 4: Analytical dimensions of the OECD Policy Framework
for Social Impact Investment
Policy dimension
TargetGovernment role
Policy type
STEER:

Demand, supply, intermediaries and enabling environment
Market regulator, market participant and market facilitator
Policy instrument
 Definition of a national strategy for impact investing

Employing or reforming

Identification of a formalized function

government structure and Internal government consultation

capacities



Stakeholder partnerships

RULE:




Other
Certification

Setting and enforcing

Fiscal incentives: tax and investment relief

rules



Legislation: fiduciary responsibility, social enterprises, unclaimed assets

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ASEAN-Japan CentreSocial stock exchange



Other

ASEAN-Japan Centre

FINANCE:

Awards and challenges

Levying and granting

Funds: investment readiness fund, outcome fund, venture

financial resources

capital fundPay-for-success: social, development or humanitarian impact
bond, social impact incentives, outcome commissioning
Technical assistance and capacity building

Wholesaler, incubator, accelerator, fund of funds

INFORM:



Other (grant, debt, equity, mezzanine, guarantees)
Communication campaign

Providing and sharingConsultation with external stakeholders

information

Research, studies, data publication



Other

Source: OECD (2019, 158)

International initiatives such as the OECD (2019, 158) can certainly assist in national uptake in
AMS. However, it is also important to build policies and practices that fit the ASEAN contexts.
Governments of AMS should provide integral administrative foundation applicable to eachnation’s circumstance to facilitate relevant processes for future scalability of impact investing.

Recommendation 4.2: ASEAN regional concerted effort for ecosystem building
ASEAN countries can collaborate to build the ASEAN Impact Investment Hub (tentative) as
part of the 2025 Economic Community Blueprint initiative and/or under the GSG (or as part89of the ASEAN Centres and Facilities). The ASEAN Impact Investment Hub can serve as
the ASEAN version of GSG, composed of NABs of each ASEAN country. It can provide aplatform to build ASEAN consensus on the need for impact investment by building ASEAN
taxonomy, sharing knowledge, research and ASEAN best practices and setting regionallycollective policy targets—to shape ecosystem and spur progress towards the SDGs. Having theclearly defined taxonomy agreed upon in ASEAN will also prevent impact- and SDG-washing(ADB 2021a, 138).
In fact, the ASEAN Economic Community Blueprint 2025 (ASEAN Secretariat 2016) also

4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

90emphasises sustainable economic development under Sections 40 and 41. Furthermore, Article
26 of the ASEAN ACIA highlights all four critical points to build an ecosystem of impact
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There are currently 15 centres and facilities that are specific to thematic areas and industries. They can beviewed at https://asean.org/asean/asean-centres-facilities/

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Themes highlighted in eight measures include renewable energy, low-carbon technology, biofuels for transportation,energy connectivity, agriculture, food safety, environment, health, forest management and so on.

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

investment in ASEAN (Invest in ASEAN 2009, 31). Article 26 mandates the Member States toendeavour to, among others:•

Harmonize, where possible, investment policies and measures to achieve industrial
complementation,•building and strengthening capacity of Member States, including human resource

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

development, in the formulation and improvement of investment policies to attract
investment,•

share information on investment policies and best practices, including promoted
activities and industries, and•support investment promotion efforts amongst Member States for mutual benefits.

To nurture impact investing activities for sustainable economic development, Article 26
becomes integral to direct policy makers. In line with this, the ASEAN Impact Investment
Hub can partner with active networks such as Toniic, AVPN, IMP, SVI and beyond for realtime updates from practitioners and knowledge feedback for application. It should essentiallybe distinct from ASEAN Business Advisory Council (ABAC) to reflect the nature of impact
investing—intentionality—yet it can build on the learning from ABAC for contextual
application from existing business frameworks. Regional hub of impact investment will send
the world a strong signal that ASEAN is a potential destination for impact investing and speed
up the progress of ecosystem-building which will simultaneously advance the achievement of
SDGs.

Recommendation 4.3: Further support for least developed countries
Countries that are less active and less prosperous can obtain extra support to shape the impact
investing market. Firstly, for least developed countries (LDCs) in ASEAN, using instruments
such as debt-for-SDG swap (see Chapter 2) can be suggested to drive progress on the SDGs.
This instrument is to reduce some debt obligations and leverage swapped resources for SDGs,
increasing the value of their remaining debt and contributing to the SDGs. This instrument canalso facilitate the establishment of trust funds that can be dispensed long-term (UNDP 2020).
It is important to bear in mind, however, that the transaction costs may be higher compared toother financing instruments and negotiations can be time-consuming due to the complex nature
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of functions. It can possibly take several years to just arrive at limited debt reduction.
Secondly, for LDCs in ASEAN, public-private initiatives by overseas government as part of
ODA is possible. For example, Australian Department of Foreign Affairs and Trade (DFAT)
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Further risk factors are listed on the website of the UNDP SDG Finance (UNDP).

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launched the A$40 million Emerging Markets Impact Investment Fund (EMIIF), filling the
gap for funding and providing capacity for SMEs and a pipeline for investors (see Figure 19).
EMIIF provides loan, equity and guarantee and technical assistance to venture and early-stage
capital funds, private debt funds, and non-bank SME funds to support SMEs grow in SouthAsia, Southeast Asia and the Pacific—Australia’s strategic development partners (DFAT 2020).
The EMIIF aims to raise commercial value and mainstream impact and gender in their operation
the region to recover from the economic impact of pandemic, particularly in six countries in
ASEAN that are Cambodia, Indonesia, Lao PDR, Myanmar, the Philippines and Viet Nam
among others in Indo-Pacific (MEDA 2020). Sanora Asset Management serves as an investment
manager, working along with MEDA that provides technical assistance to SMEs across sectors
from agriculture, healthcare, education, financial inclusion to clean energy. Volta joins as atechnical assistance provider for SME funds and financial intermediaries. The Whitelum Group
represents an impact auditor (DFAT 2020).

Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

4 . Ch al l en ges an d R ecommendations for Impact I nves tm ent in A SEAN

for SME funds and SMEs through technical assistance. The EMIIF also seeks to support

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

Figure 19: Mechanism of Australia’s EMIIF

4. Challenges and Recommendations for Impact Investmen t i n ASEAN

EMIIF’ s fund of funds approach

Beneficiaries

SMEs (primarily focus on early-stage)
SME

SME

SME

SME

Equity, Debt, Mezzanine

Technical
assistanceand capacity
building

Financial intermediaries e.g.
SME fundNon-bank
financial
institution

Venturecapitalfund

Fintechcompany

Equity, Debt, Guarantee, Mezzanine

EMIIFTechnical assistancefacility

Investment fund

‘Crowd-in’
effectOther investors

DFAT

Source: DFAT (2020)

This presents a public-private partnership example of impact investing through ODA that canbe considered for LDCs in ASEAN. While it may be a challenge to source early-stage SMEs,
countries like CLMV demonstrated their flourishing market activities (see Chapter 3). Moreinvestment opportunities linked to ODA such as the EMIIF can inspire other initiatives to foster
the market for ecosystem-building.
It is urgent for all ASEAN countries to further explore areas for investment preparation and to“create the necessary environment” to accommodate and lubricate impact investment for thematerialization of 2030 Agenda (Invest in ASEAN 2009, 30).

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5. Conclusion
Impact investing as a financial vehicle can play an instrumental role in resource mobilization formaterialization of the SDGs. Despite diverse challenges raised in this paper, impact investing
will only continue to grow, as is essential for sustainable development. Although it may taketime to mainstream impact investing, this shift in the financing approach to bring both financial
and societal return indeed symbolizes a ‘new normal’.
In addition to the window of $26.2 trillion as a result of the RCEP trade pact, ASEAN as awhole captured over $6 billion in the impact investing market from 2017-2019 (see Table2). The willingness of impact investors in Japan to increase their investment presents anopportunity to promote ASEAN-Japan investment that can scale societal impact. It is truethat the outlook of impact investing market is dependent on the impact of COVID-19—
the significant drop in SDG-relevant investment was greater in emerging economies than in

5. Conclusion

developed countries. Nevertheless, Southeast Asia is forecast to grow by 4.4% in 2021 and by
5.1% in 2022, regardless of different pace and progress. ASEAN is indeed a market of highpotential for impact investment.
The significant impact investing activities including case studies in this paper also demonstrates
its highly promising potential of ASEAN as a way to finance the SDGs. This paper provided
information on the definition and position of impact investment, a snapshot of key global
initiatives and global, Japan and ASEAN overview of impact investing market. Transactional,
facilitative, intellectual and governmental recommendations specific to ASEAN werehighlighted as a response to challenges in the current ASEAN impact investing ecosystem.
This paper has only been able to provide the limited overview of impact investing activities
in ASEAN with available data. However, it contributes to unearthing the highly fragmented
understanding of the current impact investing market and ecosystem in ASEAN and calls forfurther research to complement its findings.
Change is frequent in an evolving field like impact investing. While impact investment may
no longer be nascent, transformation is perpetual, predominantly attributed to by the common
intention to make the planet a better place. A high degree of tolerance for change and failure is a
key feature in this ecosystem to achieve double bottom line. ASEAN-Japan Centre invites you
to join us on this exciting journey of trailblazing, innovating and shaping the ASEAN market ofhigh impact investing.

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Appendix 1.
Six principles of the UN Principles for Responsible Investment
Possible actions for Principle 1:
We will incorporate ESG issues into investment analysis and decision-making processes.
1 Address ESG issues in investment policy statements.


4



5



6
7







Support development of ESG-related tools, metrics, and analyses.
Assess the capabilities of internal investment managers to incorporate ESG
issues.
Assess the capabilities of external investment managers to incorporate ESG
issues.
Ask investment service providers (such as financial analysts, consultants, brokers,
research firms, or rating companies) to integrate ESG factors into evolving
research and analysis.
Encourage academic and other research on this theme.
Advocate ESG training for investment professionals.

Possible actions for Principle 2:
We will be active owners and incorporate ESG issues into our ownership policies andpractices.
1
 Develop and disclose an active ownership policy consistent with the Principles.
2
3
4



5
6
7









Exercise voting rights or monitor compliance with voting policy (if outsourced).
Develop an engagement capability (either directly or through outsourcing).
Participate in the development of policy, regulation, and standard setting (such as
promoting and protecting shareholder rights).

Appendix 1.

2
3File shareholder resolutions consistent with long-term ESG considerations.
Engage with companies on ESG issues.
Participate in collaborative engagement initiatives.

8 Ask investment managers to undertake and report on ESG-related engagement.
Possible actions for Principle 3:
We will seek appropriate disclosure on ESG issues by the entities in which we invest.
1
 Ask for standardized reporting on ESG issues (using tools such as the Global
Reporting Initiative).
2
 Ask for ESG issues to be integrated within annual financial reports.
3 Ask for information from companies regarding adoption of/adherence to relevant
norms, standards, codes of conduct or international initiatives (such as the UN
Global Compact).
4
 Support shareholder initiatives and resolutions promoting ESG disclosure.

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Appendix 1.

Possible actions for Principle 4:
We will promote acceptance and implementation of the Principles within the investment
industry.
1
 Include Principles-related requirements in requests for proposals (RFPs).
2
 Align investment mandates, monitoring procedures, performance indicators andincentive structures accordingly (for example, ensure investment management
processes reflect long-term time horizons when appropriate).
3
 Communicate ESG expectations to investment service providers.
4 Revisit relationships with service providers that fail to meet ESG expectations.
5 Support the development of tools for benchmarking ESG integration.
6 Support regulatory or policy developments that enable implementation of the Principles.
Possible actions for Principle 5:
We will work together to enhance our effectiveness in implementing the Principles.
1 Support/participate in networks and information platforms to share tools, pool resources,
and make use of investor reporting as a source of learning.
2 Collectively address relevant emerging issues.
3 Develop or support appropriate collaborative initiatives.
Possible actions for Principle 6:
We will each report on our activities and progress towards implementing the Principles.
1
2
3
4
5
6
7

102

Disclose how ESG issues are integrated within investment practices.
Disclose active ownership activities (voting, engagement, and/or policy dialogue).
Disclose what is required from service providers in relation to the Principles.
Communicate with beneficiaries about ESG issues and the Principles.
Report on progress and/or achievements relating to the Principles using a comply-orexplain approach.
Seek to determine the impact of the Principles.
Make use of reporting to raise awareness among a broader group of stakeholders

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Appendix 2.
Further explanations of types of impact investment
Loans
Loans can be repaid over the longer-term with interest appropriately outlaid with theconsideration of risk. Development financial institutions’ (DFIs) such as the ADB have been
active in their lending scheme through partnership with the private sector to structure financial
mechanisms (OECD 2018).

Publicly traded debt
ADB and ASEAN Catalytic Green Finance Facility (ACGF) published Green Finance Strategy
of Southeast Asia in 2020 for green and sustainable ‘recovery package’ through bond issuancein ASEAN capital market (ADB and ACGF 2020).
establishment of Sustainability-linked Bond (SLB) in 2020. This model is distinct from existing
bonds in two ways. Firstly, SLB is “any type of bond instrument for which the financial and/or structural characteristics can vary” according to achievements of predefined sustainability or
ESG goals (International Capital Market Association 2020, 2). Secondly, SLB explicitly embeds

Appendix 2.

One of the most recent development noteworthy in relation to this type of instrument is thesustainability-related outcomes as key performance indicator (KPI) that issuers must commit todeliver. In this sense, this type of instrument can be used for impact investment. The SLB model
encourages companies to specifically contribute to sustainability through such debt markets.

EquityA private investment into a company or fund can take the form of an equity stake (not publicly
traded stock). There is also equity-like debt, an instrument between debt and equity such as
92

mezzanine capital or deeply subordinated debt. There is often potential profit participation,such as convertible debt, warrant, royalty, or debt with equity kicker.

92 Mezzanine capital is hybrid capital between subordinated debt and equity—often used by non-bank investors
seeking return on capital. Subordinated debt that require higher capital and return (Silbernagel and Vaitkunas
2012).

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Debt-equity swap (debt-for-SDG swap & debt-for-climate swap)
The UN Special Envoy on Financing the 2030 Agenda for Sustainable Development, Mahmoud
Mohieldin, emphasises that sustainable and inclusive recovering measures could include93

debt-for-SDG swaps (International Institute for Sustainable Development 2020). Whilst
this instrument is time-consuming and requires complex negotiation with creditor countries,
spanning several years, this may present as an option for exploration to convert their debt stock
into SDG-related investments, in negotiation with creditor countries. A comprehensive reviewof the ASEAN experience of debt-equity swap may pave the way for further impact investing in
future.

“Impact” bondHowever, it is important to note that most of these bonds are not bonds commercially issued
and are not practically transferrable.

Appendix 2.

Social impact bond
The world’s first social impact bond (SIB) was launched in September 2010 to reduce
reoffending among short-sentenced prisoners leaving Peterborough Prison in the UK (See Box
5). Since the inception of the first SIB in 2010, the pay-for-success SIB model has attracted
considerable interest by investors because of its impact-oriented nature, and governments andnon-profits as a new source of capital.

93 A sub-scheme for SDG-related investment is debt for climate swap. The debt for climate swap is an agreementthat reduces debtor’s debt stock in exchange for their commitment to delivering climate-related projects. Debt
for nature (environment) swap is another term for debt relief in exchange for investing in conservation projects.

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Box 5. The world’s first social impact bond: Peterborough SIB
As the prisoners had no support upon release, they were more likely to re-offend
as a result of substance abuse or mental health issues exacerbated by their family
or job which they had returned to. Social Finance UK is an NPO that performs as
an investment consultancy; it was established in the UK in 2007 to resolve funding
shortfalls faced by the social sector.
Foundations such as the Rockefeller Foundation, Big Lottery Fund, and Bill andMelindaGates Foundation have been at the forefront as financial drivers for SIBs. Social
Finance UK raised £5 million from 17 investors, which provided six years offunding distributed to One Service, an umbrella organization selected to provide aservice to reduce re-offending (Social Finance 2014). There were several deliveryorganizations under One Service, such as St. Giles, Sova and the YMCA, which
focused on early intervention and immediate support to 3,000 males released fromtraining, benefits and financial advice, with a view to providing security (Social
Finance, 2014). Investors ranged from various philanthropic foundations such as
Cadbury Trust and Rockefeller Foundation to finance the SIBs. Social Financepartnered with the Ministry of Justice and the Big Lottery Fund to allocate returns

Appendix 2.

Peterborough Prison, offering accommodation, medical services, employment andof up to 13 per cent to investors once the expected impact was measured against the
key objectives (Social Finance 2014). In 2017, reduction of reoffending of shortsentenced offenders by nine per cent was confirmed by the Ministry of Justice,exceeding the initial target of 7.5 per cent (Social Finance UK 2018). This indicatesthat the 17 investors that invested in this SIB received a single payment of theirinitial capital in addition to a return of three per cent per annum for the period ofinvestment (Social Finance UK 2018).
The regulatory and policy risk that SIBs may hold can be seen in the cancellationof the third cohort of the world’s first SIB Peterborough in the UK due to theintroduction of Transforming Rehabilitation—a new policy under the Conservativeand Liberal Democrat coalition government (Government of UK 2013; Tomkinson2014). This policy had the capacity of delivering support to a population that was 50
more than the Peterborough SIB, and also filled a service gap that SIBs attempted tofill—minimising the benefit and value of SIBs (Tomkinson 2014).

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Impact Investing towards ASEAN Sustainable Development Goals (SDGs)

As of March 2021, there are over 200 impact bonds globally, over $450 million mobilized in
33 countries such as the UK, the US, Germany, Australia, Cameroon, South Africa and so on(International Network for Data on Impact and Government Outcomes 2021). The first Japanese
SIB project launched in April 2015 was to address mushrooming social issues around child
adoption (Social Impact Bond Japan 2015). As of December 2020, there were roughly 20 SIB
94

projects around Japan.
The SIB model facilitates a mechanism where private investors provide direct working capital
to finance social welfare programs based on early intervention, prevention or building financial
sustainability. The figure below shows an SIB working model that involves holistic multisectoral partnerships across the government, the private and the non-profit.
Annex Figure 1: The mechanism of social impact bond model
1. Sets outcome,payment levels
timeline (1)Appendix 2.

Government

Provide working
capital (1)Private investors

Intermediary agency
2. Performancebased payments(5)

Verify the outcome to thegovernment to determine
the rate of financial
return (4)Provide direct
working capital (2)Bond issuance
Negotiate a rateof return (2)Development Purpose
Ventures (service delivery)
Run “intervention” program (3)Independent auditor

Beneficiary population
Verify andevaluateoutcomes (4)Source: AJC

In this model, (1) the private “impact-oriented” investors inject the working capital for social
development projects which are traditionally funded by governments. The government
determines outcome scope and return levels according to performance of social service
outcome. (2) The facilitative intermediary as a “middle-man” agency are generally specialized
consultants or generalist professional services firms that ‘smooths out’ arrangements tobalance investment goals with financial and social priorities. The intermediary sources highly
effective Social Purpose Ventures to ensure outcomes are delivered and funds are secured.
(3) The Social Purpose Ventures, a social delivery organization funded by private investors
94 For further information about the SIBs in Japan, see Page 4 of the Recommendation report of National Advisory
Board of Japan (2020b). For global map of SIBs, please refer to the Impact Bond Dataset at https://golab.bsg.
ox.ac.uk/knowledge-bank/indigo/impact-bond-dataset-v2/

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through the intermediary, spend their invested capital on social service delivery to generate thesocial impact promised at the outset. (4) Their activities are then assessed by the third-party
independent auditor to evaluate the level of performance of the social service. (5) Finally, thegovernment releases the lump sum of budgeted fund—which was initially to be used for thesocial service—to repay the investors’ “financial return” after the auditors prove that the social
service interventions improved social outcomes and achieve goals set by the government.
Theoretically, as can be seen in Annex Figure 1, the SIB composition involves a holistic,95

collaborative, and cross-sectoral approach involving public, private and non-profit actors.
In theory, the SIB model benefits all stakeholders through continuous improvement of social
programs based on structured performance indicators, significant impact on the beneficiary
population, returns for investors and reduced social welfare budgets for governments. The
SIB operational framework scales evidence-based interventions, facilitating an unprecedented
sustainable cash flow cycle between investors, financial sectors, social service providers andgovernments. The SIB model transfers the risk of funding prevention services to private capitaland promotes accountability for taxpayer money because the government only releases return
relative to performance levels of achieved outcomes, that have been agreed upon by project
database (International Network for Data on Impact and Government Outcomes 2021), there
are no cases of SIBs in operation in ASEAN as of March 2021.
Despite the critiques, global interest in the SIB model illustrates increasing attention to SDG

Appendix 2.

partners, and which are evaluated by independent auditors. According to the impact bond

17: Partnership for Goals and another layer of resource mobilization. Based on the theoreticalbenefits it brings, the “development impact bond” has been created to apply the SIB mechanism
to the context of international development.

95

The complex nature of SIBs also invites critiques, particularly in regard to four aspects—technical challenges
such as increased oversight, administrative burden, transactional costs and little flexibility around outcome measures (Roy, McHugh, and Sinclair 2018). The process of SIB projects can be highly vulnerable to public policychange as this can mean the cancellation of the planned program, leading to minimized value of SIBs (Rizzelloet al. 2016). The diversity of the motivations and characteristics of SIB investors as well as intermediaries results
in inconsistent and variable expectations, which leads to more rigid oversight from public sector commissioners
Edmiston and Nicholls (2017). As noted by Edmiston and Nicholls (2017), the presence of private social investment capital limited flexibility and discretion of service providers in regard to resource allocation and operation
due to excessive real-time outcome measurement and approval required for service processes.

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