Singapore: A lasting legacy via climate impact investing
17 August 2023 | 8 minute read
Prince William, musician Shakira and Alibaba co-founder Jack Ma have a few things in common. All three are publicly involved in The Earthshot Prize, a charity founded by Prince William to award and accelerate innovative solutions to the world’s biggest environmental challenges.
Reputation and celebrity can sometimes be viewed in a negative light. However, when it comes to climate action, the publicity that comes with the involvement and support of famous persons can draw much needed attention, helping to magnify the importance of the causes and enterprises they support.
The same can be said for impact-first investing, which is an investment philosophy that prioritises impact before financial returns.
One of the barriers to impact-first investing is information. Typically lack of information and awareness of worthy social enterprises can make it difficult to assess and measure the enterprises’ impact and investors’ returns. But sometimes, too much information and jargon on indices and matrices may also make the prospect of investing overwhelming and intimidating for the first-time impact investor.
This is where the reputation of experienced impact investors can bridge the gap. An experienced and reputable investor can lend credibility to the social cause or enterprise he or she supports. Almost like a stamp of approval, the support and investment of high-profile high-net-worth individuals and their family offices and foundations can inspire and influence like-minded investors who may not know where to begin their impact journey or may not have the resources or expertise to evaluate them.
Is it a coincidence that there seems to be fewer high-profile Asian impact investors compared to those in the West? Not entirely. Publicity runs counter to the celebrated virtue of humility in Asian cultures and the general sentiment that good deeds should not be publicised. But there is value in high-profile action, especially when it relates to climate action.
If Asian impact investors choose to remain anonymous, other wealth holders may not be aware of the funding gaps and the available opportunities.
Many social enterprises devote their time and energy to bringing innovative ideas and solutions with robust growth potential to the table. But they often struggle to secure funding or consistent capital to turn their ideas into reality to achieve meaningful outcomes.
Unlike conventional profit-focused ventures which are able to prioritise short-term goals, social enterprises often require time to develop innovative solutions, scale and fulfil their potential. They may not have access to the investor networks that their profit-focused peers do.
Social enterprises are therefore reliant on existing impact investors to leverage on their networks, to share their knowledge and positive experiences with their peers and the broader investment community. This would inspire like-minded wealth holders to take action.
The involvement of a reputable and sophisticated impact investor can also inspire confidence among less experienced investors, who want the assurance that the supported enterprise has been vetted and is worthy of attention and investment. However, as with any investment that requires capital, investors should still undertake their own due diligence.
Finally, there may also be an element of peer pressure or FOMO (fear of missing out) which may motivate even a sceptic to get involved.
Climate change is arguably the greatest global challenge facing the world, and it calls for urgent action. Notwithstanding the devastating effects global warming has on nature and people, there is still insufficient capital to address this challenge. Based on a report by McKinsey, we are still about US$3.5 trillion short of the US$9.2 trillion in annual investments required to achieve net zero by 2050. Governments cannot be expected to solve this challenge on their own.
Critically, while there has been a boom in impact investments over the years, there remain some key gaps in impact capital, especially in the form of patient catalytic capital which many social enterprises require to grow and succeed.
Family offices can and should rise to the challenge, and embrace impact-first investing as an extension of their long-term philanthropic aspirations.
Family offices have the discretion to declare impact a priority and the ability to provide patient capital by taking a long-term view of their investments.
While some families may worry that their returns may be sacrificed, impact-first simply means embracing values that place social and/or environmental good ahead of financial returns, rather than relegating returns to the sidelines entirely. The lasting legacy an impact-first approach leaves on the family and the wider community is another form of return on investment that should not be underestimated.
Impact-first investing presents a powerful opportunity for family offices to leverage on their wealth and resources to invest in initiatives that resonate with their values, address significant environmental challenges and generate verifiable financial returns. It also serves as a strategic tool that allows them to invest in a commercially viable manner, as families are able to use the returns from their investments and recycle such proceeds into the same impact investment or other related causes.
Given the pressing global challenge that climate change presents, Asian impact investors should be encouraged to cast aside Asian humility and talk loudly and often about their support for climate action. It may just be the much-needed catalyst for change.
This article was first published in The Business Times here and was written with the assistance of Zoey Eng.