What you need to know about impact investing (ft ABC World Asia)

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“Driving measurable, positive impact alongside compelling financial returns”

With an ongoing growth in the popularity of ESG investments in Southeast Asia, the question emerges on how firms can firstly select the right firms to invest in and secondly also measure the positive societal and environmental impact of their investments?

With regard to that question, the Protégé Ventures team was delighted to have the opportunity to host Tan Ming Xian and Rachel Fong, an Associate and Analyst from ABC World Asia to talk about ABC’s insights into impact investing.

With the vision to support innovative companies that can scale positive impact in Asia, ABC World Asia was funded with SGD$405mm in 2019, led by Temasek Trust and Temasek, focusing on Series B and later-stage companies. ABC World Asia has a specific focus on five main investment themes and sectors that can reframe Asia’s biggest environmental and social challenges into growth and development opportunities, namely:

  • Climate & Water Solutions
  • Better Healthcare & Education
  • Sustainable Food & Agriculture
  • Financial & Digital Inclusion
  • Smart & Liveable Cities

Besides elaborating on the typical investment process and the content in an investment deck, Tan Ming Xian and Rachel Fong also shared valuable insights into ABC’s Impact Measurement & Management Framework, which allows investors to systematically evaluate the positive impact of an ESG investment by leveraging evidence-based research and data.

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Key takeaways

  1. Responsible investing vs. Sustainable investing vs. Impact investing

Although the terms of responsible investing, sustainable investing, and impact investing are often used interchangeably in public discourse when it comes to ESG investments, there is a necessity for further distinction that can be best visualized in the following graphic:

Impact Classes of investment (simplified)

Within these categories, ABC World clearly focuses on category C, aiming to invest in targeted solutions and themes while at the same time seeking attractive financial returns. When assessing a company, ABC looks not only at the environmental and social impact of its operations in general, but also its specific product and services. ABC World Asia also provides active post-investment support to portfolio companies, including setting up concrete impact goals and creating a roadmap for impact projects. In doing so, all ABC investments are aligned with the United Nations Sustainable Development Goals and guided by Temasek’s vision to build a world of Active Economies, Beautiful Societies and Clean Earth.

2. When doing impact investing, do not only develop an investment thesis, but also an impact thesis

As ABC World seeks to invest in companies whose business model includes social impact as an intrinsic element, the fund has a rigorous pre-investment screening process. ABC World Asia approaches the screening of potential impact investments via a hypothesis-driven and outcome-oriented approach. This means that after concretizing a firm’s output in terms of products and services, the business outcomes (e.g. business profitability, job creation & employment, improved livelihood, etc.) are assessed on a broader societal scale and then compared to the UN Sustainable Development Goals. Via this approach, ABC World’s impact investing framework allows for a quick yet conclusive pre-screening before conducting a full impact analysis, subsequently saving a lot of investor’s resources, which can then be redeployed into the screening and analysis of more investments in the same amount of time.

3. In the Impact Analysis, simplicity and handiness remains key

After the initial development of an impact thesis, a more comprehensive in-depth assessment of impact is necessary in the due diligence process. However, to keep the estimated impact of an investment on a measurable level, it is of utmost importance to still focus on a small number of core considerations that can be more objectively assessed and scored. In the case of ABC World’s impact analysis, only 5 core dimensions and 11 sub-criteria in total are taken into account, scored, and weighted to subsequently come to an investment decision. To further improve rigour, ABC also incorporates third-party data sources and engages with key stakeholders to complement the internal views on the impact potential of each company.

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Concluding thoughts

Although impact investing on a larger scale in Asia may still be in its infancy, it is set to gain in significant importance over the next few years. To allow for a tangible positive impact in future investments, a systematization of impact on a broader societal and environmental scale is required.

Although many impact outcomes seem to be intangible and thus immeasurable at first glance, it does not mean that impact investing cannot be systematized and made more tangible. In this context, ABC’s approach already offers a great starting point and can serve as a benchmark for other impact investors to improve their screening, analysis, and monitoring processes in their future investments.

Once again, a very big thank you to Tan Ming Xian and Rachel Fong, and ABC World for very generously sharing their time and knowledge with the team. We hope that you’ll find our insights meaningful, and stay tuned for more as we continue our learning journey!

Prepared by:

  • Reuben Loo
  • Marcus Wan
  • Philipp Wieschalka
  • Keira Xu