Though definitions vary, impact investing refers to investing with the aim of generating both social or environmental impact and financial return.
Serial investor Steve Melhuish, who backs companies tackling social inequality and climate change through Planet Rise and Wavemaker Impact, Asia’s first climate-tech venture build fund, said the past 12 months have been “brutal” for impact investing in emerging markets, particularly for firms with exposure to the United States.
For companies and startups raising money from the US, the framing has had to shift from “clean energy” to terms like “energy resilience” or “domestic energy,” to navigate the politicisation of climate action, Melhuish noted.
A “bright spark,” however, has been renewed investment in renewables since the Iran war, he said. “[The Iran war] shone a light on the economic benefits of clean energy and the need for energy security and resilience.”
He pointed to Pakistan as one example where a rapid rooftop solar boom is helping shield parts of the economy from oil supply risks triggered by the conflict.
The food sector has also shown early signs of recovery after the Middle East conflict, following a two-year period of “decimation” in investment into alternative and cell-based proteins, Melhuish said.
“The food space went toxic,” he said, pointing to the collapse of startups such as Indonesia’s E-Fishery as having damaged sentiment in the sector. “But two years on, things are starting to come back as the conversation shifts toward food security and resilience.”
ABC Impact chief impact officer Sugandhi Matta noted that while there has been “some acceleration” in interest in areas like transport electrification in India, investors remain cautious about how prolonged the conflict may become.
“There is uncertainty on how this [Middle East] crisis will conclude or continue — it’s not all roses,” she said.
“We are seeing a more rational conversation about how these businesses need to be commercially viable to survive under different scenarios — this has happened over the last eight to 12 months,” Matta said. Her portfolio includes companies in financial inclusion, healthcare and climate.
Small base, big growth
Asia’s growth potential for impact investing is significant, albeit from a relatively small base. The region has historically lagged North America and Europe due to investor perceptions that prioritise philanthropy over commercially-driven impact funds.
As a result, Asia is historically only a fraction of the global impacting investing market, with just 7 per cent of worldwide assets under management. But the region’s contribution to the US$1.57 trillion market has grown by 60 per cent over the last six years, according to data from IIX Global.
Matta said that Asia’s small base for impact investing is partly explained by “rationality and pragmatism.”
“When the environmental, social and governance (ESG) wave was high in North America, Asia was still focused on fundamental investing. We never really saw that boom in this part of the world — so we’re not really seeing that bust.”
Marco Serena, chief sustainable impact officer at Private Infrastructure Development Group (PIDG), an infrastructure development and finance organisation funded by six governments, said impact investing has become more strategic amid geopolitical tension.
Key growth areas include electric mobility and renewable energy, while carbon markets continue to lag, he said. Serena added that if voluntary and compliance carbon markets were to merge, the sector could see a “big acceleration” in investment.
He also noted that now could be a favourable time for impact investment in Southeast Asia, as the region remains relatively stable in a volatile global environment.
True impact investing
While capital continues to flow into impact projects in Asia, debate persists over what qualifies as impact investing — and how it should be measured.
Steve Okun, who was previously head of public affairs for investment giant KKR and now runs consultancy APAC Advisors, says that real impact investing forsakes some returns for impact – or else is just conventional investing.
He suggests the sector may be smaller than reported due to “impact washing,” where firms label investments as impact-driven without delivering meaningful additional social outcomes beyond what would have happened anyway.
ABC Impact head of investor relations Jeffrey Fang doesn’t see the industry that way. “If you’re just doing good but you’re not making any returns, then you’re a charity,” said Fang, who points out that Temasek invests in companies that can deliver market-rate returns.
Serena of PIDG said impact investing is not only about accepting lower returns, but also about “more patience with capital” and a longer-term investment horizon. “These two things together have a cost,” he said, requiring a more deliberate approach.
Naina Batra, CEO of social investor network AVPN, said standardised metrics are essential for the sector’s growth and to reduce impact-washing.
She also highlighted a shortage of fund managers and advisors with impact expertise as a barrier in Asia, adding that more success stories and unicorns are needed to attract broader investor interest.
She cited companies such as Khushi Baby, a decade-old digital health non-profit tracking maternal and child health in rural India, and Niramai, a breast cancer screening technology firm, as examples of successful impact ventures that have scaled in large markets.
You are enjoying free access to this article, thanks to the support of our strategic partner, National Volunteer and Philanthropy Centre (NVPC) and the Company of Good.
Join the movement of leaders shaping impact. Find out more about what it takes to be nationally recognised as a Company of Good.
