Hopes are for impact investing to fill funding gaps in Asia – but less attractive returns are an obstacle
Barriers to growth in the region’s sector include fragmented deal flow and the perception of high risks
[SINGAPORE] Industry players say there is considerable room for growth in impact investing, with sufficient capital available to meet Asia’s development needs.
This is even as the region deals with the fallout from US President Donald Trump’s move to pull the plug on foreign-assistance projects he thought were an “appalling waste”.
That immediately translated to a loss of US$68 billion in funds for international aid, going by the amount the US spent in this region in 2023.
For an idea of the size of this sum: The top 10 philanthropic funders in Asia – among them Singapore’s Tote Board – collectively contributed about US$2.2 billion that same year, noted Bridgespan, a global non-profit consultancy.
Chris Malone, partner at global consulting firm Dalberg, said that one promising solution to meeting this gap lies in redirecting more capital towards impact investing.
AVPN, the largest network of social investors in Asia, defines impact investing as investments made with the intention of generating measurable, positive social or environmental outcomes alongside financial returns.
Its chief of impact investing and blended finance, Vikas Arora, pointed out that this approach is particularly important for underfunded projects related to the United Nations’ Sustainable Development Goals.
But “the challenge is… that risks are often insufficiently priced, and project pipelines are under-prepared”, he said.
The Global Impact Investing Network reported in October 2024 that the global impact investing market is about US$1.57 trillion in size.
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Malone noted that Asia accounts for just 8 per cent of this amount, despite accounting for about one-third of global wealth management assets.
He added that if Asia were to achieve proportional participation in the global impact investing market, the region’s sector “could grow from its current size to US$520 billion – more than quadruple the existing levels”.
“Such an expansion would more than offset the decline in development aid, and enable a wide array of commercially viable solutions to pressing societal challenges.”
As for why investors should look to impact investing, Hareesh Nair, chief investment officer of family business Tsao Pao Chee (TPC), said: “Impact investing isn’t philanthropy. It recognises that solving real problems tied to our collective well-being is the most durable driver of future returns.”
He added that when investors “address these real-world challenges, they reinforce the foundations that allow sustainable returns to take shape”.
For instance, TPC-backed Octave Capital joined forces with Norwegian venture capital firm Katapult Ocean to raise funds for the Asia Ocean Fund. It aims to invest in startups that support ocean health – an area that has long been underfunded.
The fund aims to raise US$75 million and taps into a nascent area in the Asia-Pacific. It will focus on six areas: maritime decarbonisation, ocean restoration, biodiversity, the circular economy, sustainable aquaculture and marine biotechnology.
Challenges ahead
Still, there are challenges.
Jackie Surtani, regional director for Singapore at the Asian Development Bank (ADB), said there is sometimes a conflict between development impact and returns.
Even if the development potential is high, impact investors can obtain higher returns in the Western Hemisphere, notably the US and Europe.
AVPN’s Arora added that while impact investing is a growing trend in Asia, investing with an ESG (environmental, social, and governance) lens is quite embedded in the investing ecosystem in Asia.
Among the key barriers to growth is fragmented deal flow: Deals are often small, bespoke or early stage. This means costs are high, which deters big investors.
There is also the perception that risks are high, and that such projects offer only concessionary returns, with unclear exits at that.
Agreeing, Surtani cited as an example ADB’s financing of Monsoon Wind, a 600 megawatt wind project in Laos to sell electricity to Vietnam. Curtailment risk was one of the issues in the deal, as renewable energy is intermittent.
“Hence, blended concessional finance was used to provide the project with a bigger buffer to mobilise commercial investors,” he said.
The total debt was about US$700 million. ADB arranged the entire financing package and also provided a US$100 million loan from its own balance sheet.
To address these challenges, AVPN and its partners have also started promoting shared standards and frameworks for impact measurement and management.
For example, they support the adoption of industry-aligned, impact-performance reporting norms, and run specialised workshops on impact measurement.
Dalberg’s Malone cited the UK’s use of £600 million (S$1 billion) in dormant account funds to set up Big Society Capital, now known as Better Society Capital.
“This organisation seeded the first generation of impact fund managers and funded intermediaries, playing a pivotal role in developing sectors such as social lending, impact bonds and social housing in the UK,” he said.
With about US$80 billion in assets under management in Asia, private impact investing potentially represents a much larger capital pool than either government aid or philanthropy.
“Asia is well-positioned to pursue similar models,” said Malone, explaining that with “strong financial hubs” such as Singapore, Hong Kong and Tokyo, the region “already has many of the building blocks required, including a sound regulatory environment and a deep talent pool”.
“If Asia can build on the promising trends outlined above, create a pipeline of local success stories, and cultivate a supportive ecosystem for impact investing, it can dramatically expand its share in the global impact economy.”
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