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Unlocking the untapped opportunity in Asia through impact investing

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THERE is a huge, untapped market opportunity in Asia, driven by under-served populations. Today, there are over one billion people in Asia who live in poverty. Yet, they are already spending over US$2 trillion annually on basic goods and services such as food, housing, clothing and telecommunications. And poverty levels across Asian countries have been declining in the recent years, with income levels of the poor in Asia expected to increase significantly over the next decade.

According to Brookings, by 2030, there will likely be more than 600 million people who would have transitioned out of poverty. In the next 10 years, they will not only be buying more goods and services, but also demanding higher quality.

At the same time, the region is experiencing rapid growth in digitalisation. According to Statista, Internet penetration in Asia has doubled in the last 10 years (from 25 per cent to 48 per cent) and is expected to continue to grow, reaching 62 per cent by 2025. This equates to another 900 million people in Asia who will be online, primarily via their mobile phones. Investment by companies and organisations on digital services in the region has also been growing significantly, and this has not only improved efficiency in existing businesses but also led to new tech-enabled business models.

The result of these two forces is new digital access at an unprecedented scale, reach and affordability. Digitisation is transforming many industries, including transportation, food, healthcare, education, finance and supply chains in general.

Small and medium enterprises are often best positioned to capture this opportunity by developing these new digital business models. One example is the Indonesian education technology company Ruangguru (Teachers' Room), an investee of the Asia Impact Investment Fund, managed by UOB Venture Management, with Credit Suisse as the Impact Advisor. Starting out as a private tutoring marketplace, the company now also offers app-based lessons that mirror the Indonesian state curriculum, providing compelling, "gamified" content that supports and enhances the learning experience. It now has millions of subscribers and is a prime example of the disruptive digital innovation we are seeing across developing Asia.

FAST GROWING

A typical customer could be a female, year nine student living in a rural area in Indonesia, where the quality of education is relatively poor, and supplementary tutoring services and other support for motivated students are limited.

Through Ruangguru, she now has access to quality online education in her own home. She can watch videos by professional educators on a vast range of school subjects, take practice exams and consult online tutors in a quick and effective manner, all for a small fee.

Impact investing plays an important role in supporting these types of innovative companies, and is one of the fastest growing areas of the investment industry, driven by investors who are seeking to not only deliver commercial financial returns but also help to fund solutions to the world's great challenges.

"Impact investing" as a term was coined by the Rockefeller Foundation in 2007 to capture that subset of the broader sustainable investment space where there was intentional and measurable impact. This was primarily delivered in private markets, as the link between the investment and the additional impact generated by the enterprise was clearer.

From 2007 until around 2015, impact investing grew steadily, but from a small base. One development that enhanced the growth of impact investing was the launch of the United Nations Sustainable Development Goals, a set of 17 global goals agreed to by over 180 countries. The UN SDGs captured the imagination of people and organisations across the world, and investors increasingly recognised that they have a role to play in proactively contributing to society's problems.

However, many investors felt that a focus on "impact" would necessarily result in lowering of returns, and many investors remain sceptical of these strategies. At Credit Suisse, we are convinced that impact investing - if done well - can actually deliver equivalent, if not better, returns than those of traditional investors. There are a number of reasons for this.

First, we believe that many impact investment opportunities are based on companies with innovative business models that are disrupting traditional industries, and providing services such as healthcare, education, clean energy and clean transportation in much more efficient and lower-cost ways. Second, many impact investments are focused on areas of society that are likely to undergo the fastest growth, for example, the poorer regions in Asia, which are rapidly pulling themselves out of poverty, and generating a plethora of impact investment opportunities in the process. Third, there is now a clear recognition in the finance sector that environmental, social and governance (ESG) factors are potentially material and if not managed well, can put companies at risk.

As investors increasingly recognise the financial opportunities in these high-growth, high-impact sectors, we believe that the volume and quality impact investing opportunities will expand over the coming years, and will form an important part of investors' portfolios.

  • James Gifford is Head of Impact Advisory, Credit Suisse
  • Joyce Chee is Sustainable and Impact Investing Advisor, Impact Advisory and Finance Department Asia Pacific, Credit Suisse