By Dawn Chan, Eliza Foo, and Ben Thornley*
Earlier this month, on the sidelines of Ecosperity 2023 in Singapore, we had the great privilege of convening a group of over 100 practitioners dedicated to social and environmental impact, including entrepreneurs, investors, and intermediaries, for a timely discussion on the opportunity to accelerate impact investing in emerging marketsthrough collective action.
Themed “Driving Inclusive Growth in Emerging Markets”, the inaugural Impact Investing Roundtable was co-organised by Temasek and CIIP to bring about timely conversations on Asian leadership in impact. The event featured a panel discussion on the future of impact investing, lightning presentations by impact-focused companies from the financial services and healthcare sectors, and small group discussions on how to drive collective action for the impact investing market.
The concluding session of the Roundtable, supported by Tideline, challenged participants to discuss and develop solutions to a range of challenges across three themes: financial inclusion, healthcare, and impact investing market building.
In this article we share the contours of that dialogue, with a focus on the range of solutions that give us confidence that a more collaborative capitalism can make real progress on stubborn social and environmental challenges.
Challenges of Collaborative Capitalism
Separated into small groups, delegates were first asked to agree on a market challenge that was inhibiting their ability to make progress in their respective themes and that they were eager to tackle together.
In financial inclusion, for example, participants zeroed in on three challenges: first, regulatory barriers, with some countries slower than others to encourage the use of new technologies even while protecting consumers; second, the lack of financial literacy in target markets; and third, the need to improve the offtake of financial services beyond lending, including savings accounts, insurance, and payment systems.
In healthcare, attendees agreed that the limited resources of underserved groups to fund health-related expenditures was of utmost importance.
In impact market building, participants discussed the need for catalytic or concessionary capital to seed new investment ideas, and the importance of impact measurement, reporting, and benchmarking in ensuring the growth and integrity of impact investing in Asia.
Solutioning for Impact
Participants then turned their attention to problem-solving.
In financial services, participants strongly emphasised the importance of a multi-stakeholder approach to improving financial literacy – brainstorming ways to foster participation from education institutions, banks, insurers, self-governing and formal regulatory bodies, and investors, among others. There was also ideation on ways to integrate education into the very design of products and services, fueled by the desire to ensure maximum affordability, transparency, and simplicity, and to more proactively build relationships with community-organizations and local businesses already partnering with underserved populations in order to improve integrity and trust.
Discussions also centered on the need for accelerated innovation in financial products, characterised by greater accessibility and adaptability. Digitalisation provides an attractive opportunity for financial products to reach underserved communities more easily, but providers should not overlook the importance of local stakeholder engagement. Attendees discussed ways of providing grants for supporting local, on-the-ground research, along with a focus on collecting beneficiary data to reduce bias and better identify gaps in financial service utilisation and effectiveness.
These conversations were bolstered by the findings of CIIP, UNCDF, and Helicap’s report ‘Financial Inclusion in Post-COVID Southeast Asia: Accelerating Impact Beyond Access’, launched earlier in the Roundtable’s programme.
The small group discussions in healthcare also centered around the need for a multi-stakeholder approach coupled with innovative financing, payment systems, and public-private partnerships in order to support healthcare expenditures. One proposed solution was to leverage blended finance to incentivise long-term backing from a diverse group of stakeholders, crowding in a mix of capital to make funds available to targeted beneficiaries, for example through insurance, employer-backed healthcare, or philanthropic crowd-funding. By aligning capital from government, philanthropy, and private actors, investors can support health inclusivity while taking on an appropriate amount of financial risk.
Participants also discussed the need for an outcomes-focused rather than volume-driven healthcare system. With an eye to outcomes, there would naturally be opportunities to improve and incentivise efficiency and innovation, while also encouraging the collection, monitoring, and reporting of more robust data (e.g., improved mortality rates), ultimately supporting a shift to a more evidential, human-centered healthcare system.
In impact market building, several groups brainstormed solutions to the complexity of impact measurement and lack of data and standardisation, recognising it can be significantly more intricate and arduous to assess impact than to calculate a financial Return-on-Investment (ROI). Consequently, this leads to the pressing need to establish protocols pertaining to the selection of key performance indicators (KPIs), data collection methodologies, target-setting procedures, and benchmarking criteria. Collaboration and transparency would be critical, participants argued, since the utility of systems relies heavily on the quality of underlying data. And as in healthcare, the accuracy of performance and practice benchmarking would benefit from widespread adoption and active efforts to look beyond existing data that may be outdated or a poor representation of target beneficiaries.
This is no small feat and will require considerable time and effort. However, by establishing measurement protocols, participants argued this would create a foundation for a more accurate and meaningful assessment of impact, thereby enhancing transparency, trust, and accountability in the impact market.
Participants also explored solutions aimed at reducing the tension between philanthropic and commercial sources of impact investment capital through transparency and segmentation. Despite the fact the majority of impact investors are targeting market rates of return, there is a misconception that all impact investments are concessionary. To resolve this tension – and recognising the market need for both investors seeking commercial returns and those willing to offer catalytic capital for outsized social and environmental outcomes – participants discussed the need for greater clarity on the various types of impact investments. This would include a stronger articulation of the benefits of blended finance and how different forms of capital can contribute to greater scale and depth of impact outcomes. Part of the solution will be a significant commitment to education, highlighting the benefits of impact investing and the types of organizations making such investments, including their risk appetite, financial targets, and desired impact. Another important opportunity is to “flip” the conversation, from one about financial/impact trade-offs, to one about the importance of impact in achieving targeted returns, for example by reducing risk or more accurately integrating the cost of externalities. Potential alliances between philanthropists and impact investors able to provide blended finance facilities more readily in various localities were suggested as one way to better consolidate and disburse catalytic capital to high-impact sectors.
Core Practices to Advance Impact Investing
Taken together, the discussion highlighted a number of core practices that will be critical in the development of impact investing in emerging markets.
First, the importance of quality, contextualised local impact data. Underserved voices must be incorporated to customise solutions to intended beneficiaries – and, for the most part, existing systems and proxy data are not enough. Impact investors are uniquely equipped to play an essential role in linking impact-driven data to considerations of product-market fit and scalability.
Second, the importance of mobilising and coordinating catalytic and blended capital at scale. Promising solutions for critical challenges need de-risking and pathways to scale with the right types of investments. Different impact and financial motivations of varying investor types (government, DFIs, philanthropy, private) should be systematically brought together to better meet market financing gaps and needs.
Finally, ecosystem- and capacity-building is required to support impact investing uptake. The first step is to educate and share learnings, helping to clarify misconceptions about impact and financial opportunities and strengthen the credibility of the market. Rigorous impact measurement and management, and demonstration of collinear impact and financial return with success cases, will be important enablers, along with continuous field-level advancement in practice.
The Impact Investing Roundtable was closed with remarks from Benoit Valentin, Head of Impact Investing at Temasek, who noted that impact investing professionals are “dealing in optimism, which is the fuel of economic development and growth.”
We were grateful for the contributions of all our Roundtable speakers and facilitators and have been energised anew by the optimism and power of collective action.
*Dawn Chan is CEO, Centre for Impact Investing and Practices (CIIP), and Managing Director, Investments, Temasek Trust Capital; Eliza Foo is Director, Impact Investing, Temasek; Ben Thornley is Managing Partner, Tideline