Asia family offices find returns sweet spot in impact investing
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Asian family offices and private impact investors are reporting strong financial performance from their impact investments, according to a new survey by the Sustainable Finance Initiative (SFi).
Among 100 family offices and private investors surveyed in May, 62% saw their impact investments meet or overperform financial return targets.
“62% is a very important number…It tells us that impact investing is really a financially viable investing style to achieve impact and returns,” said Francesco Stadler, director of impact funds and ventures at SFi, an impact- and sustainable investing-focused non-profit platform for family offices.
“We believe that a good performance is a result of being intentional about the impact that you want to create, having a very clear goal in mind when you're talking about impact, but also clarity around the investment approach,” he said in a media briefing.
For example, he shared that SFi had engaged with a family that invested in the gender lens impact investing security, Women’s Livelihood Bond, issued by the Singapore-based Impact Investment Exchange.
The bonds fit the criteria of the family because they were looking for liquidity via coupons as well as downside protection. At the same time, the securities also delivered the empowerment of women and girls across emerging markets to build economic resilience and advance climate action, Stadler explained.
While it is hard to generalise which benchmarks families use to measure their impact investments against, Katy Yung, chief executive officer at SFi observed that many families are looking for market-rate returns, while others accept slightly lower returns for greater impact.
“They're willing to be a little bit more flexible around their capital to see that extra impact,” Yung said.
More sophisticated impact investors might experiment with how a carve-out impact portfolio performs compared to a similar non-impact portfolio.
“Most of our families are indeed finance-first investors. Although we do have, of course, quite a few of our members who are also impact-first investors,” said Christine Yu, head of innovation at SFi.
The survey revealed families prioritise business-operations optimisation before considering investment and philanthropy for scaling impact investing.
ALSO READ: Why impact investing is not just ‘nice to have’ for HK, SG families
GROWING MATURITY
The survey was conducted at the annual SFi Asian Family Impact Summit in May, and released on September 26. About a quarter, or 26%, of family offices and private investors allocated over half of their portfolios in impact or ESG-based projects. Another 23% dedicated 10% to 50% of their portfolios.
“This is an improvement compared to 5-10 years ago, when over half of their portfolios is quite significant,” said Yung.
She noted that 10 years ago, families and investors were still asking questions about the definition of impact investing, getting educated, and learning about the strategies.
“It is showing that it's an increasing part of their portfolios, and it's getting mainstream,” she said.
Food and agriculture led thematic preferences, while healthcare, circularity, and innovative materials gained traction, driven by post-pandemic concerns and Asia's climate challenges.
Nature-based solutions have also been attracting interest as bankable opportunities emerge for private capital, according to Stadler.
The survey confirmed an "in Asia, for Asia" tilt, with 56% of respondents prioritising Asia Pacific investments and 25% remaining focused on global opportunities.
ALSO READ: HK, SG family offices push for more impact investing in home markets
Despite rising allocations and interest, the top challenge for Asian families to execute impact investing is the availability of high-quality deals with suitable exit options, followed by the difficulty of finding like-minded peers for co-investments, the survey showed.