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Investing for impact? Learn these lessons from ESG investing

Jovi Ho
Jovi Ho • 14 min read
Investing for impact? Learn these lessons from ESG investing
Investors are increasingly prioritising the impact made by their investments alongside profits. How can they get it right without accusations of "impact-washing"?Photo: Shutterstock
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From reliability of data to greenwashing accusations, here’s how players in the impact-investing sector are steering clear of the pains of yesteryear

Measuring emissions has proven challenging for many corporations, a situation made worse around 2022 when the financial industry was rocked by claims of greenwashing. Since then, investors have forced banks, asset managers and companies to take a more critical look at their environmental claims.

In the wake of those accusations, some experts have warned of a rise in “greenhushing”. Some corporates fear being accused of greenwashing and have chosen to keep their sustainability data private, shielding themselves from any potential scrutiny.

Bold target-setting, challenges with data-gathering and a subsequent chilling effect — if left unchecked, the same pattern could unfold within the realm of impact investing.

Here, investors fund projects in various sectors, including healthcare, education and alternative proteins. Unlike traditional, commercial capital, however, these investors share a common vision in prioritising impact alongside profits.

In some instances, investors expect no financial returns at all, opting to focus on project outcomes instead. Between the two extremes of commercial and philanthropic capital, the impact-investing spectrum includes categories such as “responsible”, “sustainable”, “impact”, “impact-first” and “venture philanthropy”, each with varying expectations of risk, returns and impact.

See also: ‘Strong storytelling, clear visual aids’ help ABC Impact explain impact of investments

Defining impact

Capital can be deployed in many ways to help address social and environmental challenges; philanthropy and impact investing are just two such approaches, says Dawn Chan, CEO of the Centre for Impact Investing and Practices (CIIP).

“Both seek to create positive impact but differ in their financial objectives and expected returns.”

See also: T Rowe Price’s Global Impact Equity Fund seeks returns and measurable impact

In philanthropy, funds are typically disbursed as grants, with little to no expectation of financial return, says Chan, who is also managing director of investments at Temasek Trust Capital. “That said, newer ways of philanthropy are emerging, where philanthropic capital is used as risk capital to drive impactful outcomes. This is largely led by next-generation philanthropists who prioritise structured giving and measurable impact.”

In contrast, impact investing sets out to achieve both impact and financial returns. Chan points to private equity firm ABC Impact — part of the stable at Temasek Trust Asset Management.

“[ABC Impact] directs all its investments towards a portfolio of companies that are working to address climate change, resource scarcity and inequality. The firm expects the companies it backs to generate impactful outcomes alongside a strong financial performance.”

‘No trade-offs for us’

As an impact private equity investor, ABC Impact wants both returns and impact. “We strive to ensure strategic financial investments explicitly generate measurable and evidence-based social and environmental benefits, alongside market-competitive and sustainable financial returns,” says ABC Impact chief impact officer Sugandhi Matta. “There are no trade-offs for us. To us, this approach engenders a harmonious and positive blend of profit and purpose.”

See also: Don’t conflate investing in activity with actual impact: UBS philanthropy head

According to Matta, the realms of social impact, impact investing and philanthropy represent “distinct but synergistic approaches” to driving positive change.

Each avenue plays a unique role, she adds. “Impact investing deliberately integrates financial strategies into the pursuit of transformative social and environmental change. Social impact encapsulates the broader concept of fostering positive outcomes for society, acknowledging both intentional and unintentional effects. Philanthropy driven by a spirit of altruism can also address immediate needs or systemic issues.”

Impact carries different meanings for different people and sectors, notes Kevin Teo, chief operating officer at AVPN. As a funders’ network based in Singapore, AVPN says it is the world’s largest network of social investors that are active in Asia.

“At AVPN, we focus on four areas of impact: climate, health, youth and gender, as well as their various intersections,” says Teo. “In relation to this, we look to deploy capital — defined as financial, human and intellectual capital — to bring local needs, regional expertise and policy insights to the forefront.”

According to Teo, AVPN’s main objective is to create social change and not to seek profit. “Yet, the focus does not differ too much from that of asset managers, [as] capital in [social impact investing] is also delivered with the intended purpose to generate social impact. This is what all sectors need to grapple with — whether they are investing for impact returns only, or for a combination of impact and financial returns.”

In 2022, CIIP worked with Singapore Management University and Accenture to publish a paper titled “Scaling Impact in Asia: Achieving Purpose and Profit”, which contained a diagram on the spectrum of impact-oriented investing. Each category carries a slightly different focus.

Hence, financial instruments such as thematic funds, green loans, social impact bonds and grants are best fit for different areas.

AVPN’s Teo calls this spectrum the “continuum of capital”. “Along this continuum, all kinds of capital work together, and funders may leverage different financial tools — combining grants, debts and equity across multiple investments at different stages of maturity and progress within their own portfolio.”

As the sector matures, the variety of financial instruments will grow to meet different needs. These tools provide a range of funding and even “non-financial support” to non-profit and non-governmental organisations at different stages of development, says Teo, “ultimately achieving deeper social impact”.

Measuring impact

Environmental, social and governance (ESG) investing first saw a wave of euphoria during the early pandemic years, before some investors began to doubt the reliability of corporate data and solutions like carbon credits. The recent years hold many lessons for the burgeoning impact-investing sector, and sceptics are again likely to start with questions about the data.

Compared to measuring emissions, which is typically presented in tonnes of carbon dioxide emissions equivalent (tCO2e), measuring social outcomes is even more challenging. It is less quantifiable while being more diverse in metrics, says CIIP’s Chan.

“While there is no silver bullet when it comes to the complex and diverse landscape of impact measurement, a common principle is to always keep the end-beneficiary in mind when measuring outcomes.”

For projects related to financial inclusion, for example, Chan says it “could be more meaningful” to measure the impact of financial access on the beneficiaries’ quality of life rather than simply measuring how many individuals or businesses have first-time access to a financial service provider.

That said, Chan acknowledges that some areas face more challenges than others. Areas like education and healthcare, for example, face high costs and poor data quality when measuring for impact, she adds.

“One way to work around this is to collaborate. When organisations with similar impact goals pool their resources, the costs of funding such baseline research reduces significantly. More importantly, it boosts learning for the industry as a whole.”

‘Pay for success’

One firm under the Temasek Trust ecosystem believes it has the solution to “solve the hardest social problems”. Founded in 2017, Tri-Sector Associates (TSA) is a social enterprise that aims to improve public-private-people partnerships for social innovation via “outcome-linked financing”.

Its “pay for success” (PFS) mechanism is touted as an “evidence-based approach” that helps crowd in differing risk capital for various solutions.

According to TSA, which was brought into Temasek Trust’s fold in 2023, PFS assures governments and philanthropic funders that their funding achieves the best outcomes for those in need, while also catalysing the community to work together in achieving those outcomes.

Under the PFS model, a government or philanthropic funder first specifies measurable outcomes of social interest. This then stimulates upfront funders, usually from the private sector, to put in upfront capital.

If, and only if, the outcomes are achieved according to a third-party evaluator, the government or philanthropic funders fund a second tranche of matching payments that can repay the upfront funders, or be recycled into a further iteration of the programme.

One example is the Family Empowerment Programme (FEP), an income stability programme by Singaporean social service agency Awwa. Upfront funder Standard Chartered Singapore provided US$560,000 ($755,653) to Awwa, which was disbursed monthly in cash to 75 low-income households between May 2022 and November 2023.

The pilot is evaluated on improvements in participants’ employment, skills training and education, which form the payment outcomes. FEP also measures well-being, security and resilience outcomes, which are not tied to payment, says TSA. “As this is an initial pilot with a small sample size, the results are meant to be formative and serve as a base for future iteration.”

Kate Shieh, TSA’s deputy CEO, notes an increase in the uptake of social-linked loans and bonds, “especially during the pandemic”.

“People are trying to tie in social impact-related linkages to different types of financial instruments… But in the developing markets, especially on the social impact side, how do you actually measure this impact in a standardised, scientific manner? That remains a big problem.”

Shieh, who joined TSA in October 2023 after close to eight years at PwC in Hong Kong, says parties can rely on science-based targets when measuring environmental impact, but social impact is much more ambiguous. “It does mean different things in different markets; the definition of success will vary drastically. So, that’s one area that is still in development.”

Chasing numbers

That said, some have warned against demanding concrete data from this abstract sector. Much like political debate over the urgency of the climate crisis, obsessing over metrics and measurement could stall efforts to further social impact. 

Former Australian Prime Minister Julia Gillard, who moved into the philanthropic sector after leaving office in 2013, bemoans the hesitation of some potential donors.

“I’ve worked with family offices that start off saying they want to be agile philanthropists; they want to be out there making big bets in the world; they want to spend down most of their wealth during their lifetimes doing good. I touched base with them a couple of years later, and found that they are still equivocating between areas in which they’re going to channel their philanthropic funds through; they’re in search of better and better metrics. Actually, at the end of two years, their wealth has grown and they haven’t acquitted any of the promises they made to themselves or to the world,” says Gillard, who is chair of both the UK-headquartered charity Wellcome Trust and Beyond Blue, Australia’s leading mental health awareness body.

Speaking at the UBS Social Impact Forum Southeast Asia 2024, held here in January, Gillard says measuring impact “only gets you so far”. “It’s a ‘yes, but’ answer. I’ve seen [that] the focus on the metrics actually drives some adverse results.”

Gillard is particularly passionate about gender equality, having served as the first female Prime Minister of Australia. In 2018, Gillard was appointed inaugural chair of the Global Institute for Women’s Leadership at King’s College, London.

She adds: “I’ve been in conversations where I’ve heard a donor say about education for some of the poorest girls in the world: ‘I haven’t seen the evidence yet as to whether or not school attendance is best maximised by making available bathroom facilities in schools, or school feeding programmes. When I see that evidence, I’ll invest in one or the other.’ I walked away shaking my head, thinking: ‘Aren’t the poorest girls in the world actually entitled to both food and sanitation in their schooling experience?’ And so, if we just use the metrics, we can go down some odd tracks.”


Social challenges are complex in Asia, and they will not get any less complicated, says AVPN’s Teo.

“While it is true that businesses, governments and social enterprises are growing increasingly sophisticated in their impact strategies, they remain far from their full potential. This is how some well-meaning organisations may inadvertently be impact-washing their initiatives.”

Impact-washing, like greenwashing, occurs when a party overstates or falsely claims a project or investment’s intended positive impact. Impact-washing may also happen when there is a disconnect between how an organisation views the contribution of its product, service or investment towards social impact, and what other stakeholders may perceive there to be, adds Teo.

Growing demand for socially responsible and sustainable investments is fuelling impact-washing, says ABC Impact’s Matta.

Some parties also face pressure to demonstrate corporate social responsibility but without substantive actions, while others lack an understanding of standardised impact measurement practices, she adds.

ABC Impact is a signatory of the Operating Principles for Impact Management (OPIM), presented by the International Finance Corporation (IFC) and the Global Impact Investing Network (GIIN).

OPIM establishes standards for impact measurement and management systems. Its 184 signatories, which include BlackRock, UOB Venture Management and UBS, are required to publish an annual disclosure statement.

Even as regulatory clarity improves, the “temptation” of short-term gains will remain strong, says Matta. “We have to continue to push for industry standards and benchmarks that establish credibility and consistency for impact investing.”

“Impact-washing exists — no question,” says Hari Balkrishna, portfolio manager at American investment firm T Rowe Price. “How you prevent it is by creating a very robust framework to actually assess and analyse the impact, and [by] being as transparent as possible with your clients on what impact means to you, and what the outcome of their investments actually are.”

Balkrishna oversees the Global Impact Equity Fund, which claims to invest in the world’s most impactful listed companies across various sectors. “We publish an impact annual report, which is effectively like opening up the hood and talking about every single stock that we own in the portfolio, and the impact that has resulted from investing in those stocks.”

Funds must apply “robust” methods of assessing impact, and not just believe corporates’ promises, he adds. “If a company says it is treating its employees well, [hence] it’s creating social impact — that is an example of a less robust way to analyse the problem. I would argue applying a materiality [and] measurability threshold, then creating a list of activities that qualifies impact is a more robust way to do it.”

The annual report is the fund’s “proof point”, says Balkrishna. “If we’re not able to tie something to a real-world impact or a key performance indicator, [investors] should seriously ask if that is an impact stock. If it isn’t, it’s probably impact-washed.”


Finally, as investors keep a close eye on impact-washing, Tom Hall, global head of social impact and philanthropy at UBS, is also concerned about “impact-hushing” among corporates. This phenomenon arises when parties are “too afraid” to even attempt to measure their impact, says Hall, “because they don’t want to be criticised for not being perfect”.

In the long run, impact-hushing does more harm than good, he argues. “If we don’t encourage people to start to measure, to start to share, how are we ever going to get to a place where we can get to the kind of holy grail that we envision as part of an impact economy, where you can actually transparently price and see the genuine social and economic value of people, and safeguarding the planet in all investment decisions?”

To start, Hall advises corporates not to “over-claim” their activities. “So, definitely don’t make a marketing pledge that says: ‘We’ve saved five billion lives for $2.’ Obviously, that’s nonsense, right?”

Speaking on the sidelines of the UBS Social Impact Forum Southeast Asia 2024 at Capella Singapore, Hall adds: “I think if we approach impact measurement with humility, transparency and an openness to learn and improve, then that will safeguard against impact-washing. It will also safeguard against impact-hushing.”

Those qualities may sound like a big ask for the financial industry, and Hall chuckles at this sentiment. “Look, I’ve been in the financial industry for a decade and I was in the non-profit sector for a decade. I think it’s a great industry, and people are really genuinely open to learning. We’re also driven by the demands of our clients and 95% of our clients said they want to use their wealth to solve big social and environmental problems.”

He adds: “The reason we’ve got 300 people in the room at this conference today is because they have that humility and openness to learn. Otherwise, they’ll just be off doing their own thing.” 

Photos: CIIP, ABC Impact, AVPN, T Rowe Price, UBS

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