PH hotbed for ‘impact investments’

Macroeconomic stability, a conducive regulatory environment, an increase in local consumption and growing recognition of social enterprises as drivers of development—these factors have made the Philippines the second largest market in Southeast Asia for impact investments, or investments that seek both social impact and financial return, says a report recently published by the nonprofit Global Impact Investing Network.

According to “The Landscape for Impact Investing in Southeast Asia,” between 2007 and 2017, at least 23 private impact investors (PIIs, which include fund managers, family offices, foundations, banks, pension funds, plus other investors that channel private capital into impact investments) deployed over $107 million into 54 deals here in the country, while six development finance institutions (DFIs—government-backed financial institutions that provide private sector with monetary support for investments promoting development) also deployed over $2.3 billion in impact capital through 43 deals in the same time period.

Such numbers have made the Philippines the second largest market for impact investments in the region, next to Indonesia. Such investment trends were also analyzed in Brunei, Cambodia, East Timor, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam.

The report says impact investors need to meet three criteria: 1) they have the intention to create positive social or environmental impact created through their investments; 2) they expect some financial return; and 3) they are committed to measuring the social and environmental impact created through their investments.

Here in the Philippines, the 23 PIIs are divided into 19 fund managers, three family offices/foundations and one impact-focused high-net worth individual. The majority of the deals were made with companies under the financial services sector (54 percent), typically to increase microfinance institutions’ exposure or support fintech firms, the report says.

This was followed by workforce development (15 percent), agriculture (13 percent) and energy (11 percent).

It is the energy sector, however, which received the highest amount of capital at $63 million, the majority of which went into large-scale deals to develop geothermal and solar energy capacities.

As for DFI deals, the majority of investments went into the financial services and energy sectors.

Key factors in the Philippines’ impact investing ecosystem which enable a supportive environment for such activity include:

Business support, particularly the growing startup ecosystem;

Improving innovation and research and development, as the country gained seven places year-on-year on the Global Innovation Index, landing 73rd place last year;

Increasing consumption of local goods and services, which drives the country’s gross domestic product growth; and

Encouraging government policies, such as attractive fiscal incentives for investors, relaxed restrictions on foreign ownership, favorable regulations for small and medium-sized enterprises and increasingly formal recognition of social enterprises as agents of positive change.

The report also identifies areas in this ecosystem with issues that need to be addressed, such as:

Lack of access to human capital due to cost and limited availability of mentors, which hinders growth of social enterprises and business support providers;

High tax rates, which disincentivizes investments;

Lack of globally competitive infrastructure; and

A “nascent” entrepreneurial culture, which growth is being hindered the low availability of risk-tolerant capital, plus a “historical lack of cultural support for entrepreneurial activity.”

There is also much to be desired when it comes to gender lens investing (GLI), or “the practice of assessing and managing investments that seek to create positive impact on women,” here in the country. According to the report, as of last year, only one PII had deployed capital amounting to $12.5 million into 20 deals using an explicit gender lens.

The good news is that GLI has recently gained traction here in the Philippines and across the region, the report says, with three investors using an explicit gender lens scouting the countries for potential investees.

Many other impact investments have likely benefited women and girls, the report reads. “For instance, although DFIs don’t typically have an explicit gender-related impact mandate, a significant volume of DFI capital in the Philippines has been channeled toward investments that inherently benefit women and girls by providing them access to finance.”

The full report can be accessed at https://thegiin.org/research/publication/landscape-southeast-asia.