Executive Summary

This executive summary is part of CASVI's Impact Investing for Sustainable Development report, originally published in Chinese. Parts of the report will be translated and published over the course of the next few weeks. You can check out our LinkedIn, Twitter or website for more updates.

Executive Summary

Impact investing are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return. Since the conference held in 2007 at the Bellagio Center in Italy, the concept of "impact investing" has gradually united a group of investors and philanthropists who do not endorse the traditional investments that neglect social and environmental benefits, and is not satisfied with responsible and ESG investing which only passively avoid social and environmental risks. As they have also discovered, pure philanthropy cannot solve large-scale and complex social problems. Therefore, there is a demand for an innovative investment method that can create positive externalities and promote sustainable development. This idea gradually gains more understanding and support and has brought the global scale of impact investing to estimated $715 billion by the end of 2019, according to GIIN.

Impact investing has also begun to gain its foothold in China. Several research reports explored impact investing in the Chinese context, including 2013 Social Enterprise and Social Investment Report by Yifang Foundation, China Social Enterprise and Impact Investment Report 2013 funded by UBS and written by multiple stakeholders, and China Social Enterprise and Social Investment Landscape Report in 2019 by Narada Foundation. Many pioneering domestic institutional investors such as Grass Capital, Mana Impact Fund, and BitsxBites are also engaging with impact investing to figure out its development pathway in China. There is a strong demand for impact investing coming from various angles: the government's requirements for finance redistribution and performance management, the market investors' attention on sustainable development risks as well as from the younger generation who seek express their social responsibility and personal values through consumption and investing.

Nevertheless, impact investing in China is still facing a multitude of challenges such as: lack of awareness from mainstream commercial investors, limited participation from the market, lack of discussion on materiality, a rather small scaled investment that focuses on early stage private equity, lack of consensus and absence of practive norms for impact investing, lack of communication with the international impact investors as well as an unclear pathway of development. Therefore, this report aims to provide ideas and possibilities for different actors in China to engage in material impact investing and find innovative strategies suitable for the Chinese market.

The report is divided into four parts. The first section discusses the existing consensus in the field of impact investing, including what constitutes material impact investments and the related practice standards, frameworks, and tools. The second section focuses on describing the market ecology, starting from the size of the impact investing market, and provides readers with a picture of the current state of the international market ecology, development trends, and new challenges. It also includes detailed information on how various types of institutions are involved. The third section provides a detailed review of the evolution of impact investing in the Chinese market and a positive outlook on the new ecological landscape after 2020. The fourth section comes to market practice, using case studies generated from desktop researches, interviews, and other sources to present the experiences, insights, and latest thinking of outstanding Chinese and international impact investing institutes.

This report contributes to answering the following four questions:

First, what is impact investing? This report provides a systematic and rigorous portrayal of impact investing. On this basis, it provides a comprehensive analysis of existing investment practices and market trends both domestically and internationally, aiming to help market participants to establish a basic consensus on the core elements and principles of impact investing and avoid possible problems such as impact laundering.

Second, what are the key experiences and lessons that can belearnt across the globe practice? The understanding of international markets can provide practical lessons for the long-term development of domestic markets. Therefore, this report is expected to help domestic practitioners find a suitable impact investment model for China by drawing on international experiences while reducing costs for trial and error or communication in the process

Third, what are the directions for the development of China's impact investing?Along with the frequent social and environmental crises, the year 2020 has stimulated humanity's unprecedented rethinking. In this aspect, the report reorganizes the development of China's impact investing market and provides an outlook for the future. These findings will help domestic market participants clarify their thinking and allow foreign investors to deepen their understanding of the Chinese market, and facilitate cross-border capital flows.

Last but not least, how could impact investing move from theory to practice? This report has interviewed pioneering actors in the global impact investing market to discuss key issues in the field, as well as China's possible developments in the future. These conversations will hopefully display the most practical and cutting-edge side of impact investing. Finally, the report also attempts to give concrete action recommendations based on our analysis, hoping to provide some reference for early pioneers to carry out impact investing practices.

Our research has found that a consensus is emerging from the global impact investing market. Countries, regions, and organizations have developed unique understandings and practices around the four core elements of impact investing - intentionality, financial return, asset class, and impact measurement - and recognize that they can pursue material impact investing based on additionality and Theory of Change. The scale of global impact investing is proliferating and this niche investment category has now reached a market size of approximately $715 billion, with a potential market size of over $36 trillion. Various key impact investment actors, represented by asset owners, asset managers, policymakers, and ecological builders, have accumulated rich experience in investment strategies, impact measurement, and creation of ecosystem, and have shown five major development trends, including: (1) funds are still one of the most active impact investment institutions, and a variety of financial institutions are actively entering the market; (2) top financial institutions are rapidly entering the impact market through mergers and acquisitions (3) the proportion of impact investment by investors through secondary market instruments has increased significantly, and the market is developing in-depth; (4) the market gradually recognizes that impact and social enterprises have essential intersection, but are not precisely the same; (5) the internal and external demand for impact measurement and management (IMM) continues to strengthen, prompting investment institutions to gradually improve and adopt more rigorous and mature IMM methods, tools and frameworks. When crises such as the COVID-19 is causing rampage around the world, the global market is rapidly turning around to sustainable development finance. For China, 2020 is expected to be the beginning of a massive growth period in impact investing.

This report will provide a framework for various institutional investors, third-party professional service providers, and policymakers to understand the materiality of impact investing and move from theories to practice. Besides, it would provide real-life examples for existing and potential impact investing practitioners. In addition, this report is intended to be a primer for researchers, readers, and social entrepreneurs to understand and explore impact investing. We would like to inspire more people to be interested in impact investing and join the cause of impact investing for sustainable development.

Doing Well and Doing Good, Investing for a Better World!