Chairperson Weihua Ma Attended Seminar on Social Bonds and Impact Investing

On September 8, Chairperson of CASVI, Mr. Weihua Ma, attended "The Seminar on Social Bonds and Impact Investing" hosted by International Finance Corporation and Haier Financial Services China and made a keynote speech. CASVI joined the event as a partner. Below is a summary of Mr. Ma's speech at the seminar.

Sustainable finance, or sustainable investing and financing, includes financial services that positively benefit society and the environment. To achieve the 2030 Sustainable Development Goals (SDGs), the world could face a shortfall of USD4.2 trillion, according to the UN’s Sustainable Development Report 2021.

“Despite the investments from global governments and the donations from charities worldwide, we still need much more to fill the funding gap for promoting sustainable development,” Ma Weihua said, adding that bridging the SDG financing gap is vital for achieving the SDGs. New financial instruments, including social and green bonds, can fund sustainable development and promote sustainable finance.

Impact Investing is the Future

Humans have long explored using finance to deliver positive externalities, creating comprehensive value economically, socially and environmentally, said Ma. Apart from moral investing backdated to the 16th century, the last century has seen the emergence of responsible investing, ESG investing, impact investing, green finance and inclusive finance, among others. After years of efforts, people have realized that relying on governments and charities to solve complex problems after they occur should come to an end. Instead, every investment and economic activity must be watched from the very beginning to ensure it integrates and conforms to environmental, social and economic benefits.

“Although it seems a bit idealistic, we must reach such a consensus. Especially facing serious challenges at the moment, we may reduce problems as much as possible if we are able to do this,” Ma said, adding that the only way to address the current challenges and achieve sustainable development is to guide more people, funds and companies to recognize and focus on this issue.

He believes that impact investing is a trend that promotes the consideration of integrating economic, social and environmental benefits. Impact investing focuses on the “subjective intent” that produces a positive impact while striving for “financial return”, hoping to deliver both goals at the same time.

Additionally, investors need to carry out “impact measurement” to ensure real and effective impact. Using a range of indicators, such as the number of new jobs, the number of people lifted out of poverty, and the reduced carbon emissions, they can gauge the effect and improve the transparency of their investment.

As Ma mentioned at the conference, the world has seen rapid growth in impact investing, and China is catching up. According to the GIIN’s global survey, the size of the impact investing market reached USD715 billion as of the end of 2019. Although data has not been updated due to the COVID-19 pandemic, the astounding development in the past few years may have raised the number to more than USD1 trillion. Meanwhile, CASVI’s Sustainable Finance Concept Panoramic Report showed that China’s impact market grew to USD136 million in 2019 from USD18 million in 2017, soaring about 7.5 times.

In this context, Ma believes that Haier Leasing has played an exemplary role by issuing its first social bond, which was vigorously subscribed for by IFC, Asian Infrastructure Investment Bank (AIIB) and Sumitomo Mitsui Banking Corporation (SMBC). What they did was exactly impact investing.

The 200-million-dollar five-year social bond is expected to fund more than 500 social projects in health care, education, food security and sustainable agriculture, as well as to support China’s rural-based small and medium-sized companies and female entrepreneurs, thereby boosting health, education level and food safety, mitigating inequality, and supporting women’s development. The funds will also help achieve common prosperity and overcome difficulties during the pandemic.

Social Bonds: the Practice of the Idea of Impact Investing

Mr. Ma pointed out that social bonds, which implement and practice the idea of impact investing, are essential for mobilizing more social capital to close the huge funding gap in sustainable finance. However, China lacks experience in applying social bonds in more social sectors and needs to tackle challenges regarding issuance framework and evaluation methods, among others.

Since the outbreak of COVID-19 in 2020, social bonds worldwide have seen explosive growth, surging to USD249 billion (about RMB1.59 trillion) in 2021. As of June 2021, China has issued RMB1.54 trillion coronavirus combating bonds and RMB47.745 billion rural revitalization bonds (excluding local government bonds).

According to Mr. Ma, there are three highlights in Haier Leasing’s social bond.

First, IFC’s six-month guidance for the issuance created a systematic social bond framework and expanded social bonds’ application in China by funding health care, education, food and women.

Second, to ensure effective impact, the bond follows the ICMA’s Social Bond Principles and has specified the impact indicators in health care, education, food security and sustainable agriculture, among others, based on China’s realities. It has also been certified by mainstream international agencies.

Third, with the investment from leading international financial companies, including IFC, AIIB and SMBC, the issuance has opened the global market for China’s social bonds, expected to boost the mainstreaming of this emerging asset class at home and abroad.

The clock is ticking on addressing sustainable development challenges, Ma said, adding that promoting sustainable finance that focuses on the comprehensive impact of environment, society and economy is an effective means as well as the only way for us to achieve sustainable development.