China Global Philanthropy Institute (CGPI) was founded by five Chinese and US philanthropists, including Bill Gates, committed to fostering a knowledge system and think tanks, including talents from the financial sector, to support the development of philanthropy in China and the world. (PHOTO PROVIDED TO CHINA DAILY)
China is expected to grow into the largest impact investing market in the world, and many foundations have taken note of the concept or already put it into practice.
However, there are still few players in the financial industry with their fingers on the pulse of the growing trend. Experts in charity fields are calling for more professional financial participants.
The phrase “impact investing,” coined in 2007 by the Rockefeller Foundation, refers to investments made with the intention of generating positive, measurable social and environmental effects alongside financial returns.
"We need to wake up professionals in the commercial and financial sectors so that they can weave impact investing into the fabric of their investment and company management decisions."
--- Fu Changbo, Associate President,
China Global Philanthropy Institute
According to a report published in April by Global Impact Investing Network, over 1,340 organizations currently manage US$502 billion in impact investing assets worldwide. About 64 percent of these organizations are asset managers, and 21 percent are foundations.
In comparison, the majority of investments with clear guidance of their respective social effects are from foundations, according to a 2016 report by the China Development Research Foundation.
“The main battlefield of impact investing in China now should shift from philanthropy to the financial sector,” said Fu Changbo, associate president of the China Global Philanthropy Institute (CGPI) and a professor in the School of Sociology at Beijing Normal University.
“The impact investing opportunity is a market need that the government has yet to put its finger on, and that ordinary companies have neglected,” Fu said, while acknowledging that such business opportunities are difficult to find. He said it would be even more difficult if there were no commercial institutions participating in finding such market needs.
In addition, impact investing also needs more participation from people with sufficient capital resources and from high-net-worth individuals who can afford possible failures and will be more willing to take risks, he said.
“We need to wake up professionals in the commercial and financial sectors so that they can weave impact investing into the fabric of their investment and company management decisions.”
The institution is making an effort to put the seed of philanthropy in the mind of business people through education. Its Global Philanthropy Leaders Program (GPL) has enrolled 60 students since it started in 2015. It is the first philanthropy program in the country targeting China’s high-net-worth individuals.
But the number is still small compared to its Executive Management of Philanthropy (EMP) Program, offering nonprofit management and philanthropy training for nearly 500 students.
The institute is also working on a series of textbooks dedicated to impact investing, which is expected to be published later this year. In addition, it holds several international and regional forums with the theme of impact investing each year, aiming to spread the idea in China.
“On the international stage, the financial industry is leading the trend, but in China, the most heated discussion of impact investing is in the charity circle,” said Huang Xiaoshu, executive chairman of International Social Impact Investment Club and one of the EMP students at CGPI.
Ma Weihua, center, chairman of CGPI and one of the most prominent bankers in China, attends the launch ceremony of the International Social Impact Investment Club in Shenzhen in November last year. (PHOTO PROVIDED TO CHINA DAILY)
She is trying to bring more professionals from the financial sector in her club and a foundation she is operating. “Sustainable development of charity foundations needs financial tools. At least, we should not resist it, but try to learn about it and be prepared to cooperate with financial institutions,” Huang said.
About five years ago, she started her first foundation project in Shenzhen. “At that time, we know too little about financial tools, so we played it safe, putting the fund of 60 million to 70 million yuan (US$8.9 million to US$10.4 million) to conservative financial products, like fixed-term deposits or other products with principal capital guaranteed,” she said.
But for the management of a new foundation she is preparing now, she said the team actively considers taking full advantage of financial tools.
One of the most popular tools is trust products. In 2016, the nation released its charity law, outlining the application of charitable trusts. Since then, the number of registered charitable trust products have spiked from 22 to 136 by the end of January.
She also hopes to hire more professional talent in the financial field and set up a dedicated financial commission.
A problem she mentioned is the income gap between the financial and charity industries, adding that sustainable development of charity organizations itself is intrinsic to the solution.
Another way to encourage more participation from capital sector is to connect them with starring social enterprises, especially high-tech startups, she said.
The direction is one of her club’s focuses.
Knowledge gap a setback
Some pioneers from the financial line have already begun. Shanghai-based Ehong Capital, one of the earliest private equity management companies specializing in impact investments, is committed to investing in social enterprises, innovative and entrepreneurial teams, while avoiding some industries, including fossil energy, tobacco, alcohol, and even online games.
Its average investment cycle is reportedly about 6.9 years, and the average annual rate of return is about 30 percent.
“The difficulty is the lack of standardized evaluation structure for investees’ social influence, including the pre- and post-investment period,” said Zhang Bohui, director of the Research Center for FinTech and Social Finance at the Shenzhen Finance Institute.
“Most fund managers in China are graduates in finance-related majors, so they know little about charity work and tend to use the same method of regular investment cases in impact investing,” Zhang said. “But the problem is the two aren’t equivalent.”
Social returns are most complicated than numbers, he added.
Another factor affecting Chinese financial organizations’ rare practices in impact investing is that the government provides relatively comprehensive public services, he added.
He said the education institution has opened a business ethics class, a subject related to impact investing and a requirement of the Association to Advance Collegiate Schools of Business. The school is one of the 18 mainland business schools recognized by the AACSB.
They are also planning to hold sustainable finance forums, and one of their aims is to spread the concept of impact investing in financial circles.