Recent years have seen more Chinese companies put a premium on creating social values when they make investments, and the trend is likely to continue, observes a banker.
Editor's note: Continuing our series on impact investing, we nail an interview with Ma Weihua, the former head of China Merchants Bank. As a vocal proponent of impact investing, he explains how investments that seek to improve society while making a profit can help alleviate poverty and benefit the country as a whole.
Impact investing aligns with China's current development principles of sustainability, and the nation will become a major player in the arena, renowned banker and philanthropist Ma Weihua said.
Ma Weihua, who retired from China Merchants Bank and is now the chairman of the China Global Philanthropy Institute, delivers a remark at its EMP (Executive Management of Philanthropy) 2019 Spring Cohort Opening Ceremony. Provided to China Daily.
Ma has become one of the most active advocates of impact investing in China, delivering over 50 speeches on the subject since last year to charity institutions, financial professionals and government officials.
"Impact investing is an innovative combination of finance and philanthropy," he told China Daily, explaining that the term refers to investments with both a positive financial return and a measurable favorable impact on society and the environment.
As a fighter from the fiercely competitive financial field, he applauds the logic behind the concept. Ma had been the president and CEO of China Merchants Bank for 15 years, transforming the once-local bank with only 30 employees into the sixth-largest on the mainland.
He said he was contributing to charity then, making donations to schools and disaster areas, but it was not until he devoted himself totally to charity work that he realized more sufficient and sustainable tools than donations are required as the nation's economy and society progress.
After he retired from CMB in 2013, Ma became board president of the One Foundation, the first private charitable fundraising organization in China.
One of the first changes he noticed in his new field of work was the low salaries. He saw that many employees were graduates from the world's top universities and would have earned much more if they had been working at financial institutions instead.
Under Chinese law, an employee's salary in a nonprofit organization is not allowed to exceed twice the local average wage. In fact, charity organizations usually adopt conservative attitudes to all kinds of earnings, such as putting funds in low-interest deposits, to avoid unnecessary misunderstandings.
"With the rapid development of science, technology and capital markets, it is inevitable that traditional philanthropy be transformed into a new, modern system," he said, adding that traditional charity tools need improvements and a way to achieve sustainable development.
It is under these circumstances that the concept of impact investing caught his attention in 2013 while at Columbia University as a visiting scholar. For Ma, it is a "very innovative" tool to solve the problem that China philanthropy faces.
He said it is in line with one of the core principles of China's development - sustainability.
In this year's Government Work Report, "substantive and sustainable outcomes that stand the test of time" are stressed as China enters a crucial stage in the fight against poverty. China has made historic progress in its combat against poverty. The number of people living in poverty decreased from nearly 100 million to less than 20 million from 2012 to 2018. The aim is to eradicate poverty by 2020, the target year to realize "a moderately prosperous society in all respects."
Ma pointed out that it has come to the most difficult point of poverty alleviation, and the biggest question to be addressed should be how to prevent populations that have been lifted out of poverty from falling back into poverty.
Quoting a Chinese proverb - "Give a man a fish, and you feed him for a day; teach a man to fish, and you feed him for a lifetime" - he said industrial poverty alleviation is the way to fundamentally end poverty, and which needs the support of finance.
CD Finance, a Beijing-based rural microfinance institution under the China Foundation for Poverty Alleviation and supported by an international impact investing fund, is designed to assist industry development in poverty-stricken areas. The institution has so far lent 45 billion yuan ($6.51 billion) to about 392,000 clients, more than 90 percent of whom are farmers. This example is one of his ideal cases of impact investing in China. "It indeed helped those people get rid of poverty and even become better off. It is the power of impact investing," he said.
Impact investing is also in line with the goal of transforming China's economic development from high-speed to high-quality, he added.
"Chinese society's principal contradiction is now the contradiction between unbalanced and inadequate development and the people's ever-growing needs for a better life," Ma said. "The government has invested a lot, but government investment alone is not enough, and we still have to rely on the concerted efforts of society."
For example, the demand of elderly care is urgent as there are only three beds for every 100 senior citizens, while Lvkang Medical Care in Zhejiang province aims to improve the situation, he said. The company's influence before was limited by the traditional mindset and charity tools, providing only 600 beds in the last 10 years, but after Ehong Capital's investment, the number was boosted to more than 10,000 in three years, making it one of the largest chain healthcare organizations in Asia.
The financial firm not only injected capital but also helped to form a strategy and expand operation ability. Ma disclosed the financial return was substantial - as high as 20 percent.
Social value-oriented firms are intrinsic to the power of solving social issues, and impact investing is an important strength to push forward their development, Ma continued.
Besides, he finds that Chinese companies paying growing attention to social value, and companies that promote social benefits are also performing well in China's capital market. He recalls CMB was one of the first 26 listed companies that released corporate social responsibility reports in the A-share market in 2007. The number grew to 851 in 2018.
The behavior is also recognized by investors. In the beginning of this year, China Alliance of Social Value Investment released "Social Value 99", a list of 99 A-share listed companies with high quantitative scores measured by their integrated performance on economic, social and environmental contributions. The index of these 99 companies has increased about 130 percent since 2013.
In addition, their five-year annualized return rate is about 20 percent, surpassing that of the CSI 300, SSE 50 and other major benchmarks.
He said it highlights the trend of capital, business and society promoting the greater good in China. While the concept of impact investing is just taking off in China, it has become an unstoppable trend in the world, he added.
According to a report published in April by Global Impact Investing Network, over 1,340 organizations currently manage $502 billion in impact investing assets worldwide, compared to only $10 billion in 2014.
Impact investing has become the biggest interest for him now, so he gives speeches related to the theme whenever he gets the chance. The notion has been well-received in China so far, which is very encouraging, he said.
He is also leading China Global Philanthropy Institute's research on the matter, which he regards as "one of the world's frontier issues".
As chairman of the institute's board, Ma helped to establish it with well-known Chinese and US philanthropists, including Bill Gates.
He believes the next step of impact investing's development in China is formulating an evaluation standard, and "Social Value 99" is an innovative attempt at this. It examines the aim, approach and action of a company's economic, environment and social benefits, as well as governance structure.
He expects such a standard will attract more people to join the course, especially those in the financial industry, and an ecosystem of impact investing could be formed in about a decade in China.
CHINA DAILY HK Edition 06/14/2019 page8