Chinese investors warming up to impact investing, but regulations slowing progress
International money is still the driving force when it comes to investing to achieve positive social and environmental outcomes
Chinese investors are showing increasing interest in start-ups with innovations that tackle energy consumption, social and climate change issues, but the main force behind such so-called impact investing remains foreign firms and supranational agencies, according to fund managers.
Regulations in China that prevent foundations established for non-profit reasons from using their funds to invest into for-profit businesses are one hurdle, while fund-of-fund managers, and family offices in China are only just starting to take note of impact investing.
Speaking at a private equity conference in Beijing, Amanda Zheng, principal at China Impact Ventures – which focuses on early-stage investment into energy technology in China, said there are social enterprises and charitable foundations in China that are keen on allocating capital to her fund, but which have run into regulatory issues.
“These foundations have a lot of green projects on their agenda, but many of them are still struggling with regulations,” she said, adding that similar restrictions do not exist in markets such as Hong Kong.
“For impact investing in China, the major investors are still international players,” she said.
Impact investing aims to generate positive social and environmental outcomes alongside a financial return, and can include areas such as education, affordable housing and services that promote financial inclusion.
China Impact Ventures works with foundations including the Shell Foundation, the World Bank Group, the Asian Development Bank and the DBS Foundation to grow Chinese energy technology companies it has invested in. These include firms that use technology such as artificial intelligence, the internet of things, big data and software to improve energy efficiency.
Eric Wang, managing partner at SinoGreen Fund, a venture fund that has invested over US$1 billion in the past eight years in early-stage, green tech companies, told the conference that while interest in impact investing among fund-of-fund managers and family offices in China is growing, their investments still pale in comparison to those made by supranational agencies.
“I have seen some newer investors … they are now putting impact investing as criteria for selecting a venture capital general partner. You don’t have to trade off impact investing with return,” he said.
“For our fund, another category of investors in impact investing is companies, which see such a mandate fitting with their corporate strategies,” said Wang.
One of the companies that SinoGreen Fund has invested in is a start-up whose technology enhances the energy density of batteries used in electric vehicles so that they can run for longer. The Chinese government has a goal of new-energy vehicle sales of 7 million by 2025.