AVCJ Private Equity and Venture Capital Report - Southeast Asia

Sustainability is here to stay

Sustainability, ESG, and social and environmental impact seem well on their way to mainstream considerations in Southeast Asian private equity. At some GPs, it is now core to the investment process.

“We’re very much focused before we invest on ensuring there is alignment to get a health and safety manager into the business and that the founder is willing to invest in the required standards,” says Michael Octoman, COO at Southeast Asia-based Navis Capital Partners. “There is some cost upfront, but the benefits come out when you have fewer accidents and higher productivity from your employees. It’s a test of the business partner and his ability to work with you.”

Melissa Kang helped raise Morgan Stanley’s first global impact fund before striking out on her own with Southeast Asia-focused Jupiter Impact Partners. “After six years of research, it was clear to me that the region offered interesting opportunities for impact investing,” she says. “China, India and Indonesia are the three biggest contributors of carbon dioxide emissions globally. Asia’s share of health issues and food safety issues is off the charts, much larger than its population share globally.” She notes that impact investment in Southeast Asia already reached $12.1 billion by 2017, according to the Global Impact Investing Network.

“There will be more first world unicorns, but there are many stakeholders now on the internet who weren’t there before – farmers, micro-SMEs, the rural poor,” avers Khailee Ng Managing Partner at 500 Startups. “They are the next billion users wanting products and services, so that’s where we will find large, unsolved problems.” He helped form ImpactAim Indonesia, an accelerator program run by 500 Startups and the UN, which took nine companies into its first batch.

Circulate Capital, a Singapore-based investor dedicated to stemming plastic waste pollution in South and Southeast Asia, has reached a first close of $106 million for an ocean protection fund. “We are able to reduce nearly 50% of the world’s plastic leakage by investing in the waste and recycling sector in Asia, and even more if we invest in innovative materials and technologies,” Rob Kaplan, CEO at Circulate, said in a statement. “This is why we are here in Singapore – a strategic hub of Southeast Asia – to prove that investing in this sector is scalable for the region and can generate competitive returns, while moving closer to solving the ocean plastic crisis.”

International investors are showing interest in such propositions, but their interest is in many cases relatively uninformed. “A lot of international investors are surprised by how large and young Southeast Asia is. Most of them have been focused on China, India and maybe Japan,” notes Kang. “Broadly speaking, investors can be divided into two groups. The first group has experience of impact investing and it hasn’t necessarily been a good experience in terms of financial returns. The second group has no experience, but I don’t think you need a designated impact strategy to make investments. Do they want to target growth areas that are underserved or where there is a dislocation of capital? If so, impact investing is very interesting. Having a contrarian view gives you a better chance of creating alpha.”

“The opportunity sets we are pursuing happen to map very well to impact investing. We can become a feeder for impact investors, whether that means we launch an impact fund, whether we ensure all our funds have good impact measurements, or whether we work with LPs that want more in terms of ESG [environment, social and governance] and impact,” 500 Startups’ Ng adds. “Impact is going mainstream. In two years or so, there won’t be any form of VC without impact measurement.”

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