Shenzhen, China, May 22 – China has something some other countries are missing: national policies for driving environmental and social impact.
In renewable energy, China’s government has gone bigger than anyone in recent years. In 2017, the country accounted for more than half of global spending on renewables. A “war on pollution” since 2014 has helped reduce chronic air pollution, at least around Beijing.
China’s president Xi Jinping is pushing a vision of an “ecological civilization.” Two of the top three goals through 2020 are keeping up the war on pollution and fighting acute poverty. The third, managing economic risk, also strikes an impact investment note, insofar as “impact” is a risk-reduction strategy and local governments look to share risks with investors as they struggle with accumulating debt.
China is the world’s biggest market for “payments for ecosystem services.” The country has also become the global leader in green bond issuance in a few short years.
But private investing in social impact is a concept that has so far been hard for many to grasp. The distinctions between impact investments and philanthropy, corporate social responsibility and low-level funding of social enterprises, which are becoming better understood in some countries, remain unclear to many in China.
Too few Chinese examples exist of investments that delivered both positive social impact and financial return. There’s little consensus on how to define and measure impact in China.
“It’s like sex in high school,” says Tao Zhang, founder and director of one of China’s few social impact investing consortiums, Dao Ventures. “The challenge is that there are a lot of people talking about it but few people doing it.”
The “overhype and lack of proven success cases could be detrimental” in China, he says. “You have to show them this works. You can’t just force this on people from a moral high ground.”
Nowhere does this confusion show itself more than in the slow uptake in China of “social impact bonds,” or SIBs. One social impact bond has been issued so far, in 2016, a 500 million yuan ($78 million) bond aimed at poverty alleviation in Shandong province. Issued by a local development bank as a fund for anti-poverty projects, it was fully subscribed by five national and regional banks.
In Shenzhen, the district government of Futian is developing policies (with plans released in In December and again in April) to make the district something of a social-impact investing pilot zone. The district is working on setting up its own social-impact bond, though an actual financial product could still be a year or more away. The local champion is He Jie, deputy head of the district, who spent 25 years with the Shenzhen Stock Exchange before joining the government.
Social impact bonds, sometimes called pay-for-success contracts, are not bonds in the technical sense, creating additional confusion. “Some bond market people don’t think social impact bonds and even green bonds are really new,” said Guo Peiyuan, chairman of SynTao Green Finance in Beijing. “They tend to take these as normal bond products with designated purposes.”
“We need to have common understandings on social impact bonds as well as more bonds of this kind that can illustrate these understandings,” Guo said. He added that too much of the discussion is being led by NGOs and not by investors, with too much emphasis on impact and not enough on investment.
The Shenzhen Innovation Corporate Social Responsibility Development Center (CSRDC), which has partnered with Columbia University Business School on workshops for entrepreneurs to introduce the basics of social impact investing, is now working on a mini-MBA degree in impact investing, as well as a training program for financial advisors from banks on how they can become philanthropy advisors.
The group is also in the process of setting up a fund — possibly by the end of 2018 and called First Spark Fund — with the Futian government that could serve as a showcase for the district’s ambitions as China’s impact investing hub.
Dao’s Tao said many individual investors express interest in impact investing, “but they can be easily distracted by mainstream business activities.”
“They have a wait-and-see attitude. They want to see how to exit from those companies, see what the returns are, how to have a positive impact and financial return,” he said. “They want to see the results.”