Jul 04, 2018 04:47 PM

Opinion: China Must Nurture Impact Investing

In impact investing, there are two goals. One is to pursue financial returns. The other is to have a quantifiable, significant and positive impact on society. Impact investing is in line with the development, coordination, green, open and shared-development concept that China’s high-quality economic growth needs. Impact investing in China is still in its infancy and needs support from society. The social benefits of impact investing are obvious, while the financial returns of the investments are long term. Investing institutions need to anticipate the expectations and risks of their returns on investments. We need to create a system to cultivate impact investing and help investors manage risk.

We must create a system for impact investing and continue to promote impact-investing funds, making impact investing a feature of the philanthropic and investment communities, and create investment and finance instruments to teach people to behave in a good way.

In Futian, a district of Shenzhen, the government has begun to promote social impact investing and build a system for social impact investing. On Dec. 3, during the Global Social Finance Forum & 2017 Social Impact Investing Summit, Futian district issued the “instructions of Futian District on building a social impact investing system.” On April 12, the local government issued “measures to build an impact investment system” and implemented the previous opinions to issue policies for further improving social impact investing and promoting the development vision of “building a global social impact investing environment and public welfare financial center in five years.”

At the same time, under the guidance of the Futian district government, 75 financial institutions, nonprofit organizations and enterprises from home and abroad launched the “Global Social Impact Investing Consensus,” or Xiangmi Lake Consensus, calling for investment to become a force to pursue good. The institutions’ goal is to use business to solve social problems and support the development of five social impact investing formats: the development of social impact bonds, the establishment of several social impact investment guidance funds, the development of charity trusts, and support for social enterprises and related intermediary organizations in an effort to encourage responsible investment.

We generally believe that social enterprises aim to solve social problems through business by improving communities, the environment and people’s lives. This innovative model that combines market and nonprofit goals has flourished in the United Kingdom, the United States, South Korea, Singapore, India, Hong Kong and other places. According to the “Social Enterprise: Market Trends 2017” report released by the U.K.’s Department for Digital, Culture, Media and Sport and its Department for Business, Energy and Industrial Strategy, 9% of Britain’s small and midsize enterprises are social enterprises. That means that the U.K. has 470,000 social enterprises that have created 1.44 million jobs.

In China, social enterprises need to be combined with our country’s circumstances. In addition to companies, there are many institutions in our society, such as social organizations, state-owned enterprises and private institutions that participate in the social governance system. Our scholars combined the experience of domestic and overseas social enterprises with the situation in China, and put forward the concept of social enterprise that fits our national conditions. For example, Zhao Meng, a professor at Renmin University of China, suggests that “social enterprises’ goal is to solve social problems, and they are able to identify the opportunities brought by the failure of the government and the market. The way they solve problems should be different from traditional charities. They must have mechanisms to ensure their business activities do not harm society.”

That is to say, “social enterprises use social entrepreneurial measures to solve problems, while their social goals remain the same.”

After 10 years of development, China’s social enterprises have gradually formed their own systems and models. They have gradually matured in terms of industry alliances, cultivation, certification and policy advocacy. We believe that social-enterprise certification is key to promoting the development of social enterprises. It not only provides a definition and standard for social enterprises, but also can enhance the public’s understanding of social enterprises. This raises the profile of social enterprises among the government, which encourages the latter to direct resources to social enterprises. So, we urgently need to expand the scale of social enterprise certification.

Our social enterprise resources are not only limited to the certification of institutions. That is just the tip of the iceberg. We need to let investors and the public see the impact of Chinese social enterprises. What they represent is far more than innovation and investment — they are the driving force for promoting social and economic development.

Ma Weihua is chairman of the board of the China Global Philanthropy Institute and former president of China Merchants Bank.

Translated by Howard Liu

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