Kathy-Thuy Nguyen, country director of Impact Investment Exchange (IIX) in Vietnam. Photo: IIX
Vietnam has called on investors to accelerate impact and innovation investment in order to help it meet its future development demands, according to Vu Quoc Huy, director of the Vietnam National Innovation Center under the Ministry of Planning and Investment.
Echoing Huy’s viewpoint during an investment promotion seminar held on April 20, delegates agreed that impact investments have both contributed to economic growth and improved standards of living in many Asian countries, saying that Vietnam could be next in line.
Future potential, current lag
While innovation has captured considerable attention from the government in recent years, impact investment is still a novel concept in the Vietnamese business scene.
According to the Global Impact Investing Network, impact investing is a “rapidly growing industry powered by investors who are determined to generate social and environmental impact as well as financial returns.”
In 2022, Alfonso Garcia Mora, vice-president for Asia and Pacific at the International Finance Corporation, wrote an op-ed for Nikkei Asia which pointed out that the number of Asian investors with a dedicated environmental, social, and governance (ESG) function rose to 46 percent from 21 percent in just two years.
Still, Mora noted that investors from these regions still have a long way to go as they seek to boost impact investments.
According to Kathy-Thuy Nguyen, country director of Impact Investment Exchange (IIX) in Vietnam, impact investment in the country is at a nascent stage.
During a recent discussion with Tuoi Tre (Youth) newspaper, Nguyen said that the lag in impact investment growth was due to the lack of a sustainable ecosystem which could help the sector mobilize and unlock private capital for impact businesses in the country.
In particular, there are certain sustainability issues and climate-related risks which need increased investment in order to be addressed, particularly in the agriculture industry and in the Mekong Delta region.
There is a significant concentration of women and underserved communities with inclusion challenges for micro, small, and medium enterprises (MSMEs), as well as social impact businesses, she said.
On the upside, Nguyen noted that Vietnam has great potential for impact investing to blossom.
The country is one of the most dynamic in the world and is considered as the fastest-growing economy in Asia.
The gross domestic product growth rate in 2022 was 8.02 percent, expected to fall only slightly to 6.5 percent in 2023.
Amongst the country’s strengths are the size of its market, 100 million people, its highly entrepreneurial and innovative workforce, and a young population which accounts for almost 70 percent of its labor force.
The Southeast Asian country also attracts significant investment from abroad, including foreign direct investment capital focused on high-tech and high-value-added sectors.
Considering this landscape, Nguyen believes experience and expertise from investment firms and organizations with impact orientation like IIX could help Vietnam unlock its true potential.
The potential of PIIs
According to Son Nguyen, an associate at IIX and the Vietnam market lead of Impact Partners, one of the problems within the current impact investment ecosystem is that enablers in Vietnam are disintegrated and fragmented.
These enablers include government ministries and agencies, research groups, capacity-building organizations, third-party service providers, and international donor agencies.
“In addition, most Vietnamese social impact businesses are inexperienced in raising capital from foreign investors and are not ready to absorb private capital due to low confidence, a lack of reporting standards, and low English capabilities,” said Son.
Son Nguyen, an associate at IIX and the Vietnam market lead of Impact Partners.
A recent study, ‘The Advance of Impact Investing in Southeast Asia’ carried out with support from Investing in Women, an initiative of the Australian government, divided impact investors into two major groups: private impact investors (PIIs) and development finance institutions (DFIs).
According to Son, Vietnam has attracted about US$1.6 billion in impact capital since 2012, but the majority was deployed by large DFIs.
Meanwhile, PIIs have cumulatively invested just over $28 million in 29 deals in Vietnam over the last 10 years.
Look at Southeast Asian neighbors: PIIs have invested more than $234 million across 105 deals in Indonesia and over $184.6 million in the Philippines across 66 deals.
“This implies that the potential for PIIs is huge in Vietnam and that social impact businesses will have more capital options for their growth journey,” said Son.
Son also explained that PIIs provide flexibility for social impact businesses in terms of ticket size, as some businesses in their early stages need capital to grow before they are mature enough to apply for investment from DFIs.
In addition, PIIs can provide different types of financing vehicles like equity, debt, and quasi-equity.
Catalyst for change
Son expressed his belief that the era of risk-return alone is long gone.
“Now we are moving to the era of risk-return-impact,” he said.
After the COVID-19 pandemic, “there is growing recognition that a new norm is taking shape—one defined by global interdependence, mutual obligation, and an urgent demand to democratize health, equitability, and community resilience,” Son said.
“In reality, this new norm has been a long time coming.”
Son highlighted that MSMEs need to demonstrate environmental and social impact in order to adjust to this new norm, thus allowing them to grow more sustainably in an increasingly interdependent world.
While customers nowadays are becoming more mindful of ESG topics, investors must consider the impact of their traditional risk-return formula to direct capital with the purpose of addressing today’s global challenges and diversifying their investment portfolios.
Nguyen from IIX suggested MSMEs could benefit significantly from the trend since impact companies possess effective impact assessment tools, are cognizant of who they are working with, and maintain high standards of accountability and transparency.
For this reason, she does not think impact orientation is as burdensome for businesses as some believe.
“IIX has been supporting impact investment for more than 14 years in different countries around the world, and we are expanding our efforts in Vietnam with the same approach and values,” she said.
To date, IIX’s work has spanned 53 countries, unlocked $288 million worth of private-sector capital, positively impacted over 159 million direct and household lives, and avoided over 1.83 million tonnes of carbon emissions.