An increasing number of Taiwanese investors are using private capital for public good. TOPICS spoke with three leading figures in the cause.

Two decades ago, Taipei’s Dadaocheng area was seen by many as a neighborhood in decline. But recent efforts by the Taipei City Council, the National Development Fund, and private investors have helped breathe new life into one of the city’s oldest neighborhoods.

After many of Dadaocheng’s distinctive neo-baroque and Japanese colonial-style buildings gained historic listing status, landlords – often from families who have lived in the area for generations – could access grants to renovate their properties. With reinvigorated charm, the area is now bustling, attracting new businesses like coffee shops, stores, galleries, restaurants, and boutique hotels.

“We started paying attention to the culture of the past, and it has paid off,” says Harvey Huang, who runs OrigInn Space, a coffee shop and B&B located in the neighborhood. “We are in a good place compared with the recent past.”

A lesser-known part of this story is the enabling role played by investors. In 2011, the social enterprise Sedai Group started transforming 10 shophouses in Dadaocheng into a hub for youth entrepreneurship, with more than 50 shops focusing on craftsmanship, arts, and culture. The influx of entrepreneurs heavily aided the area’s revitalization.

The project was made possible by Taiwanese systems-change firms SIMFO and Omplexity, which partnered with the Sedai Group and the National Development Fund, helping the former to raise funds for the venture. It was a prime example of the social and economic power of impact investing.

The term “impact investing,” coined in 2005, encapsulates a shift toward rigorously measuring both the financial and socio-environmental performance of capital. At the heart of this concept lies a profound alignment of investors’ values with their financial endeavors. The strategy aims to address pressing global issues such as climate change, inequality, and health disparities by targeting companies, organizations, and funds that promise financial returns as well as measurable benefits to society and the environment.

Leading the charge in this movement are institutional investors, pension funds, endowments, and even the Catholic Church under the guidance of Pope Francis. Impact investments span a diverse array of sectors – renewable energy, affordable housing, healthcare, education, microfinance, and sustainable agriculture – and operate across asset classes like private equity, debt, and fixed income in both emerging and developed markets.

In Taiwan, impact investing expert Ray Chen is a pioneer of the concept. He is not only a co-founder of sustainable nonprofit B Lab Taiwan but also the founder of B Current Impact Investments, Taiwan’s first impact venture capital firm. Established in 2014, B Current dedicates 100% of its resources to fostering social innovation by connecting entrepreneurs with socially conscious capital. The firm has established five impact funds and invested in over 23 startups focused on climate tech, sustainable agriculture, healthy lifestyle, and the inclusive economy.

After attending the 2018 Asia-Pacific Impact Investment Workshop in Seoul, organized by the Global Steering Group for Impact Investment (GSG), Chen was encouraged to start a Taiwan chapter of the organization, bringing together like-minded investors on home turf.

“GSG was encouraging each country to establish a so-called NAB – National Advisory Board for Impact Investment – so we were inspired by that,” says Chen. “Korea established an NAB at the event, and we returned to Taiwan thinking about how we could participate in this international organization.”

Because of Taiwan’s lack of international recognition, however, establishing an official NAB proved impossible. “We realized maybe we should start from scratch,” Chen says. In 2019, he joined forces with DK Wu, a finance veteran whose belief in impact investing is so strong he wrote a book on the concept in 2018.

The result of the duo’s joint efforts was the Taiwan Impact Investing Association (TIIA), founded in 2020 by around 70 individuals. TIIA, which functions as a GSG task force in lieu of national status, is housed in the Social Innovation Lab (Silab) in Taipei’s Da’an District. Founded by the Small and Medium Enterprise and Startup Administration under the Ministry of Economic Affairs (MOEA), the Silab exclusively hosts companies and organizations that focus on one or several SDGs.

Last year, the MOEA hosted a briefing on its Social Innovation Action Plan 2.0, which includes investments of NT$11.1 billion to support public-private partnerships and the development of social innovation organizations. However, proponents of impact investing suggest there are deeper pockets to dig into to support such causes.

“Because we believe that the private sector has the most powerful resources, we want to really mobilize it and channel it to the impact sectors, including businesses, government, NGOs, and social enterprises in the process,” says Chen.

Bang for the buck

Rather than focusing on environmental, social, and governance (ESG) factors – an increasingly popular emphasis among companies – impact investors evaluate potential projects based on whether they work toward achieving the United Nations’ 17 Sustainable Development Goals (SDGs).

“ESG investments are about investing in good companies,” says Chen. In contrast, “by focusing on the SDGs, impact investments not only fund good companies but also accelerate progress toward a better society.”

While the focus on social and environmental factors might raise questions about profitability, these concerns seem unfounded. A 2020 survey by GIIN shows that 70% of investors found the financial attractiveness of impact investing to be comparable to other investment strategies, and the majority considered risk-adjusted market-rate returns to be achievable.

Like traditional venture capitalists, impact investors worldwide have seen a return on their investments. According to a 2023 report by M&A platform DealRoom, impact companies worldwide represent an accumulated worth of around US$2.4 trillion. Asia, where the concept is still relatively novel, represents around US$8.9 billion – or just about 0.4% – of this sum.

Impact investing has also generated an impressive number of unicorns – rapidly scaling and tech-enabled companies with a valuation of at least US$1 billion. Since 1990, more than 250 impact companies have become unicorns, and the growth development of impact investments is projected to generally follow that of traditional venture capital.

TIIA’s Wu says that to measure, manage, and evaluate investments, TIIA and its members promote Impact Measurement and Management (IMM) tools. “We’ve learned this from global players, including GSG and GIIN, or the Global Impact Investment Network,” he says. “We try to make society aware of these tools and teach people how to use them to evaluate and measure impact and avoid greenwashing or whitewashing.”

For impact investing to be effective, Wu says three characteristics are required. The first is “patient capital” – investors must have the patience to think long-term. The second is “smart money,” or investments spent on the most effective efforts. The third characteristic is a focus on shared value.

But here comes the crux – “If you are patient, you’re not smart,” Chen posits. To tackle this challenge, B Current started by using crowdfunding methods, asking a greater number of investors to put equal amounts of money into a project. “That way, investors could be reassured that they were sharing the risks with others.”

Each B Current investment will see one of the investors act as a representative who engages with the social entrepreneurs responsible for the project and is part of the board of directors.

“That differentiates us from other commercial venture capitalists,” Chen says. “Our investors are also willing to invest their time. Other VCs usually send young investment managers to the board, but we can invite very senior people.”

With the aim of expanding Taiwan’s impact investment community, TIIA holds the Taiwan Impact Investing Forum each fall, inviting domestic and international speakers and practitioners. The 2023 edition was the largest such event in Asia, sponsored by heavyweights like CTBC Financial Holding, DBS Bank Taiwan, Cathay Financial Holdings, Allianz Global Investors, and PwC Taiwan.

“Overall, Taiwanese society is still in the mode of learning about impact investment,” says Wu. “So for the past three years, we’ve focused on getting best practices, knowledge, and trade benefits to different stakeholders.” He adds that because 2023 marked the midpoint for the SDGs, last year’s forum focused on accelerating efforts to reach the goals in time for their 2030 deadline.

Throughout the year, TIIA also holds follow-up events, inviting people from industry and government to engage in topics. In the future, the association hopes to involve foreign representative offices and chambers to connect Taiwan further with the international community.

“Among the most important words in impact investment is ‘collaboration,’” says Wu. “People in this world are generally interested in helping each other’s growth.”

Disrupting the system

According to Joe Hsueh, co-founder of SIMFO and founder of Omplexity, the best use of private funds for the public good is grounded in two concepts – impact investing and systems change. Since its founding in 2018, SIMFO has worked to promote the latter through educational efforts that cultivate assisted leadership, which Hsueh contrasts with top-down authoritarian leadership.

In October, SIMFO concluded a systems-change incubator program in collaboration with the Lung Yingtai Cultural Foundation. The civic-centric foundation sponsored 30 students aged 15-30 who worked on environmental and social issues that included circular economy, waste, and generative farming. In collaboration with the U.S. Environmental Defense Fund, SIMFO has also mapped out blue carbon pathways to find ways to sequester carbon emissions in the ocean.

“The first step we take is to evaluate whether a project has potential for systems impact,” says Hsueh. “Is it a critical issue facing mankind? The second step is to evaluate whether the right enabling conditions are in place. To enable a systems change, you need committed people because it’s not something you can do very quickly.”

“Committed people” includes an existing network that lacks funding and a group of investors dedicated to the cause, Hsueh says. SIMFO’s role is to bring these groups together and help them plan a project that will bring effective change.

One such example is a project in which Omplexity advised Nike on how to create a shoe with zero toxic chemicals. Realizing that this was not a single-company issue, Omplexity engaged the entire value chain and came up with a systems-change strategy that involved all stakeholders. Once completed, the project map was donated to the Sustainable Apparel Coalition, comprised of 300 leading companies, trade associations, NGOs, and academic institutions.

The big vision for Hsueh is to scale further in shifting private capital from traditional investment to investments that bring on systems change. Just as with any other investment, he emphasizes due diligence. Investors should consider whether they are focusing on the correct issue, identify the root cause, pinpoint where the leverage lies, and assess the sustainability of the enterprise.

“Wealth holders have a unique role to play in society,” says Hsueh. “They have a responsibility to do good with their money. But that responsibility is also an opportunity to be a change catalyst by integrating resources, philanthropy, investments, and businesses to create enabling conditions for solving big issues together.”