SOCIAL IMPACT INVESTMENT INTERNATIONAL PERSPECTIVES AND SUGGESTIONS FOR VIETNAM Nguyen Tltuy Lỉnh - Richard G Seymour *Introduction - Motivation of the study Together with the state, the fast development o f the private sector and private equity markets have contributed to an average o f 7.5% economic growth per year in Vietnam since 1993 However, the Base o f the Pyramid (BoP) stills consists o f over 70% o f the population in Vietnam(WRI and IFC 2007) Despite Vietnamese efforts to improve health, education, and poverty reduction, the Human Development Index (HDI) o f Vietnam continues to fall below the regional average According to the 2010 HDI Vietnam stands at number 133 o f 160 countries overall, ranking well below the average for most East Asian countries and only just above Lao and Cambodia (UNDP 2010) According to the World Bank, there is about 23% of the Vietnamese population in the poverty threshold line o f USD 1.25 per day, 51% of the population in the poverty threshold o f USD 2.00 and 73% o f the population in the poverty benchmark o f USD 3.00 in 2005(WB 2005) Vietnamese povertv rates in rural and urban areas show a remarkable variance, with rural poverty reaching levels over five times higher than those o f rural poverty in 2006 In Vietnam the rural population accounts for 70% o f the total population and a majority o f this population is employed in the agriculture and fishing sector Data accumulated from the Vietnam General Statistic Office (GSO) shows that 54% of the employed population is in the agriculture and fishing sectors and 26% in the manufacturing and trade industries Within the agriculture sector, which employs the majority o f the labour force, workers earn onlv around USD 2.00 per day Almost half o f V ietnam 's labour force is in the poverty line by international poverty standards although they have jobs (Jongh et al 2010) Practice and literature inform that impact investors and social entrepreneurs are working earnestly in the past decades toward the same objective: finding a way to create social impacts while generating sustainable financial returns from their *■** The University o f Sydney Business School, The University o f Sydney, Sydney, Australia 430 S O C IA L IM P A C T IN V E S T M E N T IN T E R N A T IO N A L business and investment initiatives These dual impacts are expected to make the slobal market fairer and beneficial to all reduce poverty, and contribute ways to solve social problems that our world encounters (Dees 1998; Bornstein 2004; Austin, Stevenson and Wei-Skillern 2006; Harding 2004; Leadbeater 1997; Nicholls 2006; Steyaert and Hjorth 2006; Muhammad 2007; Thornley and Dailey 2010; O'Donohoehoe et al 2010; Thornley et al 2011; Arosio 2011; Burkett 2012) Although there has been a common agreement among international organizations, investors, entrepreneurs, governments, and individuals around the world that impact investing is one o f the innovative solutions to resolve problems that both developed and developing countries have been facing, it is still at a nascent stage of development, and has not been established a formal infrastructure, language, theories to progress well (see example in Senate Economics References Committee, 2011; Freireich & Fulton, 2009; O'Donohoehoe et al., 2010) These challenges are being manifested in the sectors’ difficulties to scale to meet potential social investment demand, the failure of many social investments (Thomley et al 2011) and a lack o f ‘best practice’ to inform the sector (Arosio 2011) What’s more, a lack o f empirical research makes it very difficult to mitigate these challenges and failures Though social impact studies have been set in large developed economies such as the United States (Olsen and Galimidi 2008; Emerson 2000), United Kingdom (Nicholls 2009), and Australia (Armstrong 1982; Commission 2010), and in large emerging economies such as India (Dhesi 2010; Fan and Hazell 2000) and China (Fan and Hazell 2001) very few research projects have been conducted in middle-size emerging economies such as Vietnam (Nguyen et al 2012) Therefore, the exploration o f social impact investing in Vietnam is highly needed This paper presents an exploratory analysis o f impact investing from the state o f play o f this phenomenon in the international context generally, and in Australia particularly It then provides an overview o f the current status o f impact investing in Vietnam business context A discussion o f what international experiences could be adopted in the circumstance o f Vietnam is presented * Defining ‘Impact investing’ Impact investing, has been defined by different institutions so far According to the Global Impact Investing Network (GIIN) “Impact investments are investments made into companies, organizations, and funds with the intention to generate measurable social and environmental impact alongside a financial return Impact investments can be made in both emerging and developed markets, and target a ranee o f returns from below market to market rate, depending upon the circumstances Impact investors actively seek to place capital in businesses and 431 VIỆT NAM HỌC - K Ỷ YÉƯ HỘI THẢO QUỐC TÉ LÀN THỨ T funds that can harness the positive power o f enterprise” This definition describe impact investment in broad domain, in which capital could be put into any entity that can generate both financial and social values However, the term “ impact investing” in this paper focuses onlv investment project that is created byimpact investors’ capital allocation into social enterprises Tablel: Spectrum of investment market Type of capital funding Screening Overall Objectives Social Responsible investing Basic compliance, high impact organizations, organizations with potential Expected social impact Impact investing Philanthropy (Donating/ charity/aid) to scale Full Maximize impacts, with no regard to financial return Social impact first, then seek a positive financial return Financial return, screen for ESG, av o id n eg a tiv e Traditional investing (commercial) i Financial only (basic regulatory compliance) impact - - _ Significant High social impact with some financial return — Some None High financial return with some social impact Maximize profit with no regard to social impact Source: Based on A Spectrum of Investor Institutions and Factors Related to their Activities (Emerson 2003); The spectrum of market (Walsh 2010) Impact investing is also referred to as “social investment’', “impact investment", “social impact investing” Impact investing is occasionally confused with a more established type o f investment, social responsible investment (SRĨ) and philanthropy The core distinctions between these two investments are identified bv a number of studies (O'Donohoehoe et al 2010; Burkett 2012) SRI tends to avoid negative impacts by investing into companies that strongly integrate environmental, social, and social governance (ESG) in their policies, and at the same time, staying away from industries such as tobacco, alcohol, weapons, gambling and other sensitive businesses (Mackey, Mackey and Barney 2007) This can be contrasted with impact investing which focuses on investments that proactively generate both positive social and financial returns as well as keeping ESG policies strictly (Arosio 2011) Impact 432 i SOCIAL IMPACT INVESTM ENT INTERNATIONAL investing can be distinguished from philanthropy as financial return is not considered and expected in philanthropy (Burkett 2012) Positive impacts and financial returns are the core criteria in decision making process o f impact investors (Burkett 2012) Table 1reviews the spectrum o f various types o f capital funding and distinguish impact investing with other types investment that are better established * Overview of impact investing and social enterprises in Australia Like other developed countries in the world, Australia encounters a complicated mixture o f long-term challenges These include a growina and ageing population, increasing pressures on the health system, as well as an environment vulnerable to climate change These serious issues will put considerable pressure on Australia's economy, government finances and living standards o f the Australian people over the next 40 years (Australia 2010) The Australian Government considers impact investment to be one o f their essential instruments in bringing about environmental, economic and social change Impact investment is also seen as one part o f successful and diversified economic policy framework which enabled Australia’s economy withstand to the global financial crisis (Sherry 2010) By focusing on fostering sustainable economic growth; mitigating effects o f extreme climate change and solving other critical social issues, the Government has developed and delivered sizable impact investment initiatives and projects in the last few years including the new National Health and Hospitals Network, the Community Development Finance Institutions Pilot (CDFI Pilot), and the Social Enterprise Developm ent Investment Fund (SEDIF), the Government's social housing initiative, the National Rental Affordability Scheme (NRAS), the National Building Plan, Jobs Fund, the Innovation Fund, The Australian Carbon Trust, National Com pact between the Australian Government and the Third (or not-forprofit) Sector, Private ancillary funds etc According to the Centre for Social Impact (201 la), the potential scale of the capital market for social investment in Australia could be about AUD 10 billion, with AƯ D billion in managed funds and a further AUD billion in superannuation funds In addition, more than AUD billion o f investment assets o f the Private Ancillary Funds will allow AUD 150 million to be annually allocated to eligible social economy organisations contribute to the growth o f the market(Centre for Sociallmpact 2011b) The Australian Centre for Philanthropy and Non-profit Studies and Social Traders (2010)reports that there are up to 20,000 social enterprises operating in Australia The social enterprise sector in Australia is described as diverse, sustainable, and mature with social enterprises operating in every industry o f the Australian economy (Jo Barraket et al 2010) Social 433 VIỆT NAM HỌC - KỶ YẾU HỘI THẢO QUỐC TÉ LÀN THÚ T enterprises in Australia have been providing diversified services to contribute to the economy growth, and at the same time, meet wide range o f social needs However, in the same situation with other countries, social enterprises in Australia are in need o f appropriate seed funding and capacity enhancement to prosper sustainably (Senate Economics ReferencesComittee 2011) There has been a growing interest in Impact Investment in recent years in Australia, which has been illustrated both in practice and growing studies o f this field Impact investment has been discussed from diversified perspectives including: general exploration o f the phenomenon by Charton (2009), private investment to help Indigenous disadvantage by Gunya (2007), private investment into affordable housing by J Lawson et al (2009), the development o f a capital market for the not-for-profit sector in Australia by the Senate Economics References Comittee (2011), and finance for non-profit sector (Burkett 2011) Australia has a rich history o f approaches that create social and economic value For example, cooperatives and mutual have played a significant position in building communities and the way the Australian people business Although there has been creative and considerable participation from mainstream financial institutions, non-profits, and intermediaries in the development o f social impact investment to date, substantial growth o f practice in over recent years has been catalysed by government(Burkett 2012) * Brief overview of social enterprise & impact investment in Vietnam In 2011 there were around 200 social enterprises in Vietnam These enterprises have different forms including associations, clubs, co-operatives, companies, and centres(Council, CSIP and Spark 2011) They are located in 25 out o f 63 cities and provinces o f which Hanoi and Hochiminh City have 68 and 22 social enterprises correspondingly The 200 social enterprises have a total registered capital o f 204 billion VND (equivalent approx USD Ỉ million), and total asset o f equivalent to approx USD 40 million In a country with a population o f 90 million people, the size o f social sector appears small and could be scaled to contribute to resolving many environmental and social issues o f a developing country as Vietnam (Nguyen et al 2012) Social enterprises in Vietnam are portrayed as small, not well situated for growth given the poor and basic understanding o f social enterprise, resources, capital, and connection with supporting organizations or intermediaries (Council, CSIP and Spark 2011) However, social enterprises in Vietnam have made a substantial contribution to meeting social needs and solving numerous social issues They are reported to 434 SOCIAL IMPACT INVESTMENT INTERNATIONAL employ over 8,500 people of whom approximately 3,000 are disadvar.taged (handicapped, HIV/AIDS infected patients, orange agent victims etc.) In 2010, Vietnamese social enterprises have created a total profit o f around USD 3.3 million A large proportion o f this profit is reportedly re-invested to expand the organization's activities (Center for Social Initiatives Promotion 2011) Through education, training and skills development, social enterprises have made significant contributions to poverty and hunger reduction, life stabilization, and raising ir.come (Council, CSIP and Spark 2011) The sector is receiving limited recognition and action in Vietnam, both from government, economic sector, and other stakeholders Nguyen et al (2012) argue the key challenges inhibiting the growth o f social sector in Vietnam are that: (i) Vietnam does not have official acknowledgement and legal framework to support social investment activities; (ii) investment for social enterprises is not entitled to Government tax incentives; (iii) regulations on receiving grant for non-commercial activities are not clear, causine confusion to various stakeholders; (iv) low capability o f current social enterprises in Vietnam, which limits them from gaining investment from a professional social investor; and (v) disbursement channels, intermediaries, state management mechanisms and a lack o f transparency fail to encourage financial markets for social enterprises * What international experiences can be applied in the Vietnam context? This section explores how impact investment has worked in practice in other economies and what experiences can be adopted in the context o f Vietnam The experience o f u.s, U.K, Australia and other countries show that government plays a crucial role in fostering the development o f impact investing and attracting capital into the market (Burkett 2012) According to the Senate Economic References Committee (2011, p 234) ‘G overnm ent does have an important role in catalysing the market and the NRAS, CDF1 p ilo t and SED IF initiatives are exem plars o f a ‘going f i r s t ’ a p p roach’, which has played an important role creating the foundation for the development o f Impact Investment field Other studies also share this point o f view, such as ‘someone needs to go first’ in the work o f O'Donohoehoe et al (2010), or government has the impact of assisting the market development at the early stages as well as testing the market in the discussion o f Thornley et al (2011) Therefore, it is essential that the government o f Vietnam to take this important role in the development o f impact investing industry by providing seed funding, favourable leeal frameworks and tax incentives for social enterprises and impact investors over time 435 VIỆT NAM HỌC - KỶ YÉU HỘI THẢO QUÓC TẾ LÀN TH Ứ T International experience also identifies that it will be more challenging to convince investors to invest in social enterprises, which are usually seen as “inefficient, ineffective, and unresponsive” (Dees 1998) while investors are uncertain o f what social returns are generated and how they are measured from their investment As a result, it is crucially important that social enterprises in Vietnam, similarly to social enterprises in many other countries, should find wavs to enhance their capacity to be efficient, effective and “investment ready” when opportunity arrives any Additionally, it is important to recognize and promote intermediaries in the impact investment sector because they can help to create, balance and connect the capital supply and demand sides o f the market (Comittee 2011; Burkett 2012) Intermediaries have substantial influence in the development o f social impact investing sector in the u s , for decades and more recently in Ư.K and Australia (Burkett 20 Ỉ2) Intermediaries are especially important in emerging markets like Vietnam, where impact investing is at its nascent stage o f which social enterprises lack both capital and capacity and investors are still exploring the market, intermediaries not only help to seek capita! for social enterprises but also help to enhance capacity and help social enterprises to be “ investment ready” because they often “play an active role in advising the companies, either directly through fund staff or indirectly through outside experts who are brought in to increase the companies’ level o f knowledge and market readiness’ (Benjamin, Rubin and Zielenbach 2004, p 39) Moreover, the growth o f impact investment into social enterprises appears to be limited by the inconsistent social impact measurement systems and tools While participants (social investors and social entrepreneurs) recognize the need to have a commonly accepted metrics for evaluating social impact am ong stakeholders, social entrepreneurs and investors share no common and consistent understanding of what to measure, why and for whom to measure, let alone how to measure (Rockefeller and GoldmanSachs 2003; Clark et 2004; Vanclay 2001; Maas 2009) As a result, the social sector in Australia as well as in many other countries are working to develop a measurement framework that is expected to work for all stakeholder in the field Vietnam could benefit from taking a common approach to develop a robust measurement framework for the social sector Experience suggests Vietnam needs a shared vision, common understandings and combined efforts among stakeholders (the government, impact investors, social entrepreneurs, intermediaries etc.) to support impact investment into social enterprises 436 SOCIAL IMPACT INVESTMENT INTERNATIONA Reference Armstrong, AF 1982, First directory o f australian social impact assessment University of Melbourne, Parkville, Victoria, Australia Responsible research 2011, Impact investing in emerging markets, (Arosio, M), Austin, J, Stevenson, H & Wei-Skillern, J 2006, 'Social and commercial entrepreneurship: Same, different, or both?', Entrepreneurship theory and Practice, \ol, 30, no 1, pp 1-22 Commonwealth of Australia 2010, The intergenerational report 2010 - austral ia to 2050: Future challenges, (Australia, Co), Benjamin, L, Rubin, JS & Zielenbach, s 2004, 'Community development financial institutions: Current issues and future prospects', Journal o f Urban Affairs, vol 26, no pp 177-195 Bornstein, D 2004, How to change the world: Social entrepreneurs and the power of new ideas, Oxford University Press, Oxford Foresters Community and NAB 2011, Finance and the ausỉralian not-for-profit sector, (Burkett, I), Sydney, Australia Australian Governement - Department of Education, Employment and Workplace Relations 2012, Place-based impact investment in australia: A literature review exploring opportunities fo r place-based impact investment in australia, (Burkett, I), Knod, Australia British Council, Center for Social Initiatives Promotion, Spark 2011, Final report Vietnam 201Ỉ social enterprises mapping project, (Center for Social Initiatives Promotion, C) Charton, K 2009, Does profit belong in the social investment landscape?' 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Centre of Social Impact,