Social impact investment international perspectives and suggestions for vietnam (2013) nguyen thuy linh, seymour richard g

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.
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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
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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

1......
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
1
...........

............... —

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

1

................. 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 7 billion in managed funds and a further AUD 3 billion in
superannuation funds. In addition, more than AUD 2 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
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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 do 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

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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.
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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 do 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 ai. 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.

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