Impact investing goes a step further for positive gains

Could you shed some light on the development of Vietnam’s impact investing landscape over the past few years?

A decade ago, both impact investing and environmental, social, and governance (ESG) were extremely new concepts in Vietnam. Over the past 10 years, ESG has gained prominence in Vietnam, but impact investing is still unfamiliar for many.

To add to the confusion, these two terms are sometimes treated as the same. Well, what’s the difference? ESG means taking into consideration the three factors involved in investment decisions, for example avoiding certain industries such as tobacco or gambling, or considering the environmental footprint of your investee company.

Impact investing goes one step further than ESG in that it intentionally aims to generate a measurable positive social and/or environmental impact alongside a financial return. It’s part of a fund’s design and core investment strategy.

In 2024, Beacon Fund became more active with three investments - HSVG, Lotus Group, and CAS

Energy. What are the reasons behind these robust activities?

More than 90 per cent of all businesses in Vietnam are small- and medium-size enterprises (SMEs). Many of these have strong potential but do not fit in the hyper-growth profile that venture capital funds look for and are too small for private equity firms.

While startups are often in the spotlight, SMEs do not receive much attention from investors and the broader ecosystem. Beacon was founded to tap into this opportunity and provide more innovative financing products that better serve the needs of SMEs. Unlike most funds, we focus on debt financing, which can be a better fit for SMEs with strong cashflows.

This also removes the pressure for extremely fast growth and an ultimate exit. We believe our model – the first impact-focused private debt fund in the region – arrived at just the right time for the market. That’s what has enabled us to ramp up our investments over the past few months. We believe there is a strong pipeline of impact-driven companies in Vietnam for those who know where to look.

At a first glance, companies like Bo Cau Services (in the telecom infrastructure sector) and Lotus Group (in food and beverages) might not seem like typical impact investments, which people often assume need to be in sectors such as education, healthcare or agriculture. However, in reality, our latest portfolio companies already had an impact-driven mindset before our investment.

For example, the founder of Bo Cau does not view his company as just another commercial enterprise, but a vehicle to foster cooperation and upward mobility within society. As such, from day one, the company has made meaningful and intentional investments into the wellbeing and development of its team. We want to support and celebrate the ability of SMEs such as these to have meaningful and measurable impact.

What are the opportunities and challenges for impact investing in Vietnam?

There is tremendous opportunity for investors to back impact-driven business in Vietnam, but this might require them to adapt their approach, as we ourselves have learnt. Impact investors often complain about the lack of investible pipeline, while at the same time impact-driven enterprises often complain about how hard it is to raise capital. Both sides need to evaluate what they can do to meaningful close this gap.

On our part, it was launching a private credit fund that enabled us to access a whole segment of impact-driven businesses that we were unable to invest in before. Another innovation we’re proud of is our impact-linked structure, which enables our portfolio companies to unlock a lower cost of capital if they meet specified impact targets. I would love to see more of such innovation in Vietnam.

As for challenges, as mentioned, impact investing is still a relatively novel concept, so further education is still required to demystify it and help different actors understand how they can apply it practically. For example, our portfolio companies were often interested in but admittedly not that familiar with how to adopt global standards for impact management and measurement into their business.

We often work with our portfolio companies on these topics, such as building and implementing an impact roadmap and identifying ways to better measure and communicate their impact.

What are your recommendations for Vietnamese companies to build impact-driven business models and obtain capital from impact funds?

Businesses come in different sizes and shapes, and founders have different goals and motivations. Therefore, it is normal for them to have different pathways to success.

While at times there has been a lot of focus on fast growth, raising large amounts of capital and becoming a unicorn, nine times out of 10 this isn’t the most suitable path for a company. I encourage entrepreneurs to firstly be clear about their long-term goals and have faith in their journey despite pressure from the market. There is an increasing number of alternative funding options to support different types of companies with diverse goals. Secondly, remember that not every impact investor is alike. Each impact investor has different impact priorities and often different financial expectations as well.

In the same way you’d hope a potential investor would take the time to understand your goals and business carefully, take the time to understand what each investor is looking for and what types of financial products – as well as other non-financial support – they provide.

Quang Ninh province’s investment capital attraction achieved high results thanks to planning solutions, removing difficulties in clearance, and selecting new-generation foreign inflows.

Investment options that integrate environmental, social, and governance assessments remain scarce in Vietnam, yet they are drawing increasing attention from discerning investors.