As a tool of social finance, impact investments are made with the intention of generating positive, measurable social and environmental effects alongside a financial return. Such investments, consistent with sustainable development goals, are a product of combining public welfare and finance, and also represent a new type of investment to achieve high-quality growth.

At present, developing impact investments has become a universal trend worldwide. According to research conducted by the Global Impact Investing Network (GIIN), investors committed $10.6 billion to impact investments in 2014, and $228.1 billion in 2017.

GIIN's latest report released on April 1 has shown that impact investments have reached $502 billion across the globe so far. However, due to the absence of a uniform standard, the actual amount of impact investments is estimated to be much higher than the current figure.

China is not a pioneer in impact investments, but a fast runner in developing them. China has witnessed a soaring number of A-share listed companies publishing corporate social responsibility reports - from 26 in 2007 to 851 in 2018. Also, major Stock Exchanges in China have requested or advocated enterprises publish similar reports.

The MSCI KLD 400 (formerly the Domini Social Index/KLD 400) was created to be an apple-to-apple comparison to the S&P 500 Index, but with a broad range of social and environmental screens incorporated. For more than 20 years it has outperformed the S&P 500.

Likewise, China has a Social Value 99 Index for the 99 A-share listed companies from the Shanghai Shenzhen CSI 300 Index with the highest scores for their economic, social and environmental contributions. The Social Value 99 Index has achieved a cumulative increase of 129.89 percent and recorded an annualized rate of return of 20.5 percent in the past five years, outperforming benchmark markets indexes including the SSE 50, CSI 300 and CSI 500.

It has become a consensus in China that companies should not focus solely on economic performance, but also produce positive benefits for society and the environment.

China has shifted its focus toward high-quality development from high-speed expansion, and impact investments will be a significant for this transition.

In fact, it is fair to say that the government has invested a lot to promote more balanced and adequate development and meet people's ever-growing needs for a better life, but relying on the government alone is not enough.

Many of our public products are inadequate and more investment is need in education, social welfare, and medical care. For instance, there is a huge demand for elderly care services. At present, there are only three beds for every 100 elderly people in China, and the imbalance between supply and demand urgently needs to be addressed.

Relevant government departments in China have issued policies to encourage the development of the eldercare industry through an NGO plus enterprise mode. A case in point is a Hangzhou-based institute dedicated to early care and old-age rehabilitation. It had only 600 beds in the past 10 years. However, it has grown to more than 10,000 beds after the intervention of impact investment institutions, thus becoming the largest nursing service institution in Asia with impressive social and financial gains.

Peter Drucker, known as the "Father of Modern Management Theory", observed that many social issues could turn into profitable business opportunities and might be completely resolved in the end.

To solve numerous complex social issues, enterprises represent a tower of strength that cannot be ignored, and impact investments are the important capital strength to help solve these issues.

Meanwhile, impact investments are in line with China's proposed Five Major Development Concepts - innovative, coordinated, open, green and sharing - and meet the requirements of China's high quality development.

To be innovative, impact investments should not only focus on social benefits, but economic gains. Social benefits referred to here are more than virtues or feelings, but the combination of industrial investment and public welfare.

To be coordinated, impact investments should pursue not only active financial returns but positive social influence. Such kinds of social influence should be quantifiable, and represent a coordinated overall contribution of pursuing economic, social and environmental benefits.

To be open, impact investments should represent a new trend for international investments. That requires international exchanges and two-way capital flows. As China has not only adopted bringing in but going out policies. Chinese impact investment funds have already played an active role in countries involved in the Belt and Road Initiative.

To be green, impact investments should have quantifiable and measurable impacts on the environment and society.

To be sharing, impact investments should focus on vulnerable groups and be committed to improving the life quality of those at the bottom of the pyramid.

The impact investing market offers solutions to make the world a better place and everyone involved can share the fruits together.

The author is former president and CEO of China Merchants Bank and is a council member of Shenzhen Finance Institute.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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