Impact investing: Investments that drive change

Impact investing

Currently, impact investing is gaining attention in Indonesia as one of the ways to address complex issues related to climate change, equitable development, and social welfare. These challenges require us to innovate in order to find solutions. As outlined in the Sustainable Development Goals (SDGs), these diverse issues cannot be solved solely through policies. It requires seriousness, attention, and collaboration to discover the right innovations and approaches to tackle these pressing problems.

Impact investing is expected to provide the attention, seriousness, and foster the collaboration needed to address the challenges at hand. Impact investing is an investment activity with the goal of achieving returns while maximizing social and environmental impact. It takes a different approach from traditional investments, as the investments made prioritize measurable changes in social and environmental impact.

Based on data obtained from the Global Impact Investing Network (GIIN), since 2022, impact investing is estimated to have a market size of USD 1.664 trillion in Assets Under Management (AUM). With this substantial market size, it is hoped that Indonesia can leverage this potential to increase impact investments in the country. This potential has the capacity to make a significant impact on issues such as social inequality, environmental protection, and providing sustainable funding access for SMEs.

One of the issues that impact investing aims to address is climate change. Based on the COP26 targets, which strive to keep the global temperature rise below 1.5 degrees Celsius, impact investing becomes a key player in confronting the challenges of climate change. Impact investing practitioners play an active role in allocating funds to projects and initiatives focused on carbon emissions reduction, the development of renewable energy, forest preservation, and climate change adaptation.


Distribution of investments in order to transform the energy sector by 2030

Source: Bhattacharya et al., 2016; Global Commission on the Economy and Climate, 2014

Impact investing in Indonesia

The challenges faced by Indonesia in the realm of impact investing include raising awareness among all stakeholders about the concept and benefits of impact investing, government regulations, the readiness of sustainable SMEs to receive investments, and sustainable SMEs’ access to available capital. In addressing these challenges, the active participation and collaboration of various institutions become crucial.

Indonesia, through the Earth-Centered Economy Coalition (Koalisi Ekonomi Membumi or KEM), a collaborative initiative aimed at preparing Indonesia for impact investing, has launched the Sustainable Investment Guide (SIG). SIG contains information and steps that sustainable business practitioners can take to ensure the development of their businesses considers social and environmental impacts. SIG can also be used by investors to have a common terminology and measure of progress with business practitioners to help determine the extent of the social and environmental impact that can be generated from investing in sustainable businesses. This guide is accessible to all parties and can provide insights into how impact investing can drive sustainable economic development, environmental preservation, sustainability, and governance.

Despite the existence of guidelines supporting the development of sustainable businesses, sustainable SMEs often face challenges in accessing funds. It is evident from MenkopUKM’s data that there is a significant financing gap, where as many as 69.5% of SMEs cannot access bank credit. MenkopUKM also states that “many venture capital firms actually want to enter SMEs, but the mismatch of values and the absence of business plans owned by SMEs are the main obstacles for this to happen.” Additionally, not all types of funding are suitable for sustainable businesses. At times, traditional funding sources may be reluctant to support sustainable businesses, hindering them from achieving their sustainability goals.

Impact investing for Equatora Capital

Supernova Ecosystem, through Equatora Capital, is committed to addressing the challenges faced by sustainable businesses in preparing themselves to receive impact investments. Focusing on Nature-Based Solutions (NBS), an innovative approach that relies on the potential of nature and sustainable ecosystems to address environmental and social issues, from various jurisdictions, Equatora Capital provides a range of services aimed at supporting the growth of sustainable businesses.

One of the services provided is access to funding for sustainable businesses, such as working capital loans, convertible debt, and equity. By offering a variety of funding options accessible to them, Equatora Capital aims to assist sustainable businesses in achieving their sustainability vision. Moreover, Equatora Capital directly invests in sustainable businesses that align with the values of the Supernova Ecosystem.

For Equatora Capital, impact investing is not only about financing but also about the readiness of sustainable businesses to manage and operate their ventures effectively. This is a crucial aspect to ensure that the investments made can achieve the desired outcomes. With this in mind, Equatora Capital also provides capacity development focused on governance for sustainable businesses. This service is intended to cultivate sustainable businesses with strong, reliable, and professional governance, facilitating their access to additional funding and gaining trust from investors.

Through this approach, Equatora Capital aims to be the right partner in accelerating the growth of sustainable businesses in Indonesia.

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