Private capital essential amid changing policy environments – AVCJ Forum

In spite of rising economic nationalism in many of the world’s developed markets, investors said most policymakers are still interested in moving economic development to a more sustainable basis. Even the US withdrawal from the Paris agreement on climate change was predicated not on a rejection of environmental issues, but rather on the Trump administration’s desire to ensure other governments contribute their share, according to Kurt Tong, the US consul general for Hong Kong and Macau.

“It's not that the United States has given up the playing field,” said Tong. “But it is once again trying to pull the rest of the world along, using what might perhaps seem like a bit of a judo move, to have brought the entire world to the Paris agreement, made commitments, and to now demand more.”

For many investors, the US' reassessment of its commitments provides an opportunity for private capital to make the case for sustainable development on a financial rather than a philanthropic basis. Key to this approach will be the ability of investors to marry innovative technology, where US companies still tend to dominate, with the demand found in developing markets.

“The technology is often in one place, typically the Western world, and the opportunity is increasingly in the East and the South,” said Nicholas Parker, chairman of Parker Venture Management. “The problem is that the traditional VC or PE model is not purpose-built to go cross-border. It's inherently parochial and formulaic.”

As part of its departure from the traditional PE model, Parker’s firm tends to avoid exposure to institutional investors, which it finds tries to force managers into narrow investment channels. Instead, Parker Venture prefers to work with family offices, which can be more flexible regarding investment strategies.

Other industry participants argued that the VC model can be effective in meeting these challenges if it is properly utilized. 1955 Capital is specifically aimed at helping innovative US technology companies address the Asia market by providing connections with local corporate and government partners that they may not otherwise be aware of or know how to leverage.

“A lot of foreign entities go to US trade shows interested in a new energy storage technology, or a new agriculture yield improvement technology, and most of the American companies there have no idea that they just met the CTO of a $60 billion SOE [state-owned enterprise] from China that could propel the business into the stratosphere,” said Andrew Chung, founder and managing partner at 1955.

One key benefit to having private investors lead the way is that it reduces somewhat the need for government leaders to move the sustainability landscape forward – a necessary step given the political tensions in many Western countries at the moment.

“There's a danger in portraying responsible investment as something that's related to a particular political viewpoint,” said Paul Chandler, head of environmental issues at Principles for Responsible Investment (PRI). “We need to be clear that this is an inevitable shift: we are going to need to see a resolution to a number of the world's challenges, and private capital will be needed to step in and help with that.”

The AVCJ ESG Forum was co-hosted by AVCJ and the UN-supported Principles for Responsible Investment (PRI). For more information go to www.avcjesg.com.

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