Ehong Portfolio Impact Outcome
Ehong Impact Management Framework
Principle 1 Guided by the Sustainable Development Goals (SDGs) of the United Nations, Ehong Capital Impact Management Framework (ECIMF) aims to make effective use of our capital to solve social and environmental problems. ECIMF sits at the core of our investment strategy.
Principle 2 The company implements ECIMF across the investment lifecycle, including sourcing, post-investment management, and exit. The company shall set up a framework to help portfolio companies establish impact objectives as well as monitoring metrics to measure their impact performance.
Principle 3 Our Investment Committee (IC) shall appoint one dedicated Impact Advisor to assess the impact created or projected by the target company and provides a formal impact report for the IC to approve. The Investment Management team shall allocate dedicated resources to consolidate the impact of portfolio companies and support Partners and IC to manage impact related matters. Investment Managers are responsible for monitoring and reporting impact progress achieved in due course. The Impact Advisor shall also provide supervision on post-investment management and exit.
Principle 4 The company shall only invest companies bringing visible, positive and significant contributions to society, innovation, financial sustainability, entrepreneurship and scalability, following the double bottom line principle.
Principle 5 The Company shall keep the Impact Management File for each investment. The Impact Management File shall explicitly include the definition of the key impact themes, quantified measurement metrics and impact objectives, and assessment on the probability, scalability, and potential risk factors of achieving the expected impact outcomes. The company shall regularly update the Impact Management File, and re-evaluate it as when necessary.
Principle 6 Investment Managers shall fully communicate and align with underlying portfolio companies on the impact objectives, implementation and management measures. These impact requirements shall be formally documented in the Investment Agreement.
Principle 7 Investment Managers shall monitor the underlying companies’ impact progress, aiming at maximizing their positive impact during post-investment management. Should major changes occur to the underlying companies, particularly under circumstances when significant operational changes take place, new round equity injected, or new strategic partnerships introduced, Investment Managers shall encourage the underlying companies to adhere to the agreed impact objectives and measurements, and prevent them from deviating from their impact goals.
Principle 8 The company shall mitigate and prevent potential negative impact caused by the underlying companies. Should negative impact occurs, Investment Managers shall consult and explore solutions with portfolio companies. If the negative impact could not be eliminated, or is worsen, the Company shall execute relevant punishment clauses in the Investment Agreement.
Principle 9 The Company shall assess and make exit decisions on timing and buyer balancing achieving impact sustainability against financial returns.
Principle 10 The company shall review impact outcomes after exiting investments, and compare the difference between the actual impact and projected impact. Based on the experience and lessons learnt from impact review, the company shall adjust and improve investment procedure, methodology, and post-investment management.
Principle 11 The Company shall regularly disclose the impact report and, if necessary, engage third-party consultants or non-profits to verify the impact report of the Company or underlying portfolio/project(s). Investors have the right to access the Company’s impact report and relevant documents.
What is Impact Investing
Impact investments are investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return
Characteristics of impact investing
- INTENTIONALITY An investor’s intention to have a positive social or environmental impact through investments is essential to impact investing.
- INVESTMENT WITH RETURN EXPECTATIONS Impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
- RANGE OF RETURN EXPECTATIONS AND ASSET CLASSES Impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.
- IMPACT MEASUREMENT A hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.
Investors’ approaches to impact measurement will vary based on their objectives and capacities, and the choice of what to measure usually reflects investor goals and, consequently, investor intention. In general, components of impact measurement best practices for impact investing include
- Establishing and stating social and environmental objectives to relevant stakeholders
- Setting performance metrics/targets related to these objectives using standardized metrics wherever possible
- Monitoring and managing the performance of investees against these targets
- Reporting on social and environmental performance to relevant stakeholders
Environmental Impact Measurement Methodology for the Circular Economy Investment Practice
Waste management and circular economy have been the focus of Ehong Capital’s impact investment themes in recent years. Around this impact theme, Ehong has invested in the comprehensive treatment of industrial, agricultural and household waste, and the portfolio companies have created significant environmental impact while achieving sound financial returns.
Starting from the 3R principles and the three principles introduced by the Ellen MacArthur Foundation, which are generally accepted in both China and other major economies, the “Environmental Impact Measurement Methodology for the Circular Economy Investment Practice” report analyzes and summarizes the common characteristics of Ehong’s portfolio companies in the field of circular economy, elaborates the impact metrics that fully reflect the basic principles of circular economy, and finally focuses on the two core metrics: “Greenhouse gas emissions reduced (tonnes)” and “Improved resource utilization efficiency (%)” while introducing their calculation methods.
The circular economy involves a wide range of sub-industries, and there is a lack of summary and synthesis on the environmental impact of the circular economy domestically and internationally. For example, the GIIN IRIS+ metrics system, adopted by mainstream impact investors in the world, primarily only focuses on the protection and comprehensive utilization of water resources in the circular economy. Therefore, the circular economy impact framework and metrics system proposed by Ehong is exploratory, and some of the conclusions are premature, aiming to start the conversation in the field and provide some reference for peers while discussing the environmental impact in the circular economy.
UNDP Sustainable Development Goals
The Sustainable Development Goals are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate, environmental degradation, prosperity, and peace and justice. The Goals interconnect and in order to leave no one behind, it ís important that we achieve each Goal and target by 2030.