Impact investing with Chinese characteristics

Below is a complete transcript of the China Corner Office with Yijing Wang.

Chris: Hi, everyone. Thanks so much for joining us today on China Corner Office, a podcast powered by The China Project, the New York based news and information platform that helps the West read China between the lines. I’m Chris Marquis, a professor at the Cambridge Judge Business School. And today, we are joined by Yijing Wang, a Forbes 30 Under 30 awardee for her work on impact investing in China. We discussed the impact and climate landscape in China and how it has accelerated since China announced its 2060 carbon neutrality goal. Her impact investing advisory company is even named 2060 Advisory in nod to this goal. And we discuss how the mission of the company is contributing to China’s carbon neutrality, as well as addressing some of the interesting projects in carbon management and electric powerplant transformation that she and her team are working on.

Yijing is actually a former graduate of the Cambridge Judge Business School, where I’m on the faculty, although she attended before I started. So, we also talk about how her time at CJBS contributed to her later career trajectory. In particular, in her thesis, she examined the phenomena of impact investing with Chinese characteristics and how that compares with the VC and impact investing spaces in the West, such as in the Europe and America. We conclude the discussion with Yijing giving some valuable suggestions to the next generation who are inspired to move into the impact funds landscape. Thanks so much for listening and enjoy the show.

Chris: Yijing, welcome to the China Corner Office.

Yijing: Thanks so much for having me, Chris.

Chris: First, I want to ask you as a real early mover in the impact investing space in China. What motivated you to get in that area when you did?

Yijing: Sure. I think I was really lucky when I did my undergrad in London, where there was a lot of social enterprises and impact tech firms going on at the time. So, I was getting involved as volunteers and as interns in different roles and just really embraced myself in different ways of doing business and solving problems at the very core of different types of businesses. And then, I think, after my first job, where I was working on strategies for big corporates, I had this internal feeling of just you get satisfactions from being helpful to your clients, and then your boss would be happy because you did a lot of good stuff for your clients. But then, from time to time, I just have this strong feeling of like, there’s so many problems existed in the world. Why am I working on this to help them solve a random stuff, right?

I think combining everything, I then did research on a few weekends and realized there’s actually something called impact investing, where I could combine my passion, as well as really trying to figure out if there’s a different way of combining things and doing business differently. So, I guess that’s where I did that transition and where different dots connect.

Chris: One of the next, sort of stages in this, and I also wanted to ask you about our connection from the Cambridge Judge Business School, where I’m a faculty member and you’re a master’s degree graduate, I think that one of the things you did was you went and said, “Okay, I want to actually study this more systematically, map out the space, understand the models in Europe and America, and then potentially take them to China.” So, can you say a little bit about your move to Cambridge and what you learned during the program?

Yijing: I was really confusing around the time. And that was because I think years of working right in the field, in the center of happenings, where the industry was still so immature, so different pieces, and you met different types of organizations and individuals, but the whole industry is like organized chaos. So, I just had so many questions where I had to take time off from this field and to analyze things from a different angle. I guess that was why I did what I did.

It is actually really interesting because I went in with a goal of understanding, organizing my thoughts, answering my own questions of impact investing in China to Judge. I needed to answer all those things, but with more studies and with more debates with my professors, which are good and bad, one point I remember I was getting crashed. Because I was literally like, “Okay, there’s no point or no future for impact investing in China,” at one point. And you went through that entire journey of this is what I’m set myself to do. And then I was in a downhill valley where I was like, “Okay, this isn’t going nowhere. Why are we doing this?” And then coming back to be like, “Okay, I’m going to figure this out and see how this could work.” I think that’s what Judge gave me and I miss Cambridge a lot. Without essays, everything’s amazing.

Chris: Tell me about the essays. I know that one of the things that differentiates UK model versus the U.S. model is that [with a] Master’s degree, it’s basically mandatory to do a thesis. And so, you were in this Master’s degree in social innovation, which was a lot of practitioners, which you focused on impact investing. So, can you say a little bit about your findings from your thesis and how they then shaped what you ended up doing?

Yijing: I can talk about, especially a few key takeaways, looking from an outside China’s perspective, when people ask me, “How’s impact investing in China like?” I think, first of all, China does have impact investing. I think many people would be surprised by that point, where especially a lot of principle levels, the market is active and then we do have a good number of impact funds and also entrepreneurs active in the market.

And secondly, I think many differences [lead] people [to] think, “Oh, that doesn’t really count as impact investing.” I think we need to look at the differences of countries itself because many of the things that we look into is not only for impact investing. For example, some policy structures are not only different on impact investing. The whole investing market is different, and that’s very Chinese. So, you need to understand and look beyond that. Before anyone define or say, “Oh, that is not impact investing,” referring to one particular category of fields in China, I think people need to step back a bit and really look into how the Chinese investing structures is like first, and then to recognize if that is impact investing or not.

Thirdly, I think largely, which is a key finding and the reason for my research is really saying we need a new set of lenses to look at Chinese impact investing market. You need to look at this from a very ground-up level. What is happening in China? What are impact entrepreneurs like? What challenges are they facing? What opportunities do they have? While on the other side for investors is the same thing. Rather, I think, in my analysis, I think the first generation of impact investors where I define from the year of 2008 to 2018, many of them has used the term and impact investing as a very much imported definition and imported idea from U.S. and EU to China. And they’re using that lens to find what is there in China market to fit into that idea. And oftentimes you would find the conclusion is, oh, there’s not much. I think that has changed for the second Gen because you really need to understand how the market is like, how the policy structure is like, how Chinese entrepreneurs and investor is different from the West. I think these three things are the biggest differences.

Chris: A few things that stood out to me. I mean, one is that China has its own ecosystem and you should actually define things based on what’s going on, not always just take some sort of external model. It’s interesting to me, a few times you mentioned that maybe people don’t think impact investing is going on in China. I don’t know if that was any of your other professors at Cambridge were saying that, but I did a case study of Tsing Capital in 2010, which called itself a cleantech investment company. But really, it was an impact investing company. I mean, it was called cleantech, but one of the investments that I recall them doing was a company that processed food waste. And so here was an entrepreneur that saw this gap in the market where giant banquets in China, and there was a lot of wasted food. And like, okay, what can we do to actually make a more circular type of economy where that extra food could be put to use?

And this was one of the companies they funded. And the government actually, of course, doesn’t want extensive food waste. I mean, it creates a lot of problems for a lot of reasons. And so, the government invested in them, gave them a bunch of equipment. And that is an example of like impact investing right there happening before even 2008. I know that, that actually let food waste company was involved in servicing some of the Olympic venues in 2008, so I’m totally with you, but that’s something that is very different than the West would think of because it’s sort of an infrastructure service that has government support.

So, I really thought that was really interesting to hear how you came up with those three differences. One of the areas that I’m really interested in discussing with you is, you learned, wrote your thesis, wanted to do something really authentic to the situation in China, and you founded 2060 Advisory, focuses on China’s 2060 carbon neutral goals, which is obviously a hugely important government priority. Can you say a little bit about your founding of 2060 Advisory and what some of the mission is?

Yijing: I was after Cambridge, which was around 2020. Well, because of COVID, everybody was like, “You need to evacuate,” at the time. So, I came back home in Hangzhou near Shanghai in China, and I was finishing up with my research. And at the time, friends were reaching out to me and asked me to join different projects because they were like, “You’re doing business school and you’re free.” Literally, people think you’re really free. Though, I was working on side projects for different impact entrepreneurs while I was working on my final thesis, which were all impact related.

And after I finished my thesis, I then, quite naturally actually, founded 2060 Advisory because I think one, on my research paper, one of the key takeaways is there are different types of funding existed in China market, whether they’re institutional investors, fund of fund, family offices, individuals, foundations. There are different types of funding with all spectrums of purposes wanting to get into impact investing.

And then, on the other hand, there are a great number of impact-driven entrepreneurs. However, the market really likes intermediaries who understand the structures and frameworks of impact investing so that the market currently is very insufficient, also inefficient. So, you can’t have a quite vibrant and active market unless there’s intermediary in the middle to help bridge the two, or different types of funding. Then, I think that is a very sensible thing to do and very valuable thing to do for the market if the market wants to move forward. Secondly, because of my experience, I have helped different entrepreneurs find ways with a variety of investors, having impact investors on their board, how to balance cap tables with financial investors, as far as impact investors and different thoughts.

And we are really trying to get them get new types of impact investors on board if they bring a very different set or complimentary set of resources for the entrepreneurs. I think it’s like a very rational as well as very natural kind of combination to do it. And we set the name to be 2060 Advisory because our biggest chunk’s realizing climate change, and in China term is carbon neutrality goal. The mission for us is to move capital for a carbon neutral and sustainable future. So, I think the name tells quite a bit of what we are working on.

Chris: And some have criticized China’s 2060 goal because they say, “Okay, Paris goal is 2050, but 70% of carbon emissions that have been accumulating the atmosphere in the last several years is from the U.S. and EU. And so, I think that it’s very ambitious, and having 2060 as a goal actually is very reasonable given, I think, China’s recent trajectory and the level of development

Yijing: On that point. I actually want to add in something because I do understand a lot of country would say, “Oh, we set the goal to be 2050, and China is setting that to 2060,” relatively less aggressive. But if you look at the history of a lot of European countries have already reached the peak few decades ago. So, for them to reach to the neutrality within that timeframe, and compared to China, we haven’t even reached the peak yet. And to reach that within 30 years, coming from 2030 to 2060, it’s a huge and very ambitious goal. I think the country is working very hard on one hand. On the other hand, it is still very difficult. We know that as a fact.

Chris: I agree. And I think that part of reaching the peak issue is there is a lot of socioeconomic developments that is ongoing. And that’s actually a very tough balance to meet. I’m curious, this idea that you have in starting this firm. So, the government has some really aggressive plans and policies and goals. You have entrepreneurs that are doing all kinds of creative and interesting things and maybe new entrepreneurs. They actually want to get into even more new and creative things. And then they need capital. I mean, the government setting this long-term objective, and maybe they get somebody from capital, but they need private investment as well. And there are a number of funds that exist. So, I think you having your advisory function for entrepreneurs for investors is very fertile place to be. Can you say a little bit more about the specific work that you’re doing, particularly around carbon neutrality, but then things that relate to that also?

Yijing: Around 80% of our focus is on carbon neutrality and climate, and then the rest is more on different other areas of social impacts. Many are on social side. Coming back to carbon and climate, we had an early on mapping research to look at how China could jump from current state to 2060, which is the goal. And we have mapped out all the different types of innovations might be happening or needed.

Firstly, coming out from new energy and energy transition where there’s hydrogen, there’s virtual powerplant, there’s storage energy, all those type of new energy innovations. And second chunk would be coming into various types of industries, where there’s industrials, transportation, architecture, and real estate, and also agriculture. And we need innovations and different types of interventions, or different ways of doing business, different business models, for instance, circular economy, to move these industries from current state to a carbon neutral state.

The third chunk would be the ecosystem supporting type, which includes things like carbon management software, where you need to calculate everything scientifically so you can help them to move quantifiably. And ESG data for carbon related finances. And there’s also all the CCUS and natural-based solutions as well. So, we look at things in threefold. And our focus and also our projects and the deals and the companies that we assist lies within all these three chunks.

Chris: Can you say a little bit more now about some of the projects you’re actually working on underneath those three goals? I know you’re based in Hangzhou, but presumably you’re working, not just in Hangzhou, but other places in China as well.

Yijing: I guess I could share some of the projects that could be shared. I just mentioned about carbon SaaS management platform, and it’s one of the projects we helped called Carbonstop, which the CEO is actually an Oxford alumnus. He was working for this very early carbon SaaS management firm based in Oxford. And after two years, he saw these opportunities in China, where at that time people had no idea what carbon SaaS management is. And he came back to China and started the firm. And we helped him was fundraising. By logic, it is very fundamental, as I just mentioned. It is very important that we have a quantifiable and also scientific platform to help all those different innovations and big corporates to calculate how much they’re emitting first, and how they could scientifically and efficiently move towards carbon neutral goals step by step.

There’s another project called CleanCO2, which is using CCUS technology, and then put that captured carbon into concrete so that you make low carbon concrete, as well as store all these extra CO2 into the concrete, which is more firmly and it could last for years and decades. We also have virtual powerplant startup, where China is currently under a huge transformation on electricity innovations, where we know this is a very state-owned, a huge steady backbone for the entire China as a country. With the new energy, increasingly to be a very crucial and important part of the entire electricity providers. But currently, things like storage energy doesn’t really stabilize or doesn’t have the enough capacities to help the whole bigger grids. So, virtual powerplant is very important and crucial part within the whole entire energy landscape. We also have more circular economy projects, and we also help some of the early impact funds in China with their fundraising. So, more to come.

Chris: One of the things I really appreciated about the different projects is just the diversity of the areas. It makes me somewhat optimistic, although, I mean, we do have to sort of keep the pedal down, so to speak, on these things. But for things like carbon capture, there’s a lot of work being done on ways of transforming our current atmosphere so that it has less carbon, a lot of nature-based solutions, which you might be working on.

And then also the data management company, part of the issue is actually just understanding as well, doing a baseline for an organization or a city, or even like an individual, like what sort of the carbon footprint is. And I think that that’s another sort of example of the importance of data, and then this virtual power plant you mentioned too. So, that’s a nice range, showing huge diversity of work that is being done in the world right now, and in China specifically, on ways of mitigating carbon and meeting that goal of 2060.

I’m curious, you mentioned working also with some impact funds. Impact investing landscape in China is always very interesting to me. In the U.S., it’s very difficult and very limited, the number of folks that can invest in VC funds, be an angel investor. You have to be registered. Can you say a little bit about this just generally, the VC and investment infrastructure in China and who all can be involved in this? Is this something that grandmas in Hangzhou or Shanghai can get involved in if they so want?

Yijing: Impact investing, especially impact funds are still quite limited to people who knows it, and also people who has access to it. I think the China market for individuals is still very much like the rest of the world, where you have these private banks, people approaching the high-net-worth individuals and be like, “Oh, how about part of your philanthropy quota? You can try impact investing.” I think that’s also one of the approach. We are working with some of our partners within the ecosystem to go beyond the current realm of impact funds that we have approaching individuals. Many of the people in the industry actually believe that this, which is very American way of approaching and expanding the industry, is the right way for China. And we are still on the way to work on it currently.

But I think, on the other hand, because government policies are coming down layer by layer, whether it is for poverty alleviation reasons, government gives out funding to other funds, or for climate reasons, or for carbon neutrality goal. And especially for Zhejiang province, there might also be rural infrastructure funding, and there might also be wealth’s gap funding. So, there’s also opportunities for impact funds to get funding from the government structures approaching and also together achieving those goals.

However, from my experience, I think, by no means this is to say for an impact fund to work on this fundraising is easy. In fact, I think the difficulties apply to not just impact funds, but for general funds. We work with different types of financial funds, are also facing one of the biggest challenges would be fundraising. So, this is a shared challenge. But I think, for impact funds, the difficulties would be, there’s a very small pool of LPs who understands impact investing and also have some quota existed to be giving out to impact funds. And that’s very limited.

So, for every individual impact funds who wants to do fundraising, obviously you can tap into this existing LPs, which are very limited. So, you can just talk to them and be like, “How about us?” One of the other chunks would be every single of them I know have to have a journey of educating another set of LPs that they could reach out to. And some might be like, “Okay, we are willing to participate a little bit in your current fund.” And some might need longer term to work on their mandate. One day in the future, they would be interested to join or try impact investing.

Chris: What’s your sense about sort of international LPs or international collaboration with these funds? Is it something where, I guess if it’s an renminbi denominated fund, I mean, it’s hard for international folks to get in, but I know sometimes VC funds in China actually are dollar denominated funds so that they can get international investors. I don’t know, with COVID, it might actually be a challenge, but is there much international interaction on these, either investments or on some of these entrepreneurial opportunities?

Yijing: When there were quite serious politics ongoing, which around end of last year, and also beginning of the first half of this year, our market does have this quite pessimistic view on a global corporation. And this is one of the questions internally we have discussed as well. Where is this going, and is any sign of knowing how things could be moving towards within that time period? A lot of advice and opinion were around “we are going to see less Chinese companies getting IPO in NASDAQ.” Many of the investors were very realistically talking to the portfolio funders and be like, “Even though you had a dollar and renminbi blended structure, but we think current situation, we would advise you to go IPO in China. That’s a safer choice.” So, there were a lot of discussions on that front. But then, currently, especially within these two months, we are seeing a number of Chinese renminbi, as well dollar funds basically in China, attracted a lot of a new round of dollars outside of China, to China.

After this pessimistic feeling and attitude, I think if people look at this rationally, China is still a very attractive investment opportunity compared to like probably many other places. For our daily job, there’s a mismatch between some of the innovations are already ahead of the investors in China. For instance, circular economy on different industries, let’s say like circular fashion, we do not have a proper circular fashion fund at all. And there are very few globally as well. But oftentimes, we found this amazing circular fashion projects and those entrepreneurs are so passionate. And we help the CEO to speak to a number of funds, and they’re like, “We don’t look at this at all. We don’t understand why.” And they’re like, “This is too business-driven. We need to have some like hard tech, which is more secure and everything.” And we look at the global impact investing market. And we do know these funds exist, who have circular fashion within their mandate. But then when we talk to these funds, they’re like, “China is so mystery. We can’t touch it. We don’t know how to do it.”

Chris: My last question is any final suggestions you have to the next generation who is going to continue pushing these topics forward? And no doubt in my mind that that’s going to happen.

Yijing: I think I have met amazing people with great backgrounds, smart and everything, but I think most of the people that I’ve met has this attitude of, “I will stay away and observe how the impact investing ecosystem in China will develop. If it grows, I will join. If it stays like this, or doesn’t, I’ll stay out of it.” While at the same time, they might be very frustrated and talking to me or other people and be like, “Ah, I really wanna join, but I just don’t see this as working.” But I think if any of the young generation is interested in this, the industry currently is at a great place where there’s so much opportunities and what needs to be done by people who want to make things happen instead of wait until things happens and then join. I think this is a very entrepreneurial point of time for the industry, for anyone who wants to join. And there’s so much room and space to create as well.

Chris: I think that’s a good call to action. And hopefully many of our younger listeners have made it to the end and heard that this is what they should be doing and getting into. Just want to thank you so much, Yijing, for being with us today on China Corner Office.

Yijing: Thanks so much for having me, Chris.