This article first appeared in Digital Edge, The Edge Malaysia Weekly on January 25, 2021 - January 31, 2021

There is a wealth of opportunities for start-ups that use technology to address the Sustainable Development Goals (SDGs). This can be seen from the hackathons, innovation challenges, investors and venture capitalists that are increasingly targeting start-ups with such solutions.

Fintech is one of the hottest sectors in this area, as governments and companies look for solutions to serve the underbanked and increase financial literacy. Agriculture technology (agritech) is another popular sector as it can address food security issues and the impact of climate change on farmers.

“I think there is recognition in capital markets, especially on the venture capital (VC) side, on issues around sustainability, whether it’s to do with economic development, social issues or the climate and environment. 

“These are becoming big problems in the world. And in order for VCs to make money, we fund enterprises that are tackling the biggest problems,” says Paul Ark, adviser for Gobi Partners, a VC focused on Asia. 

According to the Standard Chartered SDG Investment Map published in 2020, private sector investment opportunity in the most tangible, infrastructure-focused SDGs (6, 7 and 9) is worth US$35 billion in Malaysia, with the greatest opportunities found in improving the transport sector.

The SDGs were adopted by all United Nations member states in 2015 as a universal call to end poverty, protect the planet and ensure peace and prosperity for all by 2030. 

“It’s nice when a start-up solves a problem that is difficult or has global attention, such as those in healthcare or education. [If the start-up can solve the problem] then it could mean that it has huge potential. The start-ups that I’m attracted to are those that are trying to solve these long-term, ongoing problems on a big scale,” says Melissa Foo, vice-president of Malaysian Business Angel Network and an angel investor.

The events of 2020, in particular, have highlighted the demand for solutions that address the SDGs, Ark observes. For instance, the wildfires in Australia and the US underlined the impact of climate change, while the pandemic directed attention to food security issues, as well as the lack of equal access to education and healthcare.

In fact, investment dollars poured into education technology (edtech) and healthtech start-ups that are enabling remote learning and healthcare services at a record rate last year, according to reports.

“There is a market out there to be served. We have been working on innovative solutions to achieve the SDGs, focusing on financial health as an intermediate outcome. This becomes especially important when we focus on rebuilding in a post-Covid world,” says April Khor, innovation lead for financial health at the United Nations Capital Development Fund (UNCDF) Malaysia.

Matt van Leeuwen, Sunway Group chief innovation officer and Sunway iLabs director, adds that many successful companies, such as Uber and Airbnb, launched during a financial crisis. “There is a similar window of opportunity for start-ups now, but the only difference is that this time, it is a huge opportunity for start-ups that address the SDGs.”

At the same time, tech start-ups ad­­dress­ing the SDGs are becoming more financially sustainable.

“Traditionally, investors always felt that there was a trade-off between financial returns and impact. But years of investment return data is showing that when it is done well, impact or sustainable investing can produce superior investment returns,” says Ark.

Going forward, companies that are not sustainable could be shut off from funding sources or shunned by consumers. 

“We are in a transition period, from when addressing the SDGs was a nice-to-have to when it is a must-do. If you want access to capital and consumers, particularly millennials, who are voting with their dollars, [you have to change],” says Shannon Kalayanamitr, partner at Gobi Partners. 

Technology plays an important role in this development, as it has enabled start-ups to offer services that were not possible in the past.

Ark brings up fintech as an example. “The reason why there were large numbers of unbanked people in Southeast Asia is because many locations were geographically not easy to access. It did not make sense to open up bank branches in those areas. Technology gives us the opportunity to offer digital financial services without bricks-and-mortar infrastructure. In terms of the SDGs, this supports economic development and reduces inequality.”

Another example is the use of technology to make existing industries more sustainable. Adopting a circular economy model, in which nothing is wasted, instead of a linear “take, make and waste” model in the traditional manufacturing process, is full of potential.

“The circular economy reduces the amount of waste produced in the manufacturing process and disposal of products. There are different areas of opportunity [for start-ups to address] and technology to assist the process,” Ark adds.

In general, the digitalisation of almost all industries, which was accelerated by the pandemic, underscores the importance of using technology to improve current processes, the interviewees say.

From another perspective, the use of technology also allows these start-ups to scale their solutions, which is an important point for investors.

“I’m not saying that every social enterprise must scale, but if they want to raise more money from investors, they have to be able to predict some kind of return to investors that is commensurate with the risk,” says Foo.

As the goals are interrelated, most of the start-ups address more than just one SDG. 

“If you have a start-up that improves the lives of women who work in factories in Bangladesh or India, the SDGs that you might be addressing revolve around gender equality and ending poverty. At the same time, if you give them enough economic uplift that they can send their children to school, you are inadvertently addressing the SDG on quality education and welfare for children,” says Ark.

This is an area that Gobi Partners emphasises. According to Kalayanamitr, 30% of its portfolio has women founders, which is in line with the VC’s pledge to The Billion Dollar Fund For Women initiative. 

Fintech is a similar case. Khor explains how being financially healthy, which means having financial resilience, security and freedom, can achieve results beyond attaining zero poverty. When individuals have financial security, their children can obtain access to better educational opportunities. 

UNCDF’s project in Uganda, for instance, involves partnering with telecommunications and solar power companies in rural areas so villagers can have connectivity, charge their phones and pay their children’s school fees through their mobile phones. This supports both quality education and access to clean and affordable energy.

In Malaysia, UNCDF is running a project that aims to increase the financial health of gig workers through an innovation challenge.

“We conducted research among the gig workers and found that many do not have sufficient savings and an emergency fund of RM1,000. We are also concerned that the non-permanent association of gig workers with their job providers limits opportunities for continued training and upskilling,” says Khor.

UNCDF is currently working with Versa, a digital cash management platform, to enable gig workers to save money and earn interest on a par with fixed deposit rates while allowing them to withdraw their funds at any time. UNCDF is also working with upskill job-seeking platform Hyred to encourage young gig workers to develop a variety of skills and expertise.

Another fintech example would be e-wallets or start-ups that provide financing to street vendors, who cannot borrow from banks owing to the lack of a credit record. “If they pay through e-wallets, the e-wallet would have their record, and it can be used to measure their payment behaviour,” says Khor. 

In fact, there are plenty of companies globally employing mobile phone usage patterns and other digital footprints to measure creditworthiness, thus opening up lending opportunities to the underserved. 

Meanwhile, an area that Van Leeuwen is bullish about is agritech and food tech. “Over the years, Malaysia’s food import bill has increased to RM60 billion. This presents a lot of opportunities for start-ups looking to tackle food safety and security problems in the country,” he says. 

“We are looking to address challenges with tech-driven solutions throughout the farm-to-fork supply chain,” Van Leeuwen adds. 

Other areas with potential include health tech, which covers telemedicine services that could provide healthcare access to people in remote areas, as well as tech platforms that help upskill workers or match them with good jobs, says Kalayanamitr.

Tech start-ups that want to address the SDGs need to have a firm business foundation, say the interviewees. They must also have clear frameworks for how they plan to address the SDGs.

“One reason Gobi is into this kind of start-ups is because we see the SDGs as a mitigation factor. We have a checklist consisting of metrics, like how do you dispose of your toxic waste or if you have protocols to deal with sexual harassment. These things protect you from future losses,” says Kalayanamitr.

Investors and entrepreneurs also need to move away from the mindset that a start-up with an impact angle is a charity that survives on donations. 

The entrepreneurs, for instance, need to understand the responsibilities that come with investment dollars, says Foo. “In Malaysia, there is still a lot of room for more impact funding because [investors] are still in that all-or-nothing category where they think of something either as a charitable donation or an investment.”

Angel investors in Malaysia are still predominantly profit-driven, Foo observes, although they do like to give back to their investees by providing mentorship. “The way forward is to help them understand how they can maintain a profitable portfolio while investing in these tech start-ups that are profitable and do good.” 

These start-ups should also assess and measure the holistic impact of their activities. 

“For instance, we have a portfolio company called Farm66 that does indoor and vertical farming. Moving farms indoors reduces the impact on land use, soil, nutrients and greenhouse gas emissions. But at the same time, they have to find ways to reduce high energy usage in indoor farms,” says Ark. 

“I highly encourage all start-ups to start thinking about these issues because these are big problems that aren’t going away. These are global, systemic problems that need solving, and where there is a big problem, there is a big opportunity.”

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