Impact investments are increasing in popularity as a means of addressing some of the world’s most challenging social and environmental problems. Although the expression encompasses an extensive range of investment activity, the Global Impact Investing Network defines impact investments as: “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return”.
The growing trend towards impact investments was corroborated by the launch of the UK’s first organisation dedicated to impact investing in June this year. The Impact Investing Institute is a new, independent Government backed organisation which aims to accelerate the growth, and improve the effectiveness, of the UK impact investing market. Its vision is that more people’s lives improve, as a greater number of individuals choose to use their savings and investments to help solve social challenges, as well as seeking a financial return.
The considerable momentum around the impact investing movement, which is undoubtedly one of the fastest growing fields in asset management, is likely to continue. As we look to the future, those entrusted with the stewardship of private capital need to pay close attention to the values which underpin the next generation of investors, primarily millennials, also known as Generation Y.
According to a report by EY, millennials are positioned to receive more than US$30 trillion of inheritable wealth; a phenomenon known in the private wealth industry as the “great wealth transfer”. It is also estimated that millennials will constitute some three quarters of the global workforce by 2025.
The significance of this data is that both wealth creation and wealth preservation will be in the hands of a socially conscious generation motivated by their values. For millennials, purpose is the new currency; a sort of existential prerequisite.Highly conscious of the impact they wish to make on the world, millennials are driven by both profit and purpose for the greater good. This distinctive mindset will have significant influence on the philanthropy and social investment landscape, which itself is already being redefined at a global level.
Wealthy individuals have for many years employed traditional methods for attempting to address the world’s most complex problems such as: economic inequality, access to education and environmental sustainability. A typical approach would involve donors making direct gifts to not-for-profit organisations, establishing a formal charitable vehicle — such a family foundation — to facilitate grant making or using a donor advised fund to facilitate tax efficient giving. It is not unusual for a combination of methodologies to be utilised.
It has been asserted that millennials are more likely to give than any other previous generation. Furthermore, wealthy millennials have adopted a broader,more holistic approach when applying their resources towards achieving positive social impact. They are values oriented and, as such, are far more inclined to adopt socially responsible investing practices, which incorporate environmental, social and governance (ESG) factors into investment decisions. This is resulting in increased demand for impact investments.
It is, therefore, no surprise that a new breed of investment manager is emerging. Tribe Impact Capital are a multidisciplinary team of wealth managers and impact specialists, focused exclusively on aligning wealth stewardship and creation with their clients’ personal values through the lens of the UN Sustainable Development Goals. Tribe are leading a conversation around a new wealth order, redefining what wealth actually means, as well as opening up a channel for sustainable and impactful investments. This kind of disruption in the wealth industry is paving the way for mainstream investment firms to follow suit.
It raises some thought-provoking questions for those in the private wealth community. In essence: are we prepared to adapt in order to attract and maintain the next generation of clients?
Investment managers and other professionals in the private wealth industry will not only need to acclimatise to the changing wealth ecosystem in order stay relevant, but will also have to be active participants in the wider conversation. Positive social impact must become part of our vocabulary as private wealth advisers.
Above all, if we are to win and sustain the trust of the next generation, we will need to pay attention to their values and ensure that we are aligned with them, for example by ensuring that our employment practices, our suppliers and the partners we choose to work with adhere to the highest ethical standards as well as striving to create a positive impact and sustainability. This might require us to make considerable adjustments to our own business models to ensure they reflect the values of tomorrow’s investors.
With calls for more conscientious business practices gaining prevalence, many will have already encountered ideas like ‘Impact Investing’. Large companies are committing considerable resources to programmes of ethical behaviour and investing – such as Citi’s (NYSE:C) Impact Investment fund – but what is Impact, and why do we care about it?