Maxim Manturov, Head of Investment Research at Freedom Finance Europe
Millennials and those that follow them are changing the world one investment at a time, opting to spend their cash on projects that match their own values, beliefs and ambitions to make a positive socio-economic impact. Essentially, for younger generations, the decision to invest in a company or asset is not only about generating financial return, but also about expressing their opinions, safeguarding their own future and helping to solve the world’s problems.
This determination to make a real difference is especially true for Millennials, with 86% of those born in the early 1980s to late 1990s becoming increasingly aware of the world’s social, economic and environmental issues. They are also driving this surge in impact investing by supporting companies that provide certain standards.[1] Alongside this, impact investing will only rise in popularity as many Millennials reach a point where they have enough savings to invest and those from Gen Z enter the workforce for the first time. To put this into perspective, Millennials currently hold $1.4 trillion in purchasing power, which will likely shoot to $30 trillion over the next year as Gen Z receive financial assets from their parents.[2]
With this in mind, lets dive deeper into impact investing, the rise of this growing trend and the future outlook for some of the world’s biggest companies. For business leaders looking to not only survive but thrive in the years to come, they must first recognise that the next generation are reshaping the world and it falls on them to help build it.
What is impact investing?
Impact investing is a strategy that aims to make financial profit, while also creating a long-standing, positive impact on our world. For many impact investors, they are hyper aware of what is happening around them, with factors such as corporate social responsibility (CSR) making a real difference when choosing to invest. Impact investing also includes factors such as socially responsible investment (SRI) and environmental, social and governance investment (ESG). Taking this one step further, impact investors will often do their own research before choosing to invest, looking inwardly at an organisation’s treatment of its employees, as well as factors such as diversity, wellbeing, benefits and workplace safety.
Typical sectors where capital is used to address some of the world’s most pressing challenges include sustainable agriculture, renewable energy, healthcare, education and conservation. For example, an investor will provide capital to renewable energy companies because they believe such an investment will positively impact the environment. It is important to note here that a hallmark of this growing trend is the commitment of the investor to measure the socio-economic performance and progress of underlying investments.
The rise of impact investing
Although this trend may have started as a domain for some well-off individuals, it is now conquering the larger retail market, with a significant number of investors looking towards companies that are making efforts to combat climate change. On top of this, with more companies re-thinking their CSR strategies and prioritising efforts to make a socio-economic difference, there will be an increasing number of opportunities available for those who want to invest based on their beliefs for a better world. For example, Tesla inspired the entire transport industry to take the electric vehicle seriously.
Moreover, while younger generations are clearly more conscientious investors than their predecessors, combining investing and social responsibility is something that a range of population groups now strive for and the basis for creating products that would satisfy such needs is already here. As long as social investments bring profits, their popularity will rise. And with Millennials and Gen Z expected to inherit around $68 trillion in wealth over the next ten years, impact investing will only continue to grow.[3]
Looking to the future
As we look towards the future of impact investing, we can expect many of the world’s largest companies to adapt in order to meet the demands of younger generations. From catering to their social, economic and environmental values, to providing open and honest communication throughout the entire investment journey, a new approach that holds business leaders accountable for their actions and demands transparent policies will undoubtedly become the new standard. Ultimately, impact investing starts with trust, honesty and a determination to do and be better, meaning business leaders must ensure they are in a position to meet the needs of the next generation or run the risk of being left behind.
[1] https://www.morganstanley.com/access/why-millennial-investors-are-different
[2] https://inyova.ch/en/expertise/en/millenials-gen-z-and-sustainable-investing/
[3] https://www.forbes.com/sites/jackkelly/2019/10/26/millennials-will-become-richest-generation-in-american-history-as-baby-boomers-transfer-over-their-wealth/
