These days, more of the world’s wealthiest individuals are looking for investments that deliver more than just impressive returns. A new study by U.S. Trust suggests that high-net-worth investors are also looking for investments that help improve the wider world.
The Conscience Gap
The 2018 U.S. Trust Insights on Wealth and Worth survey found that the top three motivations for high-net-worth (HNW) individuals to create wealth are personal: to provide for their own financial security, to afford a desired lifestyle, and to provide for their dependents’ financial security. That said, 86% of respondents cited making a positive contribution to society as an important goal, while 82% cited improving the world for later generations and 71% cited creating economic opportunities for others. What’s more, these three goals are among those areas where HNW individuals most feel there’s more they could be doing.
When it comes to what they’re doing to help others, 69% of respondents felt “not fully satisfied” with how they’re using their wealth. The number one obstacle HNW individuals reported standing in the way of their various goals was competing priorities. These findings may suggest the question: are advisers missing an important opportunity to engage high-net-worth clients on the topic of impact investing?
A separate U.S. Trust study found that less than half of high-net-worth investors are satisfied with the philanthropic discussions that they have with advisers, and the majority of investors wish their advisers would start the conversation earlier. While philanthropy and impact investing are certainly distinct endeavors, these conversations could provide a window for advisers to broach the subject of aligning assets with values through investing, a concept that—thanks to persistent misconceptions—HNW individuals may need help understanding but that may help them harmonize some of their wealth priorities.
ESG on the Map
That said, U.S. Trust found that HNW investors increasingly look to environmental, social, and governance (ESG) factors when making their investment decisions. When high-net-worth investors do consider impact investing, the top reasons are that they believe it is the right thing to do and that they believe that corporate America should be held accountable.
In the study, 80% of HNW investors agreed in principle that companies should not only make a profit but also take responsibility for their impact on the environment and society. Just over half of respondents said more specifically that a company’s ESG record is an important factor in their investment decisions, while 40% currently own or are actively considering impact investments, up slightly from U.S. Trust’s 2016 findings.
Companies have reason to want to pay attention to these trends, since a Capgemini study last year found that HNW individuals in the United States alone could control more than $100 trillion by 2025. For impact investment firms and advisers, that’s an opportunity to put enormous amounts of capital toward solving the planet’s social and environmental challenges. It may also be a mandate to have an impact investing strategy available. Already in the US, assets invested in sustainable investments total nearly $9 trillion—a number that’s expected to continue growing in future years.
Women and Millennials in the Lead
While ESG factors are starting to make their mark on high-net-worth investors’ portfolios across the board, the trend is more pronounced among younger investors, according to the 2018 Insights on Wealth and Worth survey. Nearly 80% of high-net-worth millennials own or are considering impact investments, compared to roughly 60% of Gen Xers. As younger investors mature and take on a larger share of investments, the importance of ESG factors across HNW portfolios is poised to continue growing.
Women also play a key role.
The Women’s Philanthropy Institute at Indiana University found that across all age groups and income levels, women are more likely to give money—and more of it—to charity than men. Other research from the same organization shows that while women and men both know about impact investing, women are more likely to want to learn more about it. Accordingly, U.S. Trust finds that 64% of high-net-worth women consider ESG factors when making investment decisions, compared to only 46% of men.
The more success HNW individuals have with their ESG investments, the more likely they may be to continue with impact strategies. The good news for impact advocates, according to the U.S. Trust survey results, is that 70% of their ESG investments have met or exceeded high-net-worth investors’ expectations for returns, while 62% have met or exceeded expectations for positive impact.