Building a Portfolio

How Can Impact Investing Harness Millennial Interest?

Popular opinion holds that millennials are a natural fit for impact investing. Study after study has claimed to show that when it comes to virtually all aspects of their decision-making—from finances to jobs to consumer habits—millennials consider and often prioritize social and environmental impact.

A 2018 US Trust survey found that 87% of millennial investors believe that environmental, social, and governance (ESG) factors should play a role in investment decisions. Given the expected $30 trillion generational wealth transfer to millennials, their commitment to impact investing could be transformative.

Why Are Millennials So Interested in Impact Investing?

Millennials are defined as the 70 million people born in the United States between 1981 and 1996. This generation grew up amid the tech revolution and increasing alarm about climate change. But perhaps the most salient force in shaping millennial attitudes about investment is the Great Recession—the 2008 crash flattened the economy just as many were entering the workforce. The result is a generation intimately familiar with the consequences of profit at all costs, as well as a much slower start to building wealth.

For millennials, the Great Recession also blurred the lines between philanthropic giving, private investment, and day-to-day spending. The Case Foundation’s 2019 Millennial Impact Report found that 70% of surveyed millennials changed their purchasing habits because of their commitment to a cause, and 86% believe those habit changes can make a difference.

The Case study also found that while millennials are deeply committed to the causes they believe in, from income inequality and climate change, they have little institutional loyalty and are more open to alternative ways to spend and invest. They want to put their money towards whatever (and whomever) is demonstrably making an impact.

While millennials are deeply committed to the causes they believe in, they have little institutional loyalty and are more open to alternative ways to spend and invest.

What Is the Future of Millennial Impact Investing?

For millennial-aged children from high–net-worth families, this has translated to migrating family office portfolios into impact-driven assets. The complexity of this process has created a significant demand for impact investing expertise in wealth advisors. It has also exposed some tensions around impact investing itself—is it enough to put an ESG screen on existing investments, or do “real” impact investments provide capital directly to social enterprises and green tech?

In the midst of this debate, it is important to remember that the majority of individual millennials are not wealthy. If firms only concentrate on wealthy millennials as the audience for impact investing, they may potentially alienate a large segment of millennials who have lower wealth but higher interest in impact investing. Banks and firms may need to offer retail impact investing options with low minimum investment requirements in addition to their current services in order to cater to all audiences interested in impact investing.

However, firms may also need to focus on increasing millennials’ financial literacy and improve their accessibility to the generation. For instance, Swell, a millennial-focused impact investing platform, shut down in August 2019. Though the company has been quiet about its reasons for folding, Swell’s failure may well be tied to millennials’ financial illiteracy and the fact that its service was not an add-on to a checking account or 401(k) but rather had to be opened separately and then customized. In contrast, platforms that offer accessible financial education, like the venture capital–backed Ellevest, have seen steady growth.

This makes individual retirement accounts ripe for disruption. The firm that can offer impact options for its 401(k) clients—particularly those with employer-sponsored accounts—could potentially corner the millennial impact investing market.

Banks and investment firms can also take advantage of the millennial appreciation for accountability and transparency by including impact reports with their quarterly statements. This form of proactive engagement may help diffuse the millennial distrust of business, illustrated by a 2019 Deloitte survey where 76% of millennials agreed that businesses “focus solely on their own agendas rather than considering the consequences for society.” Businesses that confront this perception need to do so honestly: if a company markets itself as socially or environmentally conscious, 75% of millennials will research them to determine whether or not they are telling the truth.

Millennial impact investing could have seismic impact if unlocked at scale. But to get there, fund managers across asset classes will need to take their values-driven approaches seriously.

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