Join other trail-blazing young adults in getting monthly career & financial tips, written by those who have succeeded before.
Millennials & Social Impact Investing
Millennials have been stereotyped as delicate, incapable of surviving pressure and even selfish. Whether the ‘Strawberry generation’ is worthy of the unflattering terms may be up for debate, but they seem to have their materialistic hearts in the right place, if anything.
Millennials work hard. Maybe even harder than the previous generations. A survey by GlobalManpowerGroup shows Millennials in Singapore clocking in an average 48 hour work week. Envy much?
And true to their ‘I want it all’ nature, they don’t just pursue work that matter, they pursue investments in companies which have positive social impact too. According to a United States Treasury survey, millennials are “investing in organizations that prioritize the greater good more than any previous generation”.
This kind of investment is called “impact investing”.
So what actually is impact investing?
Impact investing refers to investments made into companies, organizations and funds with the intention of generating positive social and environmental impact, along with expectation of a financial return in the process. This type of investment generally falls into 3 categories – Environmental, Social, and Governance (ESG).
Investopedia defines these 3 criteria as follows:
- Environmental, which looks at how a company performs as a steward of the natural environment, suppliers, customers and the communities where they operate.
- Social, which examines how a company manages relationships with its employees.
- Governance, which deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.
Why do millennials care about impact investing?
Why do millennials care about impact investing?
Under their supposed uncaring exterior, perhaps millennials understand that “money can’t buy happiness.” However, it may buy some peace of mind for this generation labelled as entitled by many.
The first generation to be exposed to a globalized society, they are more aware of social causes and at liberty to think about what they can do about it. Therefore, they look for ways their investment is able to make an impact on improving society while generating financial returns for them.
In other words, they want both their conscience and wallet to feel good about the companies they have in their stock portfolios. Wealth inequalities, climate change, world hunger, poverty and access to health care. These are just a few of the top social concerns of a millennial.
How is impact investing different from charitable donation?
While both may have the same end goal of supporting social causes, they differ in that they have different approaches in achieving that goal.
Impact investing is more intentional, for instance, the stock portfolio of a fund will be more specifically constructed towards the investment preference of the investors. Companies will also align their long term strategies and aims along lines shared with their investors. Hence, impact investing motivates companies to be more socially conscious and responsible in the manner in which they conduct their business operations.
Charitable donation is less restrictive, such that a charity fund or foundation has more freedom as to how it wants to achieve its goal. However, this also means that the approach used might not be socially desirable. This may give rise to another problem while solving one problem.
As a comparison, we can say impact investing takes the ends in the means themselves, whereas charitable donation may use any means as long as it achieves its end.
The road ahead for impact investing
A publication about impact investing from Ernst and Young has mentioned that this investment strategy has grown 107.4 per cent annually since 2012, and it currently accounts for 18 per cent of the assets under management (AUM) in the wealth and asset management industry.
Similarly, Accenture has estimated that in coming decades, baby boomers will pass US$30 trillion in financial and non-financial assets to their heirs. This is just in North America alone. With these observable on-going trends, we should expect to see a surge in demand for socially desirable investment products.
The information contained herein is for general information only. It does not take account of your specific investment aims, financial situation or needs.
- The information in this document is not intended to constitute research analysis or recommendation and should not be treated as such. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.
- Any opinions or views of third parties expressed in this material are those of the third parties identified, and not those of OCBC Group.
- No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statement, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.
- The information provided herein may contain projections or other forward-looking statement regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.
- Please note that there are necessarily limitations and difficulties in using any graph, chart, formula or other device to determine whether or not, or if so, when to, make an investment.
- The contents hereof are considered proprietary information and may not be reproduced or disseminated in whole or in part without OCBC Bank’s written consent.