Blog Post: Millennials & Social Impact Investing

3 Nov 2017
10 Mins Read

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:

  1. Environmental, which looks at how a company performs as a steward of the natural environment, suppliers, customers and the communities where they operate.
     
  2. Social, which examines how a company manages relationships with its employees.
     
  3. Governance, which deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

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.