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Millennials: The next wave of impact investors

November 27, 2017 By: MaRS Centre for Impact Investing

By Ben Rabinovitch

Millennials are one of the largest generations in history and will have an estimated $24 trillion of wealth in their possession by 2020. So it’s hardly surprising that their preferences, habits and motivations are scrutinized by the business world. One consistent trend has appeared: millennials place greater emphasis on social and environmental issues in business-related decisions than their Gen X and Baby Boomer predecessors.

Seventy-six per cent of millennials believe business can be a force for positive social impact and 36 per cent think improving society should be business’ primary purpose.

This has long manifested itself in consumption choices: millennials are willing to pay more for products that are committed to positive social and environmental impact, and show greater affinity for brands that clearly articulate a social mission. Now, these same values also appear to be having an impact on millennials’ thinking about investments.

Three key trends have appeared in research conducted by financial institutions:

1. Millennials view investments as an expression of their values. According to U.S. Trust, over two thirds of millennials see their investments as a way of demonstrating their social, political and environmental values.

2. Millennials believe their investments are a tool for change. Morgan Stanley found that 75 per cent of millennials believe that their investments can influence climate change, and 84 per cent believe that they can help bring people out of poverty.

3. Millennials oppose the view that there’s a tradeoff between social impact and financial returns. Close to three quarters of millennials believe that it is possible to achieve market rate returns by investing in socially or environmentally-motivated companies.

But are millennials putting their money where their mouths are? A recent study by Swell Investing suggests that they’re not yet doing so. While 78 per cent of surveyed millennial investors consider a company’s social or environmental impact, only 24 per cent have actually taken action to invest in line with these values. What accounts for the gap between intention and action? One likely reason is that impact investing is a new phenomenon and there are still relatively few retail investment options. Ironically, the young nature of impact investing precludes many young investors from being able to participate.

But a look at millennials who already have access to a wide range of impact investments – those with a net worth over $500,000 – suggests there could be a surge of millennials entering the market as it matures and investment minimums drop. The Toniic Institute surveyed 58 wealthy millennials and found that 17 per cent had allocated more than 70 per cent of their investments towards impact investing.

Socially responsible

Access to impact investments may be a way off for the average millennial, but it is still possible for them to invest with their values. Socially Responsible Investing – which differs from impact investing in that it seeks only to avoid investments in companies with poor environmental, social or governance practices, rather than actively targeting businesses that do good – has been made widely available to retail investors. In 2016, two Canadian online portfolio management companies popular among millennials introduced SRI portfolios, making it easier than ever to invest responsibly.

There is no doubt that millennials are comfortable espousing responsible values, and that the business world is responding in kind by increasing the availability of responsible investment options. But the question remains: as impact investing becomes increasingly accessible, can we bank on millennials’ commitment to invest with their values?

About the author

Ben is a second year international MBA student at the Schulich School of Business, specializing in social sector management. He has five years of management experience in the nonprofit sector, most recently as Director of a YMCA outdoor education centre focused on youth leadership and empowerment. Ben is fluent in English, French and Spanish and is looking to use his knowledge, experience and education to bring meaningful change to the lives of youth through enhanced social service delivery.