People who were born between the years 1980 and 2000 are now well known as the Millennial generation. Other names that refer to this age group are Gen Y, Generation Y, or NextGen. What is lesser well known is that the Millennial generation is actually the biggest in U.S. history, surpassing Baby Boomers by a whopping 20 million, with a total of 80 million people in this influential age group.
What are some characteristics that make Millennials stand out? At a high level, this age group is known for being technically savvy and active in social media. Additionally, they are interested in charitable causes and have begun to increase the awareness and popularity of impact investing.
WHAT IS IMPACT INVESTING?
Before diving into why Millennials are increasing demand for impact investing, let us review the basics of what impact investing is all about. The Global Impact Investing Network (GIIN) explains, “Impact investments are investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below-market to above-market rates, depending upon the circumstances.”
In short, impact investing is socially responsible investing that utilizes capital from investors to improve the world through supporting organizations with a mission of caring of the environment, reduce pollution, improve literacy, help provide food to the needy, etc., while aiming to generate returns in the process. These funds may be invested in nonprofit organizations, for-profit companies, and across asset classes such as private equity, venture capital, debt, equity, and even fixed income.
LOTS OF MONEY CHANGING HANDS
Studies have shown that there is approximately $46 billion in sustainable assets under management, a 20% year-over-year increase in the impact investing space. Additionally, it is estimated that the market for impact investing could grow to an impressive $3 trillion in size.
One of the primary reasons for this anticipated growth in impact investing is an estimated $30 trillion dollars in financial and non-financial assets will pass from Baby Boomer parents to their adult Millennial children. The immense amount of money that is likely on its way to Millennials’ hands over the next 15-30 years has financial institutions buzzing with excitement. That’s a lot of money changing hands that can be repurposed and invested into the markets.
MILLENNIALS ACCEPT HIGHER RISK AND LOWER RETURNS FOR GOOD CAUSES
Another reason why it’s anticipated that Millennials could increase demand for impact investing is they indicate less interest in traditional style equity investing. A study by U.S. Trust found that 51% of Millennials feel that investing in equities is overrated, and are also hesitant about investing in the stock market due to fears of losing money. However, they are still interested in investing, as 81% believe that buying investments and holding them over the long term is the best way to grow money over time.
One way that Millennials are putting fears aside and putting their money to work is investing in good causes. As seen below, they are more willing than older generations to take on higher risk and lower returns in order to invest in companies that positively affect society or the environment.
MILLENNIALS WANT TO USE THEIR MONEY TO HELP OTHERS
Another reason why Millennials are driving demand for impact investing comes from their desire to help others. Part of their desires could be stemming from their awareness that a lot of people and the environment are in need of assistance.
The Millennial generation grew up in a period of global awareness that shares information rapidly across cultures and continents through continually advancing technology. And this sharing of information has included events such as boom and bust cycles, terrorism, and global political tensions.
Being so aware of these intense issues, as well as environmental concerns and social inequalities, could explain why Millennials are keen to help others. For example, studies have shown that 87% of Millennials donate to charitable causes, which demonstrates they highly value helping those in need.
HARNESSING THE POWER OF POSITIVE CHANGE
Millennials also care about making a difference beyond investing as well. When job hunting, research has shown that 55% of Millennials chose companies based on their cause-related work in the community. Those in this age group also enjoy donating their time in addition to putting their money into philanthropic causes.
Millennials are also interested in travel and are curious about other cultures. Studies show that 75% of Millennials want to travel abroad as much as possible. Seeing other ways of life and the daily struggles that some people face at home and abroad can influence and increase one’s desires to give back through work, volunteering, and impact investing.
People often feel a sense of fulfillment through positive change as well. And being able to support socially responsible organizations, while simultaneously having the opportunity to earn positive returns, is attractive to this large age group. Thus, Millennials are taking social responsibility into consideration when they make investment decisions and it is anticipated their desire to bring positive change could help bring impact investing mainstream.
TIPS ON HOW TO FIND AND SELECT IMPACT INVESTMENTS
Outside of what a financial advisor may suggest, how does one know how to differentiate and select impact investing opportunities? You can reference IRIS, which is a catalog of generally accepted performance metrics. Other useful resources for investors include The Impact Investor Project, the ImpactAssets50, ImpactBase, and the US SIF.
Another interesting note to be aware of is a new legal method of incorporating, referred to as “benefit corporations,” that is now recognized in 27 states. These corporations must follow specific definitions of measurable financial and societal goals. There are also industry standards put forth by GIIRS Rating, as well as ratings and analytics information that can help one compare and contrast different impact investing opportunities.
WHY ARE MILLENNIALS INTERESTED IN IMPACT INVESTING?
To recap, there are several reasons Millennials are increasing demand for impact investing. First is the massive generational wealth transfer that could take place in the next 15-30 years between Baby Boomers and their Millennial sons and daughters. That is a lot of money that people are estimating Millennials are likely to put into impact investing opportunities.
Second, more than any other generation, Millennials are demonstrating a willingness to take on higher risk and lower returns in order to invest in good causes they support. This young generation is well aware of the environmental and social challenges in the world and they want to help make a difference. Millennials have shown a propensity to donate their time as well as money toward charitable causes that can bring about positive change. All of which are well aligned with the objectives and opportunities of impact investing.
Motif Investing offers many products and services that are suited for Millennials who enjoy transparency and being engaged with the companies they invest in. Create your own custom motif today and invest in causes you care about.