The rise of impact investors – How philanthropy is becoming increasingly strategic

The face of philanthropy appears to be changing. “The model we had in the past was that you made your money, then spent the rest of your life giving it away. This next generation of entrepreneurs and impact investors believe that is outdated.” This quote from Jean Case, chief executive of the Case Foundation, explains that many wealthy individuals are moving away from doing good through large one-off donations. Younger generations are turning their backs on extravagant charitable gifts (often for vanity) and are instead investing in longer-term effectiveness. 

This step towards impact and sustainable investing is set to continue. According to the PwC Billionaire’s Report 2018, the millennial generation is 'passionate about working for businesses with strong social purpose’. They are likely to prioritise social values as they take an active role in the family’s financial decisions.

The younger generation’s philanthropic
mindset

According to the US Trust (which is part of Bank of America Private Bank), 93% of millennials believe investment decisions should take social or environmental impact into account.

Younger generations have grown up with increasing awareness of global issues, from climate change to refugee crises. Many have been educated in a number of countries around the world, which may have
opened their eyes to a broader spectrum of social and environmental challenges.

Inheriting wealth undoubtedly comes with a sense of responsibility. For many, the responsibility means using the opportunities that wealth brings as a force for good. 

Impact investing – a changing mindset

Ultra-High Net Worth Individuals are turning towards impact investing to create longer-term value. This strategy generates a financial return while making a difference to communities and the environment. We are seeing more high net worth individuals establishing charities, creating family foundations and investing in projects that align with their philanthropic values.

Rachel Gerrol, chief executive and co-founder of Nexus[1] recently noted that people who once saw themselves as philanthropists now ‘self-identify as impact investors’. There is an entrepreneurial mindset
attached with impact investing that we have not seen before in humanitarian initiatives. Impact investors are making carefully considered financial decisions driven by their aspirations and goals as well as their values.

Social media has also encouraged millennials to be more vocal about the ambitions for their wealth. They may use social media as a platform to convey their support for programmes and their views towards various issues. Their goal within impact investing is driven by transforming attitudes not just making a considered investment.

The purpose of a family’s wealth is often so deep-rooted, having passed down through generations, that it can be difficult to change it. Many younger investors may come across stumbling blocks as they try to alter attitudes towards how wealth is used.

Older generations may not want to lose control over the family’s finances. They may be concerned about the returns from these new types of investments outside traditional assets.

Although some wealthy families are aiming to make 100% impact investments, others may prefer to take a more gradual approach by trialling a few projects or investing a portion of their portfolio in ESG funds. Building flexibility into wealth planning is vital to enable families to design their arrangements to support their values. 

The legacy an individual wants to leave behind is a personal decision. People should be free to decide how to use their wealth, and flexible succession planning is vital for shaping the legacy you leave behind.

If you would like to know more about how we enable choice in all of our insurance solutions, contact us today. 

Sources:

- [1] Rachel Gerrol is Chief Executive and Co-founder of Nexus, an international network of over 5,000 young investors, social entrepreneurs, philanthropists, mostly aged 20-40, that started in 2011.

- Financial Times: Rich millennials push to put family wealth into impact investments