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Millennials are Leading the Charge to Social Impact Investments

From UBS Intellectual Capital (Dec 2017)

Technological advancements are not only enabling increased automation and connection across many businesses, potentially transforming business models, but also enabling greater awareness of global economic and social issues. These global problems are making people of all age groups increasingly keen to find innovative solutions.

Businesses and other institutions have committed significant financial and non-financial resources to tackling issues of unsustainable growth and international inequality. Yet looking forward, millennials (aged 19–35 years today) appear particularly willing and able, as the next guardians of global capital, to use their private wealth for the public good. We would argue that millennials’ lead in promoting a more sustainable and equal world is likely to spread across cohorts, demanding coordinated efforts from more stakeholders to marshal capital into projects with positive social and environmental returns.

Today, 47% of the world’s population has access to the Internet (and almost instantaneous communication), according to United Nations estimates. Smartphone users, with a portable camera and recording capability, are their “own correspondents.” And news flow is constant, digital and real-time. More readily available information on trends around the world, made possible by this extreme connection, means that people today are arguably more aware of global economic and societal issues.

Meanwhile, despite the recent synchronized upswing in economic growth around many parts of the globe, the international economy is still growing in an unsustainable way. Average consumption patterns and lifestyles demand the resources of 1.6 planet Earths, according to data from the Global Footprint Network. According to estimates from the UN World Food Program, 795 million people remained chronically undernourished in 2014. And in 29 developing countries between 2002 and 2011, there was no available data on measurable poverty trends at all according to a 2016 report from the UN Association – UK.

In response to these challenges, bodies like the United Nations have created formal programs to tackle such problems, such as the 2030 Agenda for Sustainable Development. Initiatives like the UN Sustainable Development Goals (SDGs) are designed specifically to recognize the most pressing international issues affecting people of all ages, and provide 17 specific goals with solutions that present a critical opportunity to promote sustainable growth for all.

Current initiatives to support investment in the SDGs appear to be bearing fruit. There is already broad interest in including sustainability criteria in key decision making. Global financial assets managed according to responsible investment principles stood at $22.9 trillion in 2016, up by a quarter since 2014 and representing around 26% of all global professionally managed financial assets, according to the 2016 Global Sustainable Investment Review from the Global Sustainable Investment Alliance (GSIA).

Additionally, firms representing $62 trillion of assets under management are preparing to incorporate environmental, social and corporate governance (ESG) factors into their investment decisions (whether through negative screening, integrative approaches or active ownership), based on the 2016 Responsible Investment Market Update from the UN Principles for Responsible Investing.

Millennials have a particular affinity for incorporating sustainability criteria into their consumption and investment behavior. However, more broadly, demand has grown across age cohorts for sustainable and impact investments (financial solutions that exhibit a “dual bottom line” of positive societal and financial returns).

Impact investment assets increased to $77 billion in 2016 from $10.3 billion in 2013, based upon a survey of 158 investors undertaken by the Global Impact Investing Network (GIIN). Our analysis suggests the appeal of impact investing is growing for ultra-high net worth investors, too. For example, the 2016 Global Family Office Report, a UBS and Campden Wealth joint publication, finds that 32% of surveyed family offices are already either somewhat or highly active in impact investing, while a further 30% of family offices are likely to become more active in this field over the coming years.

Governments, non-governmental organizations and private bodies are working hard to funnel even more capital toward the promotion of a more sustainable world economy. That said, few initiatives focus on drawing private wealth capital into funding sustainable and impact investment projects, as private investors often feel hindered from doing so.

The imperative to break down these barriers to investment could grow stronger, given that the millennial generation is poised to control considerable sums of wealth and is particularly desirous to deploy this wealth in projects that have a positive impact on society.

 

(This post was written by UBS Wealth Management’s Chief Investment Office (CIO) and is based on published CIO research.)

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