During the annual gathering of the European Venture Philanthropy Association on December 2 and 3 in Madrid, which saw record 520 registrations, one of the emerging themes that received some air time was Millennials and their approach to Venture Philanthropy.
For the sake of clarity, Venture Philanthropy is an approach to strengthening social purpose organizations using both financial and non-financial support and is characterized by high, multi-year engagement, tailored financing, organizational capacity building and performance measurement; Millennials, or Generation Y, comprise the generation born between 1980 and 2000 and its members are the primary beneficiaries of the biggest private wealth transfer in history,$40 trillion in the U.S. alone, with the transfer reaching its peak between 2031-2045, according to Accenture. Indeed consultancies and financial advisories are rushing to gain an understanding of what drives this cohort and how to respond to its values, which, according to all the data, differ materially from previous generations. A few key trends emerge in particular:
Investment as an expression of values: According to U.S. Trust’s ‘Insights on Wealth and Worth’ study, wealthy millennials are almost twice as likely as their grandparents to regard their investments as a way to express social, political, or environmental values, and nearly three-quarters of millennials believe that it is possible to realize market-rate returns investing in companies based on their social or environmental impact. If this premise holds true, this will be the generation, at least at the high-net-worth-individual-level, which will take impact investing mainstream.
Scepticism about financial markets: Millennial attitudes towards traditional finance are highly-influenced by the major financial crisis of the late ‘oughts’ and the seemingly endless line of banking and finance scandals that have followed. It is therefore not surprising that they are more likely to regard financial markets and advice received by financial advisors with greater scepticism than their parents. They are more likely to do their own research on investments and identify as more conservative investors than the Baby Boomer generation, again according to Accenture. This may represent a holistic shift to alternative, more hands-on investment approaches, paving a smooth transition towards impact investing. If it is true that 90 per cent of inheritors fire their parents’ financial advisors on receiving their inheritance, as cited by Institutional Investor, there is an acute need for these advisors to begin to incorporate impact into the traditional risk/reward axis.
More than money: From my experience working with (an admittedly elite subset of) Millennials, I’ve seen a desire to buttress their financial investments in socially and environmentally-innovative causes with active involvement using all the resources they have at hand. This approach is not by any means exclusive to or even driven by Millennials, the Venture Philanthropy movement is squarely the product of Baby Boomers, but it is interesting to observe how naturally the lines blur between investor and entrepreneur as well as employee and volunteer.
I moderated a panel on the topic with a mix of participants ranging from a millennial social entrepreneur, a millennial who is the founder of her own foundation focused on refugee integration in Europe, the head of a network of philanthropy-focused high net worth families in Germany, and an impact financial analyst who is also driving the change towards impact investment in her own family. Interesting to see that all panellists take a very active approach to investing, considering the financial investment just one aspect. Corinna Krome, founder of the Ubuntu Foundation, works directly with refugees to assess needs, lectures on the topic at universities, works to bring about change at the policy level, and uses music as a means of getting her message across, she is the guitarist in the French indie-pop band Yalta Club. Natalia Perry, the social entrepreneur who leads two social enterprises in Indonesia, Safe Childhoods and Leadership Islands, spoke of the differences in dealing with Generation Y impact investors relative to investors from prior generations. She feels this younger generation better understands the urgency of climate change and recognizes that we need all hands on deck, so to speak, now in order to mitigate the devastating global damage that is only years and decades away.
Millennials do not represent a panacea to the world’s social and environmental problems. First off, most of the research that has been conducted is highly-biased towards western elites, perhaps not a surprise if the banks and consultancies funding many of these studies are targeting this demographic as clientele. Would a 23 year old in Madrid who, like 50 per cent of people under 25 in Spain is unemployed, identify with the Millennial movement, which seems to be so much about individual choice? Where are the voices from Africa and Asia in this conversation? Nevertheless, Generation Y is increasingly looking like the first generation that will integrate the principles of impact investment in their financial choices as a matter of course.
Ryan Little leads the social finance practice at the BMW Foundation. (@ryanglittle)