Will next gens become impact investors?

Julia Balandina Jaquier

Are young wealth holders more likely than previous generations to be involved in impact investing? Based on my experience of working with them, first while researching and writing the Guide to Impact Investing for Family Offices and High Net Worth Individuals[1] and then through consulting and training, the answer is a definite ‘yes’.

Next gens are more widely travelled and globally connected than previous generations, which creates both greater awareness about social problems and a desire to contribute creative solutions. As one put it: ‘In the end we are just a subset of a generation which is more conscious of social and environmental problems and more engaged in finding the solutions.’ Impact investing is also much more developed now than it was 20 years ago. A variety of investment opportunities are available across themes, asset classes, geographies and risk/return profiles, which means a strategy can always be created to fit an individual investor’s objectives and circumstances.

What attracts next gens to impact investing?

Based on my experience, the following seem to be the most common drivers:

Desire to catalyse sustainable change and not create dependency
Many young wealth holders do not believe in traditional grant-based philanthropy. They want to bring measurable and lasting change. ‘Charity does not work,’ I often hear. ‘I want my money to move a needle, to make a meaningful and concrete contribution.’ Impact investing attracts them through its focus on addressing the root causes of problems, supporting ‘self-help solutions’ rather than handouts, and the measurability of impact

Wealth generators’ and business families’ belief in business solutions and willingness to roll up their sleeves
Many next gens, especially wealth generators or those from business families, believe that innovative, entrepreneurial businesses with a social mission can solve some problems better then NGOs. They often feel an affinity with social entrepreneurs and are keen to use not just their money but also their experience, talents and networks to help these businesses succeed. ‘Helping people in a more entrepreneurial manner – that fits my background, my strengths and that’s what I like as well,’ says one.

More holistic approach to life
The current generation of young wealth holders are generally more open, connected and transparent. ‘We want more coherence between all parts of our lives, to have one consistent public persona,’ says one. Another concurs: ‘We think it is useless to get one hand dirty and wash it with another hand; we cannot support hypocrisy in running a family business that does not pay a living wage and then having a family foundation fund poverty projects.’

Being at peace with their wealth and finding their role in society
Involvement in impact investing ‘has taken away the feeling of guilt for being wealthy’, says one young wealth holder. ‘I am happy to sustain my wealth now and I feel proud of it because I can use it to make a difference.’ Another, investing in social enterprises, observes: ‘Becoming part of this community helped me to feel productive, to find myself.’

Doing good but not squandering wealth
The fact that impact investing can protect and even increase wealth attracts inheritors who may feel a responsibility to preserve their wealth but at the same time want to use it to make a difference. ‘It allows us to have a purpose, a real engagement with the world, without appearing indulgent and wasteful.’

A particular appeal for women
Impact investing appeals especially to women, who are traditionally less involved in investing and often intimidated by wealth advisers because of their lack of investment experience. The idea of driving positive change through investments helps them overcome this.

It is fun
Like most young people, next gens are attracted to what is ‘cool’ and ‘fun’. Impact investment ‘is exciting because you need to take on a greater challenge, in an area that is new, and you can be a pioneer’

An additional ‘perk’ of impact investing is that the experience it brings often helps next gens gain the respect of the family elders, leading to greater responsibility within the family (business) hierarchy.

Are the above trends universal?
Having written the above, I wondered: ‘What if I am biased, having dealt primarily with next gens who were already interested in impact investing? What if the others don’t care about impact investing at all?’

The following week, I attended the Annual Reunion of Young Investors Organization (YIO) in Berlin, which brought together over 160 next gens from around the world. YIO does not have a specific focus on philanthropy or impact investing and can therefore be considered an unbiased sample. Below are some observations from that reunion.

Doing good, but in a different way
Over dinner one night, and without prompting, a Mexican wealth holder who runs the real estate branch of the family business said that at some point he would like to do something beyond making money. Would he start a foundation? No. His way to help ‘will not be through grants but rather by creating jobs’. Like many next gens, he does not like the dependency and inequality that grants create; he wants to be an ally, a partner. The next day another YIO from the Middle East spoke of his family’s disillusionment with traditional charity: ‘We give to the same people year after year and they keep coming back …we just make them dependent on our donations. Social investment could be a better way of helping.’

Significant interest in impact investing
During a panel on impact investing, the moderator asked those who were interested in the idea to raise their hands – and most did. In fact, one YIO, who asked why the banks don’t do more in this area in spite of their private clients’ interest, had come to the reunion specifically because impact investing was on the agenda. While for many YIOs impact investing was a relatively new area, the concept of combining a financial return and social impact appealed to many, as shown by attendance at the two workshops I conducted. Questions focused on ‘how to start’ rather than ‘why to do it’.  It is also telling that for their next annual philanthropy campaign, YIO has chosen to support a selection of social enterprises instead of traditional charities.

Who is interested and why?
For some, like one Polish wealth holder, sale of the family business had created a void. He wanted to know more about impact investing as he thought that self-sustaining businesses with a social mission could become a good fit for the family holding. Similarly, a Colombian woman who had sold the family business told me impact investing appealed to her as she wanted all aspects of her life, including investing, to reflect her values.

Finally, a group of female YIOs, who were considering joining forces on impact investing as it felt a bit scary to start on their own, said that their motive was the possibility of making an impact while preserving wealth, for which they felt a fiduciary responsibility.

Some are already involved
Between 10 and 15 per cent of YIOs claimed to be involved in impact investing. A YIO member from Saudi Arabia, whose family plans to set up an impact investment fund, told me that a number of his fellow third generation family members are already involved in this area, including investing in a pre-school in a very poor neighbourhood, which has enabled over 50 mothers to find part-time work. Confirming my earlier impression, he said that, though they have little interest in the family business, female family members are particularly keen on these social investment initiatives. He thinks that in future the family holding will include a greater number of such socially motivated businesses, especially as the family members who started them have gained respect and are now more involved in the family business.

Why is it attractive?
Viola Werner, YIO founder and general manager, summed up the general view of the network: ‘As the next generation we obviously feel responsible for the future and we understand that how we invest today will have an impact tomorrow. Making change happen is what we all want – but first we need to figure out what kind of change it should be and how we can make it happen. Impact investing was always of interest to YIOs, but it was never really understood until today.’

Will they all be impact investors?

As I flew home, I thought about the much-quoted US$40 trillion of wealth, which it is estimated will be transferred to the next generation by 2050. If these wealthy 20- and 30-year-olds are already focused on making their positive mark in the way they manage the family businesses and their wealth and the issues they get personally engaged with, it is highly likely that they will become increasingly involved in impact investing. But it won’t happen automatically. We need to create the right environment, which includes building the skills and capacity of next gens (especially women) to develop and implement good impact investing strategies. This will involve, among other things, effective and practical training and support (for next gens and their advisers), peer networks (like Nexus and YIO) and further development of the impact investing ecosystem.

1 http://www.guidetoimpactinvesting.net

Julia Balandina Jaquier is an independent impact investment expert. She advises global families, private foundations, banks and the Swiss government. Email julia@jbjconsult.com

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