LONDON (6th August 2018) – Social impact investment and philanthropy is already a vast sector but it is also one Simon Ramery expects will see huge growth and innovation over the next few years
With demand for impact investing estimated to reach as much as $1trn (£769bn) by 2020, today’s high-net worth individuals (HNWIs) and family offices are increasingly recognising that making a positive difference with their capital is often also the way to generate good returns.
‘Impact investing’ refers to an investing style that looks to generate attractive returns for the investor while having a positive social or environmental impact. It is part of the vogue for greater accountability and transparency within financial services and was originally pioneered by a small group of well-known individuals including the likes of Bill and Melinda Gates.
Today, many HNWIs and family offices devote a portion of their investment firepower to impact investments. According to The Global Family Office Report 2017, more than a quarter of family offices (28%) are actively engaged in impact investing, and two-fifths plan to increase their allocations in 2018.
Similarly, our own research of the Capitama network in May 2018 indicated that, of the £10bn annual investment capacity, the network was willing to commit more than £400m annually to social and philanthropic opportunities. This is down to a number of factors.
First, the desire among wealthy people to undertake ‘good works’ and philanthropic activities is nothing new. Impact investing simply enables individuals and family offices to embed their values, their passions and their interests into their investment strategy, rather than treating investing and making a positive difference as two separate things. This means their investment strategy mirrors some of their philosophies, leading to a much more joined up and emotional attachment to their investments.
Second, the rise of ethically-conscious high net worth millennial investors, who are increasingly getting more involved in decision making within the family office structure, is driving family offices’ approaches to impact investing. The 2017 US Trust Insights on Wealth and Worth survey found, for example, that 88% of millennials consider the impact on the society and environment as an important factor in their investment decisions.
As such, at Capitama, we are seeing a range of social impact opportunities including the Shakespeare Globe, and City Harvest, a charity that collects surplus food from supermarkets wholesalers and the hospitality industry and delivers it fee to recipient programmes, including youth, family and elderly centres, food banks and homeless shelters.
Digital and social media have also had a part to play in increasing the reach of impact investing. We can see the impact of the ‘Blue Planet’ economy on our screens, our Twitter feeds and our devices at any time. Viral videos spread and share stories of the impact humans can have on the planet – both positive and negative – within hours. It is so much more immediate now – and that informs people’s investment strategies.
Another consideration is that many within the ultra high net worth community are focusing some of their funds towards donation opportunities rather than the typical investment focus. Although for these prospects there is no financial return, they can provide legacy benefits such as naming a hospital wing, or library and, more importantly, generate a hugely positive outcome for society.
Impact investing offers a compelling response to these types of issues, giving investors the opportunity to drive change and to be part of something that makes a meaningful and measurable difference. It is also worth noting that the minimum investment into social impact and philanthropic opportunities is often much less than other sectors, such as growth and early investment prospects.
Social impact investment and philanthropy is already a vast sector but one that we expect will see huge growth and innovation over the next few years.
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