Millennials Will Make Impact Investing Mainstream
As younger investors attain more wealth, doing good will matter as much as making a profit, says Fidelity Charitable.
Impact investing will likely become a mainstream investment strategy as millennials attain more wealth, according to a Fidelity Charitable study that found that 61% of millennial investors already practice impact investing, compared with only one-third of all investors.
“We find that investors are increasingly interested in aligning their investments with their broader values and desire for social change,” Scott Nance, vice president of impact investing at Fidelity Charitable, said in a statement. “And the trend toward values-based investing will only grow as millennials come to control a larger share of wealth.”
Although impact investing typically differs from traditional investing in that it prioritizes achieving social good over financial returns, the study treats ESG investing as a subset of impact investing.
The study found that while millennials are in the lead when it comes to impact investing, older generations are starting to catch on. Only one-third of all investors engage in impact investing, but 40% of non-participating investors said they will consider making their first impact investment within a year, while 60% said they aren’t likely to consider it.
The study observed that the main barrier keeping many investors on the sideline is a lack of knowledge, rather than disagreement over the concept of impact investing. It found that 39% said they weren’t participating because they didn’t know enough about impact investing, while 14% said investment decisions should be based only on returns, and another 14% said they didn’t believe impact investing was an effective way to solve problems.
“As investors gain more experience and options continue to become more accessible, many investors plan to increase their impact allocation,” says the report. “A significant portion of those who haven’t yet made an impact investment say they are likely to consider doing so in the next 12 months—further reinforcing that the strategy is gradually becoming more mainstream among everyday investors.”
Among investors of all ages who currently participate in impact investing, the most common method was through mutual funds or indexes made up of companies screened for certain established criteria, which was cited by 45% of respondents. The next most common way, which was named by 43% of respondents, is avoiding investments in individual companies or industries they feel have a negative impact. Other methods include investing in private funds that focus on companies with social or environmental benefits (36%); investing in small businesses or start-ups that focus on social or environmental benefits (36%); participating in peer-to-peer financing or microloans (20%); and providing loans to charitable organizations (20%).
“Younger generations bring a new mindset to their everyday decisions—seeking to align their choices with their values, including financial and investment decisions,” says the report. “As these investors continue to grow their wealth, impact investing could quickly shift from an emerging trend to a mainstream practice.”