Authors and Contributors: Sankar Krishnan, Executive Vice President, FSSBU; Alok Gupta, Principal, Capgemini Consulting; and Falak Gupta, Associate Consultant
One way to view millennials is that they’re highly educated, diverse, self-confident, ambitious, and thanks to having grown up in the digital revolution –incredibly tech savvy. They are constantly challenging norms, setting new trends, and driving changes in consumer behavior.
Compared to previous generations, millennials are more aware of social issues and have a greater desire to contribute towards positive change. To this generation, social impact is not just about philanthropy, it is about a collaborative and multifaceted approach to addressing societal issues. It is deeply embedded in their personal values, and a driving force behind their actions— be it deciding which employer to work for or where to buy their clothing. Social impact is a front-of-mind consideration and the emphasis that millennials place on it has contributed to the emergence of new investing and business models, including impact investing, crowdfunding, and social entrepreneurship.
Millennials wish to allocate a portion of their funds to sustainable, responsible and impact investments that align with their personal values
Millennials currently hold over $1 trillion in wealth[i] and are estimated to inherit $30 trillion over the next 30 to 40 years[ii]. When it comes to investing, financial return is not the sole factor they consider; an increasing number of these young investors want their investments to reflect environmental, social, and corporate governance (ESG) factors. According to a study conducted by Morgan Stanley, 86% of Millennials say they are interested in social impact investing[iii]. 93% agree that social or environmental impact is important to investment decisions, compared to 58% of average investors[iv]. A study conducted by BNY Mellon found that millennials are willing to allocate on average 42% of their portfolio to social finance products[v]. Given that millennials are nearly twice as likely to invest in ESG-focused companies and funds, impact investing should be at the forefront of conversations between financial institutions and their millennial clients.
Impact investing has grown in both size and sophistication
Whereas in the past, impact investing came at the cost of financial returns, the area has developed to the point where funds and portfolios meet and often exceed market benchmarks. In certain cases, they have been shown to have lower median volatility and less vulnerability to negative headline risks, large-scale lawsuits or environmental risks[vi]. In 2016, $8.8 trillion were held in sustainable investments, more than doubling over the past four years (Figure 1). Currently, SRI investing accounts for more than 20% of AUM in the US[vii].
Figure 1: Sustainable investing has grown 135% from 2012 to 2016
Source: Report on the Sustainable and Responsible Investing Trends in the United States, 2016, U.S. SIF Foundation, Nov. 2016
Hardeep Walia’s brilliant work on the company Motif gives investors the chance to invest in or custom make portfolios centered on a particular theme, trend, or strategy. Investors can also supply the algorithm with causes they care the most about, such as a sustainable planet, fair labor practices, or good corporate governance, and based on these responses, invest in an automated portfolio aligned with their values[viii].
Crowdfunding models allow users to select which causes to contribute towards and see the outcome of their investments
Crowdfunding and peer-to-peer lending models appeal to millennials due to their unique value propositions, a seamless end-to-end digital experience, and increased transparency and accountability. There are over 500 crowdfunding platforms, including Kiva, Kickstarter, Indiegogo, and GoFundMe. These platforms connect fund seekers to like-minded private investors and facilitate the issuance of debt, equity, reward, or donation. Individuals select projects that resonate with their personal values and often end up forming emotional connections to the campaign, cause, company, etc. that they’re helping fund. 87% of crowdfunding donors believe that these platforms help contributors feel more connected to the projects they support[ix]. The digital platforms provide low-cost portfolio diversification, ease of information sharing, and an effective feedback loop. They also offer transparency through intuitive dashboards and metrics, leveraging data analytics to quantify the impact of investments and report this back to the user in real-time[x].
Figure 2: Over $34 billion was raised through crowdfunding in 2015
Source: Massolution Crowdfunding Industry Report 2015
Millennials buy from companies whose products or corporate practices have a positive societal or environmental impact
Millennials tend not to support institutions or businesses that are in conflict with their own views of social impact. As consumers, they are attracted to companies whose business models have an intrinsic social impact component instead of approaching corporate social responsibility as an afterthought. 37% of millennials buy products associated with a cause, compared with 30% of non-millennials[xi]. They’re also advocating for social entrepreneurship, and helping launch companies that blur the lines between for-profits and not-for-profits. 75% have said that it’s important or very important for a company to give back to society instead of just making a profit[xii].
Impact is a major component of millennials’ decision-making process
Social finance, sustainable products, and socially responsible companies strongly appeal to millennials by offering them something more than just financial gain or material benefit: a way of making positive change in society. Millennials’ decision-making criteria for everything – where to shop, where to work, how to invest, etc. – includes the societal impact of the action. Corporations must understand the weight that younger generations place on social responsibility and create new or leverage existing products and business models that reflect this attitude.
[i] Pitchbook Data 2017
[ii] “The “Greater” Wealth Transfer: Capitalizing On The Intergenerational Shift In Wealth”, Accenture, 2015
[iii] “Are Millennials Democratizing Sustainable Investing?”, Morgan Stanley, March 6, 2017
[iv] U.S. Trust Insights On Wealth And Worth® Survey, 2016
[v] “Generation Lost: Engaging Millennials with retirement saving.”, BNY Mellon, 2015
[vi] “Are Millennials Democratizing Sustainable Investing?”, Morgan Stanley, March 6, 2017
[vii] US SIF Foundation Biennial Report 2016
[viii] Motif website
[ix] Shared, Collaborative and On Demand: The New Digital Economy, Pew Research Center, May 19, 2016
[x] “Crowdfunding for Impact in Europe and the USA,” Toniic, 2013
[xi] The Millennial Consumer, BCG, 2012
[xii] Elite Daily Millennial Consumer Study, 2015