The Purpose Generation: Putting Impact At The Forefront
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“Be a lamp, or a lifeboat, or a ladder. Help someone's soul heal. Walk out of your house like a shepherd.” – Rumi.
As someone who became an entrepreneur fairly recently, I am constantly asked “why” I started Grosvenor Capital, and why I took this leap to building an entity with a focus on the planet, people, and profit. The answer to all of this is that I wish to embark on a path that is focused on impact- be it driving impact, creating impact, or even facilitating impact.
Now, impact is a term that is being used across the board from personal business plans, to corporate strategies, to investment mandates. My previous articles have strived to define what impact investing is, and this article is to give a brief spotlight on the “why” that drives all of this. Why are we driven to make an impact, and why are we constantly focused on defining our purpose?
As I speak to my peers and the next generation within the family office realm, there is a reoccurring theme of both the millennials’ and the Gen Z’s focus on purpose. According to a recent survey commissioned by Morgan Stanley, 84% of millennials investors focus on ESG (environment, social and governance) impact as a central goal. The demand for sustainable investments is thus being driven, in part, by millennials who prefer to invest in alignment with their personal purpose.
As WEF Davos 2020 came to a close in January, the key focus of this year’s forum was the importance of taking action, and to implement change on the critical issues facing the world. As highlighted by EY, “millennials are achieving greater integration of their wealth and principles by seeking personal fulfilment in their careers, applying a global consciousness to purchases, and investing in sustainable, impactful business models.” This ties in with the overarching theme of WEF, as well as what is today a globally prevalent subject, since we are now in the final decade leading up to realizing the United Nations’ Sustainable Development Goals.
Initially, sustainable and impact investing undesirably screened companies and industries, which often led investors to sacrifice returns for value-aligned investment choices. This was typically due to the lack of measurement tools within the impact space. However, in recent years, investors have used optimistic screening of ESG risk factors to create a contemporary “best-in-class” investment approach that generates performance that is in line with-and often exceeds- market benchmarks.
Furthermore, a report by Morgan Stanley, which evaluated more than 10,000 funds and managed accounts, shows that “investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments.” This shift toward market outperformance in several sustainable investing products has contributed to the increase in demand for these products, which not only generated positive returns, but is also able to assess impact.
So, why do we see this strong appeal for impact investing, and why is purpose at the forefront, particularly for the next generation of investors? According to a report by the Investment and Wealth Institute, there are three key factors:
1. Digital transparency This particular demographic has been influential in transforming the way the world communicates by being fast adopters of social media. After all, “the millennial generation grew as a digital native,” with unprecedented access to information and unparalleled ability to communicate online. Exposure to issues globally is far more tangible, and ideas can become viral in an instant.
2. A growing socially conscious ethos 84% of millennials feel it is their duty to make the world a better place, and this applies to the products that that they buy, to the careers that they want to build. Research shows that our generation is committed to making impact first- decisions are usually derived from purpose-driven reason. As such, investment decisions by the next gen have now gone beyond philanthropy, since there is a greater focus on integrating personal purpose across every facet of their lives.
3. Reimagining retirement Millennials increasingly are looking into impact investment strategies as there is an increasing rise of pension instability globally. Research has shown that the next generation start saving at 22 years, which is almost 10 years earlier than previous generations, such as Generation X at 28 and boomers at 35. The next generation is drawn to investing into purpose-driven transactions, rather than waiting until retirement to start giving back.
The FT highlights that millennials alone are estimated to be in line to inherit more than US$30 trillion in the next 30 years- this will release a new wave of funding for social and environmental causes. The future of finance will be shaped by investors across generations who recognize these structural shifts of capital and approaches. There does, however, need to be a connection of expertise between the traditional investment, in tandem with the energy and drive of the next generation.
Investment professionals need to understand and leverage both the collective and collaborative wealth across the generation spectrum. This was noted by Michael Sidgmore, founder of NextGenEngage, who, in an interview, said: “Experienced investors have capital in the form of experience and expertise. They have lived through multiple market cycles. Younger investors have capital in the form of connections, networks, and an understanding of technology. It will take a collaborative, multigenerational effort to grow the field of impact investing.”
All of this is to say that purpose is at the forefront of the world today, and the effect of the next generation will be undoubtably highly impactful. For my own purpose-driven journey, I remind myself that as I grow, I need to remember that I can be a source of encouragement and knowledge for others as well to focus on their purposes across all facets of their lives.