A New Breed of Investors Are Driving Purpose Plus Profit
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Unlike their predecessors from a decade ago, investors today are driven by more than just profits. Purpose and impact are becoming increasingly important to retail investors, angels and VCs. The shift to responsible investing has been hastened as a result of the pandemic. Even large institutional investors are getting into the socially responsible investing game.
Most notably, Blackrock CEO Larry Fink penned a letter to shareholders that pointed to the pandemic as an accelerant of change, “a stark reminder of our fragility that has driven us to confront the global threat of climate change more forcefully.” He continued, “We know that climate risk is investment risk. But we also believe the climate transition presents a historic investment opportunity.”
The tectonic shifts he points to are supported in a solid business sense, such as rapidly evolving innovations in renewables and mobility, but also due to increasing participation by a new younger generation of investors that understand and are grappling with the existential risks of irresponsible corporate behavior.Related: How to Succeed as a Millennial Entrepreneur
Millennials invest sustainably and for impact
In spite of the bad rap millennials get when it comes to self-absorbed Instagramming, they aren’t happy sitting idly by living off their boomer parents. Even though they’ve had it rough coming into the workforce, saddled with more than $1 trillion in debt, and facing the toughest job prospects in a decade following the Great Recession, these avocado-toast lovers aren’t focused on just collecting a paycheck. They’re making waves with new financial instruments, hodl’ing crypto, driving growth in emerging markets and putting their money where their values are.
Technology has enabled new strides for this digitally native generation, with innovations that have opened up the retail investment markets driven largely by viral apps such as Robinhood, Reddit armies and Bitcoin ascendance. While many young people (and older) are motivated by the flashy Lambos and penthouse parties synonymous with crypto castles, there are those that are moving markets to impact with the rise of ESG (Environmental, Social and Governance) investing and other purpose-led financial instruments. Not only that, millennial investors are driving growth in emerging markets. Given that emerging markets are home to 86% of the world’s millennials, that’s no surprise.
Rise in new technology
New technologies and financial instruments are also democratizing the investment landscape and opening up the world of retail investing to anyone with a smartphone. Before its recent GME debacle, Robinhood was the darling of industrious millennial investors driving its valuation to over $11 billion last year, largely because of the small-bet fractional investing that's enabling small retail investors to put their money into stocks previously out of reach. Can’t buy Amazon at $4,000 a share? Buy a fraction of a share and still get in on that upside. It's understandable that millennials would flock to an app that would allow them to invest and benefit from the brands they’ve grown up with and are being used by all of their friends and family.
The same is happening in alternative investment vehicles, where innovative platforms are opening up investment opportunities that have been available to larger investors. These include “crowdfunding” platforms such as Republic.io, but also more innovative platforms that allow smaller main street investors to access new market opportunities such as investing in emerging markets.
The largest wealth transfer in history is currently underway as boomers transfer assets and inheritances to their millennial progeny. These do-gooders are customizing their investments to correspond to their values and especially keen on companies with strong ESG factors. A recent survey showed that “87% of high net worth millennials prefer going through the company’s ESG before investing in it. In fact, 17% of millennials prefer investing in companies with high-quality ESG practices, compared to 9% of non-millennial investors."
And institutional markets are responding and following in the footsteps of Blackrock, with a recent survey by Brown Brothers Harriman citing nearly three quarters of money-manager respondents planning to increase their allotments to ETFs with an emphasis on sustainability.
Regulatory climate is Opening up
Getting into the startup game has always been a challenge for those not meeting the mark of accredited investors, but with new financial instruments such as Reg CF, anyone can play in the field that was once only the purview of the ultra-wealthy. And because the regulation was recently updated to enable startups to raise up to $5 million from the crowd vs. the previous $1.07 million, we will undoubtedly see a groundswell of new companies seeking to raise through Reg CF vs the traditional VC route and smaller investors rushing into the game.
What’s the next frontier in responsible and social investing?
As the fastest-growing continent on the planet, Africa’s urban population is expected to nearly triple by 2050. As it grows by over a billion, Africa will face immense challenges arising from the increasing needs of a growing populatio. But it also poses an untapped opportunity to drive both purpose and profit, as sustainable growth will be necessary not only for the countries and populaces themselves but also for the Earth.
For investors seeking socially responsible profits, Africa holds a unique opportunity and its promising potential is being validated with recent unicorn valuations such as Flutterwave, an African fintech company that has built a payment infrastructure for global merchants and payment service providers across the continent.
Whether you're starting local or thinking global, there's almost nowhere in the world where you can't invest responsibly and profitiably. And that's a notion that should appeal to any generation.