Generational Musings on Impact Investing: Are They Worth the Paper?

Abacus” by Jaya Ramchandani

September 20, 2017; Fast Company

The public’s obsession with the behavior of millennials continues. Last week, Fast Company wrote that as millennials inherit wealth, their participation in impact investing might significantly increase, maybe. The article quotes Campden Wealth’s director of research, who indicates that impact investing “is an area worth watching. While we’re at 28 percent now, we could see a significant shift in impact investing over the next 10 to 15 years as the next generation takes control of the family wealth.” Morgan Stanley’s report also reflects the same prediction. Their report indicates that over 75 percent of millennials believe their investments can “create positive change.”

Of course, the idea of investing judiciously so your investments do not do damage is clearly increasingly a thing, as divestment movements pressure large institutions, for- profit and nonprofit alike, to rid themselves of fossil fuel and private prison investments among others seen as toxic, but that endeavor differs slightly from the idea of impact investing.

This research ought to be taken with a grain of salt—or, perhaps, a whole shaker. Both the Morgan Stanley and Campden Wealth reports project current characteristics into the future, expecting millennial priorities to remain stagnant as time goes on. Millennials fall between 20 and 37 years of age; this is still a young generation and, as such, an idealistic group. Research shows that as families grow and people get older, their investing strategies change. Saving the whales might sound good to a twenty-year-old, but the financial burden of children and aging parents may influence a forty-year-old to focus on financial return. These reports add to the overgeneralization of an entire generation of people.

Moreover, impact investing is still fraught with problems that hinder investments by wealthy people who truly want to make a difference. For instance, since there is no standardized methodology for measuring impact, how will investors know whether they are receiving optimal returns, either financially or socially? Any measurements need to enable investors to weigh social return against financial return, but that is comparing apples to oranges. Is a seven-percent gain a sound impact investment when a negligible social impact was made? It can be difficult to reconcile the two, which makes it seem as if “impact investing” is just a guise for wealthy people who want to make more money but appear socially minded.

For those who truly want to have an impact, it still makes more sense to participate in philanthropic endeavors. Nonprofit organizations have the benefit of solely focusing on impact, as opposed to companies that need to first keep investors happy by churning a profit, as well as make some impact as a second priority. The public knows this; as NPQ has previously reported, the public prefers nonprofit ventures to for-profits with a social mindset. Interestingly, the reason is that “consumers think being charitable is incompatible with making a profit. In other words, they think greed will overcome the desire to do good.” Ultimately, the goal of any investment is to make money, and the greed factor will likely creep in, making impact investments less desirable—millennial or not.— Sheela Nimishakavi