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02 October 2020

Investing for Good: Millennial wealth and its impact on the world

Now, more than ever, humanity can witness at close hand the environmental and social impact of its actions. The rise of the internet began the process, allowing traditional media to be bypassed to highlight stories that may not previously have been told. Social media has further democratised this process, giving ordinary people, sometimes called ‘citizen journalists’, a lens through which the world can both be seen and broadcast. Localism has been made universal and globalism brought home. Our ‘bubbles’ are blown up to be the size of the planet and “I didn’t know” rings hollow as an excuse. The precise originator of the phrase “with great power, comes great responsibility”, is debatable, but the truth of it hasn’t faded since it was first voiced in the 19th century – in fact, it resonates anew with each generation’s desire to change the world for the better. The question to be answered is: if we have the power to know how our choices affect others, then what are our responsibilities?
 
Activism plays a key role in both highlighting global injustices and inequalities and driving political change to remedy them. But it is no new trend; it has been at the foundation of our fights for democracy for centuries, from the suffrage movement in the late 19th century to the early climate change movements in the 1990’s. In today’s world, however, the ever-increasing influence of social media has enabled previously disparate voices to band together, to create a powerful single call for change. Most notably, last year’s Extinction Rebellion protests paved the way for a global movement of activists calling for an end to greenhouse gas emissions and a halt to biodiversity loss. The movement demanded change at governmental level, to stop what it believes would be an ecological collapse that would end the world as we know it. Perhaps though, governments cannot bear the burden alone. Perhaps the responsibility also lies with those that are investing in potentially planet-destroying progress, and those that consume it.
 
ESG investing has changed our investment analysis; it is now the key to better investment outcomes and, ultimately, financial returns. However, I would ask whether the financial aspect is always the driving force behind investors’ decisions. Do people really care whether their money is being used to drive a better world? Most importantly, can they really afford to care?
 
The innate human purpose is to self-preserve and reproduce; to look after ourselves and our own. Though, as the wealth divide has widened globally, we have witnessed a great shift in society’s desire to distribute our riches to causes that are otherwise underfunded; in the UK alone, we donate an average of £44 per month, with 60% of the population giving a proportion of their wages to charities every year. Often though, it is hard to track the impact these donations have, with little tangible evidence of their use. Furthermore, this is an entire transfer of capital, and charitable givers are doing just that; giving their money away.
 
Investment markets provide an alternative way for people to put their money to good work; impact investing. Although a relatively small sector, we are seeing its growth emerge as more than the David of the Goliath markets, and instead, into a credible source of capital funding. The question remains, however, as to how impact investing will gain the traction it needs to make a meaningful difference and generate returns. In come the Millennials, the social media generation and the ones with all the power - will they use it?
 
We are undergoing a generational shift in wealth across the globe, known as ‘The Great Wealth Transfer’. Decades of buoyant asset prices have given way to a generation of investors who are now beginning to pass this wealth down to their offspring, the Millennials.
 
According to research, by 2027 the amount of wealth being passed between generations will almost double in the UK, while it is also estimated that a total of £5.5tn is due to be passed down in the next 30 years.  This is not just hearsay or activist propaganda; research shows that Millennials have a desire to create meaningful change, and they have been making the decisions to back this up. They are more interested, more optimistic and more driven than previous generations and they believe their actions can change the world for the better. Perhaps the urgency depicted in movements such as Extinction Rebellion has played a vital role in this, or perhaps investors are looking beyond all the talk and asking themselves; how can I actually help?
 
The great benefit of investing for impact is explicit in its name; it is not merely a donation, but a tangible use of capital with the perks of capital growth and distribution of returns through dividends. Do impact investments actually provide returns? The spectrum is wide, and the lines are a little blurred, but the principles we apply to any thesis still stand; we look for the fundamental drivers of growth and whether the investment will be put to good use. Ultimately, this is not charity, and frankly, what is the purpose of an investment if it were to lose value? That’s not going to drive growth for your own capital, or provide the return needed for the invested project to grow and develop. The spectrum of investing for impact is wide, but if adopted in the right way can let you have your cake and eat it.
 

HOW DO I INVEST FOR GOOD, BUT ALSO MAKE A RETURN?

Investing in the right trends has been a key element to impact investing, but the fundamentals need to stack up. Philanthropy is all well and good to a point, but you need to see your money work, both for yourself and so it has an impact. Government policies and subsidisation around climate legislation have provided a favourable backdrop for the renewable energy market. We are all too aware the impact of burning fossil fuels has on our health and the environment, making investment in this area an obvious choice. With the help of both government and investors alike, renewables now account for about 36% of the UK energy mix, which has risen from well under 10% in the mid-noughties, making cleaner-energy projects a viable investment with genuine returns.
 
We cannot predict future trends in global consumption, but we can look to emerging opportunities and threats to society for a good indicator. Finite resources, such as energy, water and timber remain key worries for policy makers. With this in mind, we remain cognisant of the investment opportunities available in these areas and will watch closely for innovative solutions to these problems; be it electric vehicles, energy storage, or water conservation. We, as custodians of wealth, need to be at the forefront of capital deployment, when these problems need the money to help solve them, while ensuring our clients remain invested in the most exciting changes to our world as we know it.
 
Investing for Good: Millennial wealth and its impact on the world
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