Seven out of 10 high-net-worth (HNW) Americans have more confidence in the private sector to solve social and environmental problems than the public or nonprofit sector. Another six in 10 believe that private capital invested in social and public programs can produce superior outcomes, all while ownership and interest in impact investing climb.
Understanding how and why individuals make impact investments is an increasingly important component of nonprofit management, according to Jackie VanderBrug, managing director of U.S. Trust, a subsidiary of Bank of America.
“I think that nonprofit executives that look at impact investing as a trend to be welcomed and embraced are going to be the ones ahead of the curve,” she said. “Impact investing is not going away. It’s fundamentally changing how investments are being made by individuals and fund managers. Understanding that and what it means to your donor base, constituency and board members is an important part of a nonprofit executive’s job.”
U.S. Trust surveyed 684 HNW individuals, all with investable assets of $3 million or more, and found increasing interest and activity in social impact investing, particularly among women, Millennials and Gen Xers. Overall, 11 percent of those surveyed owned social impact investments and 27 percent were interested, but women, 15 and 38 percent, Gen Xers, 24 and 31 percent, and Millennials, 28 and 57 percent, all exceeded averages.
Women are 59 percent more likely to make impact investments than men, VanderBrug said. “We can surmise at some level that women tend to be more holistic in how they look at the world,” she said. “Women are less focused on their investments meeting a benchmark and are more focused on their investments meeting their goals.”
Those goals can range from sending children to college to global initiatives. This isn’t to imply that the bulk of investors are looking for less return on investment in order to make the world a better place. The majority of those surveyed, 58 percent, expect market-rate returns on impact investing – a desire validated by initiatives such as workplace diversity and reducing resource footprint having positive affects on corporate performance.
Impact solutions are outperforming 60 percent of their peers in Bank of America Merrill Lynch’s platform, according to VanderBrug. Other key findings from the report include:
* The percentage of higher net-worth individuals, those with investable assets of $10 million or more, owning social-impact investments has tripled in the past year — from 9 percent to 27 percent. Those with investable assets between $3 million and $10 million have ownership rates standing at 10 percent;
* Environmental protection and sustainability is the issue that matters most to HNW investors, followed by healthcare equality and access; disease prevention, treatment and cure; access to education; and assistance for veterans; and,
* It’s the right thing to do, 54 percent, belief that corporate America should be held accountable for its actions, 53 percent, and strong feelings about particular social, environmental or governmental issues, 50 percent, are the most common motivators for impact investing. An aversion to mixing philanthropy with investing, 56 percent, trouble measuring impact, 30 percent, and unwillingness to accept lower returns on investment, 23 percent, are among the top barriers.
It is not believed that impact investing is cannibalizing dollars that would otherwise go to philanthropy, VanderBrug said. Nearly three-quarters, 74 percent, of those surveyed give financially to nonprofit organizations and 61 percent volunteer. Instead, impact investing is viewed by HNW individuals as one tool to impact social change, with philanthropy serving as another.
Those surveyed indicated that the area nonprofits can improve the most is identifying and reporting outcomes. Identifying and reporting outcomes was most important to Gen Xers, 61 and 29 percent, followed by Baby Boomers, 47 and 27 percent, matures 44 and 30 percent, and Millennials 41 and 10 percent.
“This is not about confusing philanthropy. Our clients are extremely philanthropic and we don’t think that that should stop,” VanderBrug said. “My experience is that most individuals who are interested in impact investing are also very philanthropic. They understand that all sectors of the economy need to work.”