Simply giving is not enough. There is huge potential in investments where the social good is at least as important as the profits. This so-called impact investing is seen as the most promising trend in philanthropy, according to New Philanthropy: Building Lasting Change, a new report from BNP Paribas Wealth Management. But there is more convergence as philanthropy, wealth management and lifestyle become interlocked.
The amount of current assets under management devoted to impact investing is estimated to reach between $400 billion and $3 trillion by 2020. An impressive number, but less so when put in perspective: total assets under management are expected to grow to $102 trillion by 2020.
There are several reasons to believe that the growth of impact investing will accelerate, according to Glenn Yago, founder of the Financial Innovation Lab at the Milken Institute.
First, Millennials are altruistic and want to make sure their investments will lead to social outcomes. For example, a Spectrem group study found that 45% of wealthy Millennials want to use their money to help others and consider social responsibility a factor when making investment decisions, according to the Stanford Social Innovation review.
Second, impact investing and traditional for-profit investing have been permeating each other. Credit rating agency Standard & Poor’s changed its ratings analysis for multiple corporations based on their social and environmental results. ESG (Environmental, Social, Corporate governance) metrics have become a common measure of corporations for investors and asset managers.
“What we hope for is that impact investing will just simply become the way people invest,” says Julie Shafer, Head of Strategic Philanthropy and Purpose Investing, Bank of the West, which is part of the BNP Paribas Group. In fact, a majority of philanthropists already believe that strategies such as divesting from fossil fuels are important for achieving sustainability.
Third reason for the rise of investing is that investors lost so much money in 2008 on for-profit financial products that were considered high grade that they realized the importance of investing in new areas. This makes impact investing more desirable. While the profits can never be certain with any kind of investment, with impact investing there is a built-in guarantee of social good.
“In the past, people separated investing and philanthropy. You made money, and then you made up for it by giving it away. But now smart investors are seeing the holistic opportunities to make real impact and profit in the ecosystem of socially good, for-profit business,” says Ramona Liberoff, CEO of Spring accelerator, which accelerates businesses transforming the lives of adolescent girls living in poverty across East Africa and South Asia.
Alexandre Mars, founder of Epic, a foundation that aims to create tools and technology to help the new generation of donors, follows the rules of the business world when creating a philanthropy portfolio. The vetting process involves 45 KPIs. After choosing the top philanthropic organizations, Epic goes on a roadshow in 15 cities “where the money flows,” including Hong Kong, Los Angeles, Paris and London. During this IPO-inspired tour, he “sells” the philanthropic organizations to potential donors, such as family offices, private banks, corporations or influencers (artists, singers, actors).
Donors have a choice whether to give to the portfolio or cherry-pick which projects they prefer. Epic then uploads local data about the philanthropies’ results into a tracking tool. “The non-profit world is broken. There are so many people with money and the will to do more, but who do not have enough knowledge,” says Mars.
This year’s BNP Paribas Wealth Management philanthropy report also looked at how philanthropists’ lives are integrated with their philanthropy, in terms of their investments, business activities and lifestyle. For half of philanthropists surveyed for the report, philanthropy and their life are integrated. They have their investments, business activities and lifestyle mostly aligned with their philanthropic goals. For a quarter of philanthropists, philanthropy is completely aligned with their lives.
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