Transfer of wealth will see increased emphasis on investments doing good, says Kleinwort Hambros' Head of Philanthropy, Rebecca Constable.
Millennials will drive focus on philanthropy
Over the past two years, individual charity donations in the UK have totalled just shy of £10bn. But for all this generosity, when forced to choose, investors will prioritise performance over ethics.
This truth was underlined at Kleinwort Hambros’ recent Spring Investment Conference in London, where we asked the audience what was their main priority when investing - investment performance or social impact? An overwhelming 93% chose performance while only 7% opted for social impact.
This came as no surprise, although I suspect the result might not have been so stark if we had offered a third option of ‘Both’. However, even if an ethical approach undeniably comes second to returns, social responsibility is still a concern for many investors.
Indeed, the concept of social impact in investment is not new, we have been talking about carbon credits since the turn of the century. And the consideration of sustainability continues to become more central in investment decisions, even if cold hard returns remain at the heart.
It has been misleadingly easy to sideline ethics, but a generational cultural shift is likely to see a change in attitudes, and bring social responsibility to the fore.
Two significant statistics will combine in coming years. First, the biggest wealth transfer in history is about to happen, with somewhere in the region of $4tn being passed down to so-called ‘millennials’ (those born during the last 20 years of the 20th Century) as inheritance or gifts from their wealthier baby boomer parents. Second, those millennials place far more importance on their investments not just doing well, but doing good. 80% of those polled recently said they care about how their investments are made.
We should all be preparing for this shift. Already environmental, social and governance (ESG) factors have become central to many investment decisions. Social impact is now a key factor and it is accepted that a well-run company will have a good mission statement, outlining how that company will interact with society and the wider environment. Indeed, there is evidence that those companies who take ESG factors seriously actually outperform.
Technological advances can make an ethical approach to investment easier to implement. Through Blockchain for example, we can now trace whether a food supplier has a sustainable source of palm oil, or whether an energy company is engaged in biodiversity.
Many – or most - will undoubtedly continue to put profit first, but it should be clear by now that in reality there is not a binary decision to be made. Good environmental and social governance is already a central part of well-run companies. Ensuring your investments have a traceable positive social impact does not mean you have to compromise on performance.
Rebecca Constable is Head of Philanthropy at Kleinwort Hambros Private Bank
Kleinwort Hambros has a wealth of experience in helping individuals, families, entrepreneurs, charities and their advisers to manage their financial assets, whether they are based in the UK or overseas.