A colleague and friend of mine recently directed my attention to an article about recent research relating to the demographics of impact investors. The research was conducted by the Women’s Philanthropy Institute at IUPUI and analyzed the profiles of impact investors, awareness of impact investing, and possible substitution effects of impact investing on traditional charitable giving. Overall I found the results to be informative, although not entirely surprising.
There are a few points I wanted to highlight but I strongly encourage you to check out the article, or better yet, read the full research report. One item to note is that the data analyzed was from the Bank of America/U.S. Trust Study of High Net Worth Philanthropy series, which only surveyed households with an annual income above $200,000 and/or a net worth exceeding $1 million. I do not believe that this limitation compromises the conclusions of the report, however, it is worth noting that data from a broader survey may grant us even greater insights.
Profile of Impact Investors
It is interesting, albeit not surprising, that impact investors tend to be “younger, more educated, and have higher incomes.” The most interesting aspect to me is the age factor, as the income differences were exclusively within a range of high income individuals to begin with. The report demonstrates that Gen-X and Millennial individuals were more likely to engage in impact investing that Baby Boomers, who were more likely to impact invest than individuals of the Great and Silent generations.
Two important questions arise for me here. First, will this trend continue into future generations? Secondly, because this data represents a static picture (no time dimension), is proclivity for impact investing a function of age? Simply, does one’s interest in impact investing decline as one gets older (just as one’s risk preferences may change)? These will be relatively easy questions to answer as this survey (and others) are completed over time, but until then we know for sure that there is a large appetite for impact investing among young investors.
Knowledge Gap
One of the most interesting findings was a somewhat inverted relationship between interest in impact investing and awareness of impact investing by demographic (particularly by age). According to the report, individuals aware of impact investing were more likely to be older, wealthier, and have the same or greater risk tolerance for their personal finances versus their philanthropic finances.
My interpretation is that this represents a massive opportunity among younger investors as they tend to be less aware of impact investment opportunities, but naturally have a greater interest in partaking. Part of our mission at SIII is to increase awareness of impact investment opportunities and ultimately provide direct investment into our social impact fund.
Impact Investing as a Substitute
Another extremely interesting finding was that a non-insignificant portion of impact investors do so in lieu of traditional charitable giving. Men, on average, were significantly more likely to make this substitution than women. Additionally, younger and more educated individuals were also more likely to forgo traditional charitable contributions for impact investing.
The authors of the report raise the important question of how this affects how non-profits may potentially need to re-think about how they go about fundraising. I would just add to their commentary that from my experience, younger investors increasingly want to be assured that their contributions to a cause have an effect. In the near future, the average donor will not be content to simply drop off some goods or write a check to a non-profit and assume that their contribution will matter. Increasingly donors (especially financial ones) need to see evidence of impact. With nearly 5 years of experience in developing models to evaluate social impact, this is an area where I’d be happy to consult with any organization if there is interest.
Barriers to Impact Investing
The final idea that I wanted to highlight was not a finding, but a question the authors propose for further research. Specifically, the researches suggest we discover more about the barriers present to impact investing, including, but not limited to, risk tolerance and personal beliefs about investing.
From my perspective this is crucial and would be very interested to know what types of things people would want to see to get excited about impact investing. For example, how far would rigorous, standardized, Social Return on Investment calculations take us in helping increase the confidence of impact investments?
I hope this provoked some thoughts and ideas around impact investing and I’d love to hear what you think about this topic. The report contained many other findings that I did not outline here, so again I encourage you to read the full report. Check back next week for a discussion about “effective altruism” and how we can all be smarter donors.
Author: Bryan Keller
Date: 06/14/2018