A new report found that many high-net-worth individuals (HNWI) and wealthy families want to be more value-driven with their money. This is especially true of the younger generation. However, a number of barriers keep them from impact investing.
Big Society Capital and The Beacon Collaborative have come together to make the Individual Impact Investing Commission. This is a six-month challenge to find out what stops wealthy people in the UK from impact investing.
At the moment, the estimations are that the UK impact investment market is worth about £58 billion. It represents between 3.3% and 8% of the global impact assets under management.
What is impact investing?
The Global Impact Investing Network says that impact investments are those that are made with the goal of having a positive, measurable effect on society and the environment as well as a financial return. One can make impact investments in both developing and developed markets. Investors can aim for returns from below market to market rate, depending on their long-term goals.
The growing impact investment market gives money to help solve the world’s biggest problems in different areas. These areas include sustainable agriculture, renewable energy, conservation, microfinance, and basic services like housing, healthcare, and education that are cheap and easy to get.
The Commission has made a report that says many high-net-worth individuals (HNWI) and wealthy families, especially the younger ones, want a more value-driven way to handle their money. But HNWI investors and some family offices don’t usually have the same resources as institutional investors or fund managers. A number of things can held them back, like advisors who don’t know enough or a lack of impact management data.
HNWI investors don’t have the same access as institutional investors
The problems that HNWI and family investors face are not too different from those that other investors face. But they can feel those problems more deeply. This is because HNWI investors and some family offices don’t usually have the same access to resources as institutional investors or fund managers.
This is a frustrating situation that can lead to fewer opportunities, a stop in progress, or it can cause a lot more work than needed. In response to the problems that the report found, The Commission made 12 key recommendations as the best way to help HNWI and family investors in the UK get more out of impact investing.
The barriers and recommendations for more impact investing
This Commission’s list of problems and suggestions center around five main areas:
Impact investment knowledge and expertise, marketing and promoting
People think that potential investors and their advisors don’t know enough about impact investment. It is taught as well that they don’t understand it well enough to invest more. The Commission thinks that the stakeholders should spent more on building and promoting the knowledge and skills of HNWI and the people who help them make investment decisions. They can make more individual and group support by bringing peers together through networks and events.
Values-based advice, including options for impact investing
Since less than 10% of advisors talk to their clients about impact investing, the Commission thinks that giving advisors a job to spread the word about impact investing will open up more opportunities. HNWI should also pushing to question advisors who aren’t doing this.
Products that are right and that are available
The market for impact investments is changing. This Commission thinks that the number of attractive products for HNWI impact investors needs to grow to meet their different needs, and advisors should work with HNWI to build impactful portfolios.
Tax breaks, incentives, and the need to come up with new ideas
The Commission thinks that the current incentives to invest aren’t used enough and that the narrow requirements for eligibility make potential investors confused or stop them from acting. So, we need to broaden the criteria for who can apply and test out new ideas and incentives.
Investing in impact through ways to give to charity
The Commission thinks that the Charity Commission’s rules that make it hard for individual and family foundations and Donor-Advised Funds (DAFs) to invest in impact are seen as a barrier. We need to get past this.
Impact investing is a significant market
Impact investing is a big market that is still growing and not yet fully developed. It includes all types of assets and attracts investors from all types of assets.
It can’t be stressed enough how important it is. According to the GIIN, accelerating the growth of impact investing is the only way to reach the Sustainable Development Goals. The SDGs are a set of goals that will help humanity “achieve a better and more sustainable future for all by ending poverty, ending world hunger, realizing human rights for all, achieving gender equality, reducing environmental degradation, and delivering a transformative blueprint for people, planet, and prosper.”
High Net Worth Individuals (HNWI) and their families are important parts of the ecosystem. They are a tour de force when it comes to their own entrepreneurial mindsets and ideas, and they play a huge role in helping impact-led businesses create opportunities for social and environmental change. They can choose to make impact a priority if they want to.
HNWI usually work with more than one financial advisor. The advice that isn’t focused on the investor and doesn’t talk about impact or look for ways to get around barriers can turn off potential impact investors. It can eventually stop them from making a decision.
By fixing these challenges, social innovation will happen faster, on a wider scale, and with more attention. If HNWI impact investing constraints were removed, £2 billion to £11 billion in private investment might be added to the UK (since the report only talks about that country).
