The trend toward values-based investing is poised to become a mainstream practice as Millennials come to control a larger share of wealth, according to a new report from Fidelity Charitable.
Combining their increasing share of wealth with their generation’s heightened focus on social change, 61% of Millennial investors say they currently participate in impact investing, the organization says in its new report, Using dollars for change: Insights into impact investing for 2022 and beyond.
The report does not address the prospect for impact investing within retirement plans, but focuses primarily on how Millennials are much more supportive of the concept than their older counterparts, and how that will take greater prominence in the growth of the investment strategy.
Impact investing is the idea of using one’s investment choices to help achieve social benefits while also generating financial returns. Current impact investors most commonly invest in either mutual funds or indexes made up of companies screened for certain established criteria (45%) or individual publicly traded companies that meet certain established criteria (43%), such as environmental, social or governance (ESG) impact.
In addition to the personal fulfillment that comes with aligning their investments with their values, Millennials also believe in the long-term financial viability of the strategy. Here, the report shows that two-thirds (66%) of Millennial respondents say impact investing is a smart investment, compared to 37% of Gen Xers and only 23% of Baby Boomers. Consider also that 69% of all investors have a somewhat or very favorable impression of impact investing, but nearly all Millennials (92%) have a positive impression.
Catching on More Broadly
Currently, only a third of all investors engage in impact investing. However, 40% of non-participating investors will consider making their first impact investment in the coming year, the report notes. And those who have engaged in impact investing supposedly are looking to expand their holdings. According to the organization’s survey, 41% of current participants plan to increase the amount they allocate to impact investments and almost none expect to decrease their holdings.
“We find that investors are increasingly interested in aligning their investments with their broader values and desire for social change,” notes Scott Nance, Vice President of Impact Investing at Fidelity Charitable. “And the trend toward values-based investing will only grow as Millennials come to control a larger share of wealth.”
Dismantling the Barriers
Meanwhile, a lack of knowledge—cited by 39% of those who have not yet participated in impact investing—is the most common barrier to participation. However, nearly a third (31%) of those who are not knowledgeable said they would turn to their financial advisor to help them close that gap and make impact investments successfully.
The report notes that financial advisors already have been key in moving impact investing into the mainstream. According to the survey, 42% of current impact investors said they learned about it from their financial advisor and 30% from materials by an investment firm.
“Initiating values-based conversations with clients and educating them on the full range of options available to align their investments with those values can deepen client relationships and build multigenerational financial plans,” the report states. “Advisors who are knowledgeable and confident about impact investing will be in the best position to take advantage of this opportunity.”
The report is based on a study conducted in July and August 2021 by Artemis Strategy Group, an independent research firm. The study examined impact investing and charitable giving among 1,216 investors in the U.S. who have a minimum of $25,000 in investable assets outside of an employer retirement plan.
