Motivations for impact investing

Why might you care about your portfolio’s impact?

24 August 2018

3 minute read

Our latest research takes a behavioural finance perspective to examine why impact investing is resonating with investors.

Impact investing continues to gain momentum, as it offers investors the opportunity to try to protect and grow their wealth, while making a positive social and environmental contribution to the world. To help you understand impact investing, we recently published a report that looks at investors’ motivations, attitudes and preferences.

“Investor motivations for impact: A behavioural examination” draws on our behavioural finance expertise, along with two sets of data we collected in 2015 and 2017, as members of the Advisory Group to UK Government on Growing a Culture of Social Impact Investing in the UK.

Here are some highlights of the report.

Steady interest, increased activity

In 2015, 56% of investors were at least moderately interested in impact investing, but only 9% had made an investment. By 2017, this figure had grown to 15%.

Interested, but not yet active, investors often recognised that finding and assessing impact investments was a key challenge. However, the good news is that, of those who overcome this hurdle to make an impact investment, 90% indicated they were likely to do so again.

Younger investors are leading the charge

While these headline figures are positive, we quickly see differences when comparing age groups. It was the youngest generations who expressed the strongest interest and willingness to invest capital in a way that reflects their social and environmental concerns.

Overall, these investors show the highest levels of awareness, interest and activity in impact investing. Most significantly, 43% of investors aged under 40 report having made an impact investment in 2017, up from 30% in 2015. This compares with 9% for people aged 50 to 59 and 3% of investors aged over 60.

Younger investors are also more interested in impact investments, with under-30s willing to invest three times as much as the over-60s. With generally fewer assets and less established portfolios, it’s easier for these investors to allocate more to impact investing – but it isn’t just something for the young.

Causes can motivate investors

We found older investors were as interested in social and environmental issues as younger ones, though their preference for causes varied. Older investors had a stronger interest in investments with health outcomes and younger ones preferred education. Across all investors, other leading causes included water and sanitation, green energy and the environment.

This suggests that investors find particular themes or outcomes that they want to incorporate into their portfolios. Investors were willing to allocate four times more to specific causes than to a general impact theme. Similarly, 66% of investors would choose the investment they felt most passionate about over one that generated the most positive impact.

Impact yields emotional returns from investing

Our work in behavioural finance tells us that investing is an emotional experience. At the core of human nature is the desire for short-term emotional comfort – and we’re willing to give up long-term benefits to feel more at ease in the moment.

Unfortunately for our financial health, this trait can adversely affect our investment results. However, our research indicates that there may be emotional benefits from impact investing.

First, incorporating the beliefs, views and causes that investors care about into their portfolio may help them become more comfortable with investing. For novice or reluctant investors, these investment beliefs can help them first to take the step to invest, and then to stay invested during the inevitable downturns and swings.

Additionally, investors don’t just seek financial returns from their investments – they may also gain emotional returns and get value from the personal satisfaction or feeling of purpose of holding certain investments. Given the outcomes sought by impact investments, this can make them naturally more emotionally valuable for investors. So it wasn’t surprising to see the greatest statistical correlation for active impact investors was the feeling they were ‘making a difference’ through their investments.

Getting further information

Hopefully these highlights give some insight into investors’ views and behaviour around the exciting field of impact investing. We believe that it recognises the impact that every investment makes and offers investors new possibilities in how they invest.

Read the full 36-page report [PDF, 1.2MB]

If you’d like to talk to us about how impact investing could be relevant to you, please contact your wealth manager.

The value of investments can fall as well as rise. You may not get back what you originally invested.

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