Insights

22/04/2024

The challenges faced by new generations of equity owners in generating greater positive impact

By Monica Vasquez, Head of Strategy and Impact at Social Nest Foundation

Getting started in impact investing can be a challenging endeavor, especially for younger generations. With this in mind, Social Nest Foundation held the first ever workshop on the “Impact Leaders” experience on March 13th, an event meant especially for young or Next-Gen investors. The goal of this meeting was to help out those taking their first steps in the world of impact by providing them with the fundamental tools and perspectives needed for their journey.

Over the course of the meeting, we got the chance to reflect and understand how important it is to meet the needs of the new generations of Millennials and Gen Z who will be leading the global landscape in the coming years. According to studies by Publicis Sapient and the Financial Times, we are fast approaching a historically unprecedented shift in wealth management from one generation to the next. In the United States, for example, it is estimated that nearly 45 million equity owners will transfer a total of $68.4 million to new generations over the next quarter century.

This transfer of wealth coincides with a growing trend among equity owners of synchronizing their values with their investment portfolios in order to build a coherent narrative. This trend is especially noticeable among young people, who are not only much more socially and environmentally conscious than previous generations, but also hold values and ethics that are increasingly relevant when it comes to doing business. This is the arena in which impact investments become a fundamental tool, one that allows investors to pursue financial goals while simultaneously addressing environmental and social goals.

For these young people, the road to impact investing is rarely smooth sailing and can get overwhelming. The Next-Gen will have to take on big personal challenges above and beyond those commonly arising when managing private assets. And even though the initial excitement of making impact is there, the process can get held back by the complexity of the field.

One conclusion drawn during the first ‘Impact Leaders’ workshop was that Next-Gen investors often face significant barriers within their family dynamics, either due to lack of knowledge or skepticism about the viability of impact investing strategies. This situation is also reflected in relationships with wealth managers, who rarely incorporate such propositions into their offerings.

For this reason, Next-Gen investors might feel alone on their journey. Among other things because impact investing is not mainstream and a particularly complex and confusing field, full of specialized terms and acronyms such as, “ESG, RR, PRI, VC, PE, etc.”

What’s more, fully understanding impact investing demands having a broad view of the entire field of sustainable finance. This includes understanding how impact investing works, its various strategies, techniques, asset types and the geographic locations where impact investing takes place. All this while keeping in mind that these investments do not produce short-term results; it takes time to develop and execute strategies, monitor impact and adapt to changes. All of which ends up being overwhelming.

Even in the face of these challenges, however, interest in impact investing is growing, though not as quickly might be wished. Considering how much wealth exists, the total amount of capital leveraged for impact remains modest as of yet. This is backed up in reports such as those by “The ImPact”, a global community who aims to align assets with values. According to its latest report on family impact portfolios in Latin America, impact investments totaled around US$1.2 billion in 2023. This makes up a mere 18% of the total wealth that the participants declared.

Much remains to be done to attract these investment profiles to impact investing, and thus accelerate the mobilization of capital with social and environmental objectives, beyond the purely financial. In this regard, at Social Nest Foundation we promote the participation and education of Next-Gens through events that can serve as inspiration and training, offering them connection to investment opportunities for impact investors.