Over the next two decades, global markets will experience an unprecedented shift of demographics and finances that will likely impact every aspect of business as we know it. Baby boomers, the generation of people born between 1944 and 1964, are expected to transfer wealth worth $128 bn to a younger generation of investors and business leaders. This impending transfer is anticipated to shift the focus of families towards newer strategies and asset classes such as impact investing. The next generation, typically family members between 25 to 40, are expected to be significant drivers of the discussion and adoption of impact investing as they try to align their social and environmental goals and value systems with their financial goals and investment thesis.
Like their predecessors, next gen investors continue to struggle with several roadblocks. Achieving buy-in from the older generation is a key issue. As primary custodians of the family wealth, most financial decisions continue to be made by the older generation – a generation largely driven by an investment approach focused on wealth creation and risk aversion. New investors also need to deal with the general lack of knowledge around the impact investing sector, an issue which is further amplified in India, where impact investing (regardless of modality) is still at a very nascent stage. There is very little expert support in the current ecosystem and new generation investors often have trouble navigating the ecosystem in isolation.
Creating an impact focused investment portfolio for the new generation of impact investors in India requires a contrived effort focused around:
- Exposure and education
- Developing an impact thesis and creating family consensus
- Articulating and highlighting strong evidence of social impact
- Participating in knowledge-sharing networks and collaboration/ co-investment platforms
Exposure and Education Creating Family consensus
Creating a learning agenda to deep dive into impact investing is the first step in building a sound knowledge base. New entrants into the impact space need to focus on familiarizing themselves with the various structures and vehicles available, return expectations across subclasses, sector specific impact metrics and the various major players in the ecosystem. As this is a constantly evolving ecosystem, it would be worthwhile to engage an expert, typically impact focused wealth managers or advisers, to learn more about the nuances of the impact investment sector and making investments - identifying opportunities, undertaking due diligence and impact management and measurement. Exploring and engaging in learning opportunities through impact-related jobs and internships, courses, programmes are conferences are excellent ways to not only build a strong knowledge base, but also to mee t peers and create a network. It is imperative for the next generation to identify their environmental and social goals and translate these goals into sound investment policy which outlines their thesis and return expectations from this asset class. Such an exercise should ideally be undertaken as a joint family endeavour to create consensus amongst the family members. Setting clear, realistic return expectations from impact investment will help create a more thorough investment policy for the family. As the portfolio grows, impact investing should also be integrated into succession planning and mainstreamed via the family office.
Articulating and Highlighting Strong Evidence of Social Impact
One of the key challenges the impact investment sector faces is the uncertainty in reliably measuring the impact leading to concerns around greenwashing (or impact-washing). While tools such as IRIS+, Global Impact Investing Rating System (GIIRS) and the likes can aid in collection of reliable data and reporting of the true impact created, new generation investors need to develop their own evaluation criteria based not only on sector gold standards, but also on their own specific impact and commercial goals.
Participating in knowledge-sharing networks and collaboration/co-investment platforms
Finally, the next generation need to network with peers, and veteran impact investors to learn from their personal examples, motivate them to bridge the gap between knowledge and action and overcome any difficulties. Conversations with impact fund managers and founders of social enterprises will equip next generation investors with data, insights and knowledge that will help them make informed decisions about their investments. Participating in co-investment and collaboration platforms not only help in identifying on-ground opportunities, but also allow novice investors to leverage the due diligence capabilities of larger, more established anchor investors.