Autumn 2020

Business, Banking & Finance
Impact Investing Set to Grow

The Covid-19 pandemic has made individuals increasingly aware of the world around them with seven in 10 (69 per cent) high-net-worth individuals (HNWIs) saying that it has affected their views of investing and the economy, according to a study.

HNWIs, families, family offices, and foundations are likely to almost double their impact investing allocation over the next five years, says the new research report launched by Campden Wealth, Global Impact Solutions Today (GIST), and Barclays Private Bank. The average portfolio allocation is set to increase from 20 per cent in 2019 to 35 per cent by 2025, it said.

Investing for Global Impact: A Power for Good, now in its seventh year, provides unique insight into the attitudes and actions of a sample of the world’s wealthiest individuals, families, family offices, and their foundations when it comes to generating positive impact with their capital. As a leading global benchmark for those interested in impact investing and philanthropy, data for this study was collected from over 300 respondents from 41 countries, with an average net worth of $876 million and cumulative net worth estimated at $264 billion. Additionally, case studies with prominent investors and philanthropists also feature in the report.

Covid a wake-up call

Nearly half (49 per cent) of HNWIs believe that investing will not return to ‘normal’, even after the crisis subsides, and 22 per cent think that the impact investing market is about to ‘take off’, the report says.

In a sign that the implications for impact investing will be long lasting, two-thirds say that they are likely to broaden their risk assessment to include more environmental, social and governance (ESG) factors, while 64 per cent insist that the crisis will force a deeper reconsideration of shareholder capitalism, and 69 per cent agree that how companies behave during the crisis will determine their investment attractiveness afterwards.

Healthcare ranked the second most popular impact sector, and a notable 84 per cent say that they plan to increase their investment to healthcare over the coming year, a proportion that outstrips all others.

Impact investing

The proportion of the wealthy investors allocating more than 20 per cent of their portfolio to impact investing is expected to increase from 27 per cent to 39 per cent as soon as next year, and a quarter (27 per cent) are predicting to allocate more than 50 per cent within five years. As such, the average portfolio allocation to impact investing amongst these investors is expected to increase from 20 per cent in 2019 to 35 per cent by 2025.

Driving this uplift is the belief of 38 per cent of respondents that they have a responsibility to make the world a better place. A quarter believe that this approach will lead to better returns and risk profiles, and 26 per cent are looking to show that family wealth can create positive outcomes around the world.

Climate change threat

The majority of investors (82 per cent) feel a responsibility to support global social and environmental initiatives. Specifically, just over half (52 per cent) believe that the long-term impacts of climate change pose the greatest threat to the world, and roughly 83 per cent are already concerned with the effects of climate change seen globally. Due to these concerns, 87 per cent say that climate change plays a part in their investment choices.

While just over half (53 per cent) of these wealthy investors say Europe is leading the world in carbon neutral initiatives, 86 per cent want governments to do more, but at the same time, 81 per cent recognise the role of private capital in addressing climate change. With this in mind, 39 per cent would like to know the carbon footprint of their portfolio to inform their investing, while 19 per cent already have this information.

Of those who do know their carbon footprint data, 13 per cent consider it as they make further investments and 9 per cent use it to actively reduce it towards a target, showing that more information around carbon emissions helps create greater positive impact.

Dr Rebecca Gooch, Director of Research at Campden Wealth, said: “Globally, over $30 trillion is now being invested sustainably and this trend towards responsible investment is catching on rapidly within the private wealth community. A notable proportion of wealth holders are now engaged and there are expectations, particularly since Covid-19, for a considerable hike in their investment over the coming years.

“Wealth holders see the challenging state of the world, and the risks and vulnerabilities both individuals and businesses face due to COVID-19 and climate change, and they want to act. Here is where smart investment and deep pockets can make a real difference in impact and ESG investment. For many, responsible investing is not only the ethical thing to do, but it is simply good business practice.”

Damian Payiatakis, Head of Sustainable and Impact Investing, Barclays Private Bank, said: “Investors are being challenged to safely pilot their family’s lives and their portfolios through the disruptions of 2020, and it means they are having more discussions about the future - how their family’s wealth can reflect more of their values and the role they want to play in society.

“Families are considering the impact of their capital and then increasingly taking action, by allocating more towards solving our urgent global societal and environmental issues. We see that investors wanting to make this shift are looking for guidance to navigate the rapidly evolving field and to access high-quality opportunities that can deliver financially and with positive outcomes.”

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