Supporting the social impact ambitions of your clients: insights from Financial Times Investing for Global Impact 2018
What impact does my wealth have on the world? What do I want it to have? What if my investments could achieve more than financial returns? How can my giving be smarter and more impactful?
These questions are emerging more frequently from clients and are regularly discussed in the investment and philanthropic communities. With growing recognition of the impact that all capital makes, especially in investing, individuals, charities and foundations are seeking new possibilities in how to invest, pass on and donate their capital.
Yet often they aren’t clear about how they want to use their capital for their financial, impact and philanthropic ambitions. Unfortunately, nor have advisors been equipped to effectively ask or support them.
At Barclays, the foundation of our wealth business is to proactively partner with clients to utilise their wealth to achieve their ambitions. As such, it has been natural to complement our well-established philanthropy service with an impact-investing business to enable our clients to consider this fuller set of ambitions. Upon its launch in 2016, we also recognised we needed to better understand what our clients – individuals, family offices and foundations – wanted to achieve.
Luckily, we’ve been involved in supporting the annual Investing for Global Impact research, conducted by the Financial Times. Uniquely, this research collects data from these groups on both impact investing and philanthropy and has done so over the past five years. Having reached this milestone, the report includes a retrospective of the research, which is due to be released imminently.
Here, we highlight some key findings from 2018 and longer trends, and reflect on what advisors can do to support clients in their giving and investing.
During the last five years, the most significant trend is the emergence and accelerating growth of impact investing. At this point, 54% of all respondents are active in impact investing. Moreover, the percentage of respondents’ investment portfolios being allocated to impact has nearly doubled. However, there remains a considerable opportunity to move investors along this journey given the average proportion was 31% of portfolio assets in 2018 (Figure 1).
Importantly, this increase in impact investing has not been at the expense of philanthropy – which has stayed consistently high. Over the five-year period, 51–59% of individuals and families, and 70–81% of foundations have been active in philanthropy.
With these approaches established and being used by clients, advisors will need to be conversant in both. Notably, it can be useful to understand the starting point for clients’ interest. Clients primarily looking to invest will want impact to be considered to help protect and grow their assets. Others will be passionate about a specific cause or outcome and want to determine how giving or investing their capital can address it.
As humans, we identify and connect with stories – therefore having narratives around a range of themes can be an effective way of contextualising impact investing and philanthropy.
While focusing on a clear cause or issue isn’t a novel idea for philanthropy, we’ve recognised how important this is when discussing impact investing, which can be diverted into the technical or conceptual aspects of investing.
>But, for impact investing, what themes should advisors focus on in discussions with clients?
This year, clean energy/green tech has been the most popular (in 46% of respondent portfolios). Over the past five years, it has been among the top three most invested themes, along with agriculture/food and education (Figure 2). Over time though, themes have become far less concentrated – for example, job creation and social/cultural cohesion have become increasingly popular.
Clients can therefore be engaged around a wide set of topics. Usefully, with a broadening range of investment products that also focus on these themes, it is frequently possible to translate these discussions into portfolio decisions. This does mean advisors will need to be more aware of these investment options and how they address these themes.
For most of these respondents, advisors play a central role in managing and deploying their capital. Unfortunately, in 2018 the response continues to be mixed on whether advisors are valuable.
• In receiving information about impact investing, 69% of investors found specialist financial advisors to be useful or essential. From generalists, this drops to 39%.
• In sourcing philanthropic opportunities, only 24% of respondents use external advice. For impact investing, 19% use an external impact investment consultant and 20% a non-impact specific advisor.
• A lack of qualified staff/expert advice was identified as one of the top three reasons detracting engagement in philanthropy by 7% of family offices and 13% of foundations.
These figures illustrate the gap that advisors, particularly non-specialist advisors, must bridge if they are to more effectively support clients. For our advisors, we’ve been incorporating these considerations throughout our business – enhancing advisor education, standardising client discovery documentation and developing impact product due diligence.
The findings from Investing for Global Impact resonate with our observations, conversations and own in-depth research into investors. While it provides invaluable evidence and an excellent benchmark for clients to understand what others are doing, having the conversations can feel daunting to many advisors.
When our advisors have initiated such a conversation, they have frequently been surprised by the depth and insight they have garnered about the client more broadly. As well, clients have commented on the satisfaction from being able to discuss and share their wider concerns and interests.
In line with the Impact Management Project1, the starting topic is the clients’ intentions. These intentions can range from broad commitments (I want my investments to avoid harming people or planet), to more detailed objectives (I want to use my capital to address a climate change) to specific outcomes (I want to help tackle the education gap for pre-teen children in the frontier markets). In all cases, the fundamental theme is what impact clients want their wealth to achieve – and then working from that starting point.
The good news is that clients are increasingly aware of the impact their capital has on the world and many feel a stronger responsibility given the growing inequalities and challenges our societies face. They have choices regarding how it is used – both philanthropically and in their investing – and by whom they are advised. Impact investments, like all other investments, can fall as well as rise in value.