Motivated by impact:
A new generation seek
to make their mark
Supported by
Motivated by impact:
A new generation seek to make their mark
About this research
Motivated by impact: A new generation seek to make their mark is an
Economist Intelligence Unit (EIU) report exploring the driving forces behind the
decisions of the next generation of business leaders and investors, with a particular
focus on millennials. The findings are based on desk research and interviews with
affluent investors and entrepreneurs conducted by The EIU and presented in
series of articles, case studies and infographics. The research is supported by
HSBC Private Bank.
The EIU would like to thank the following interviewees who participated in the interview programme
(listed alphabetically):
•
aissa Abou Adal Ghanem,
M
corporate projects manager,
Holdal-Abou Adal Group
•
Stephanie Cordes,
vice chair, Cordes Foundation
•
F arida El Agamy,
general manager, Tharawat Family
Business Forum
•
Eddie Holmes,
CEO, Launch22
•
David Hutchison,
chief executive, Social Finance
•
Badr Jafar,
CEO, Crescent Enterprises
•
Stewart Langdon,
partner, LeapFrog Investments
•
Scott Farquhar,
co-founder, Atlassian
•
Cameron Stevens,
CEO, Prodigy Finance
•
Ben Goldsmith,
co-founder and CEO, Menhaden Capital
•
Thomas Woolf,
founder and CEO, EdAid
The EIU bears sole responsibility for the content of this report. The findings and views expressed in the
report do not necessarily reflect the views of the sponsor. Adrienne Cernigoi was the writer of the report
and Melanie Noronha was the editor.
© The Economist Intelligence Unit Limited 2016
3
Motivated by impact:
A new generation seek to make their mark
Motivated by impact
The next generation of business leaders are taking over
the reins of established family businesses and are looking
to make their mark. Others are charting their own course,
setting up innovative businesses to meet the evolving
needs of a global consumer base. Young people are also
blurring the lines between investment and philanthropy,
seeking investment opportunities that will have a positive
social impact on communities around the world,
while also making a profit and using new tools to ensure
their philanthropic gifts have a measurable impact.
Driving these millennials is a new set of ambitions and
desires, distinct from those of the generations that came
before them. Advancements in technology bring the news
of the world to their fingertips and provide them with tools
to make a difference in distant parts of the globe. This has
shaped their desire to make a material impact on issues
that concern society at large and has manifested itself
in increased support for initiatives facilitating affordable
education, gender equality and environmental protection,
among others.
4
© The Economist Intelligence Unit Limited 2016
Research reveals that 87% of millennials believe that
business success should be measured by more than just
financial performance, and 93% believe that social impact
is key to their investing decisions. In their entrepreneurial
and philanthropic pursuits they are seeking to marry profit
with purpose, and they are motivated by the size of their
impact and their ability to measure it.
In interviews with millennials and experts in the world of
business and finance, The EIU has explored the motivations
of a new generation of entrepreneurs, business leaders,
investors and philanthropists. Our findings are showcased
in a series of articles, case studies and infographics.
Motivated by impact:
A new generation seek to make their mark
A family affair
The next generation of family business leaders have to contend with the rigours of a
globalised marketplace and the need to leave a robust social, as well as financial, legacy
W
hen Maissa Abou Adal Ghanem joined
the Holdal-Abou Adal Group in 2009, she
realised that the 69-year-old family firm needed
a shake-up. “A family business is often run with
a lot of passion and emotion, but [for us] there
was a lack of cohesive culture between our
brands and departments,” says the 38-yearold businesswoman. “Together, we needed to
inject some protocols and discipline and instil
our values across the organisation.”
40%
of family businesses globally
will hand over the reins to
a new generation in the
next five years
That requires leadership, but perhaps of a
different sort. Some 80% of next-generation
business leaders say their leadership style
will be different from that of their forebears,
according to a 2016 Deloitte study of family
businesses in Europe and the Middle East.
Millennials have a style of management that
is more open to dialogue, thanks to their
greater ease with the flow of information
and ideas, says Farida El Agamy, general
manager of the Tharawat Family Business
Forum, a network of family-owned
enterprises in the Arab world. “Millennials
are often interested in a less topdown approach,” she says. Such
change may lead to conflict with
parents, but this is par for the
course with all generational
shifts, she notes. Clear conflictresolution mechanisms, such as
appointing a mediator or letting
an elder adjudicate, can help,
but as in any family “there’s
more coffee involved than
anything”, she adds.
She is part of the third generation to run
Holdal, a retail and luxury-brand conglomerate
in Lebanon, and the eldest of four siblings,
who all work there too. Together they
kick-started a ten-year plan to put in
place a governance structure and
formalise processes that, they hope,
will lead to growth. “It’s about
transforming the culture,” says
Ms Abou Adal Ghanem, the firm’s
corporate projects manager.
“We aim to be the partner of
choice in the Middle East and
Africa by 2020 … and ensure
the business is sustainable.”
Family businesses matter.
In the Middle East this structure
dominates the corporate
landscape, where family-owned
enterprises account for 90% of firms,
according to EY, a management
consultancy. Globally, they also constitute
some of the biggest household names—from
Volkswagen to Lego—and generated more
than US$1trn for Europe’s economy in 2013.
Like Ms Abou Adal Ghanem, the new
generation will soon have their hands on the
tiller: 40% of family businesses globally will hand
over the reins to a new generation in the next
five years, according to a recent PwC survey
of next-generation family business leaders.
And while many cultures have the equivalent
of the American proverb “shirtsleeves to
shirtsleeves in three generations”, some of the
next-generation leaders are trying their
hardest to buck that trend: 88% want to
leave a stamp on the business.
80%
of next-generation business
leaders say their leadership
style will be different from
that of their forebears
For Ms Abou Adal Ghanem,
consulting the family council on
the new strategy took a year, which
included “putting her ego in her pocket”.
She explains: “My father has resilience,
wisdom and a humility the young generation
doesn’t have. [The next generation] has
the fire and passion. We have no fear, but
we also have to prove ourselves to internal
and external stakeholders and adapt to a
changing environment.”
The next generation is also more serious about
firms’ responsibilities towards wider society,
according to Badr Jafar, the 36-year-old CEO
of Crescent Enterprises, a UAE firm with roots
in oil and gas that has sprawled into logistics,
private equity and more.
© The Economist Intelligence Unit Limited 2016
5
Motivated by impact:
A new generation seek to make their mark
“There has been a cultural and generational shift in the
understanding of what the ultimate purpose of business
is,” says Mr Jafar, a second-generation leader. “I think
there is a more authentic appreciation now behind the
value creation that comes from a focus on social impact
in addition to maintaining healthy financials.”
Alongside expanding the group’s activities, Mr Jafar
founded the Pearl Initiative in 2010, a growing network
of some 40 firms across the Arabian Gulf which aim to
drive up standards of corporate accountability,
internal governance and transparency through sharing
best practice. That, along with a sound business, is the
legacy he hopes to leave behind. “Corporate governance
is so important for family businesses to generate positive
economic and social impact, [and that depends] on
cross-generational health,” he says. “That is both our
biggest opportunity and our biggest threat.”
Still, the most significant shift for the next generation
of leaders may be outlook. The prevailing environment
and pace of change shape each generation; that pace,
however, has picked up in a globalised world, says Ms El
Agamy. According to the 2016 Deloitte study, a shift in a
firm’s business strategy will arise from the need to adapt
to more opportunities and competition, as well as the
desire to expand into new markets in the next five years.
My father has resilience, wisdom and
a humility the young generation doesn’t
have. [The next generation] has the
fire and passion.
“We are disrupting [Holdal’s] business model because
we see the world is changing so fast,” observes Ms Abou
Adal Ghanem. “We need to diversify the risk. But whatever
change we make, the how remains as important as the
what.” With traditional markets in Lebanon and Syria,
the group has had to look further afield with plans for
Egypt, Iran and Iraq. But it is also branching out into
different industries, such as healthcare, guided as much
by the heart as the head. Ms Abou Adal Ghanem’s brother
is leading a push into green technologies—“his passion”,
she says—thanks to his previous experience in the sector
before he joined Holdal.
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© The Economist Intelligence Unit Limited 2016
“The global mindset of millennials is a huge factor,”
notes Ms El Agamy. If millennial leaders want to be happy
with their legacy, they will have to leave behind a business
with a strong international standing, whether in terms
of a worldwide reach or one that compares favourably
in a global marketplace. “The orientation of success is
becoming more global,” she asserts.
Motivated by impact:
A new generation of business leaders and entrepreneurs
Driven by a desire to make their own mark, young affluent individuals are charting a fresh course for
established brands. We present three prominent examples to illustrate how the next generation of
business leaders are making an impact by reaching out to new, global audiences, improving corporate
governance and breaking away from the traditional way of running the family business.
Rethreading
the craft
Antoine Arnault
Brewing up
a storm
Siblings in search
of summer
Catharina Cramer
The Jafar Brothers
Age: 39
Age: 38
- CEO Berluti
- Chairman of Loro Piana
- Son of LVMH CEO
Bernard Arnault
- Managing Partner,
Warsteiner Group
The beginning of
craftsmanship
2007 – Launched Core
Values campaign
A series of photos of celebrities
which showcase a rethink
of the brand’s heritage
with a focus on
travel and the
personal
journey
2010 – Launch of Les
Journées Particulières
A shift in PR strategy,
by giving public
access to the
LVMH Group’s
ateliers, wine
stores, private
houses and
historic boutiques
“When shoes
have a soul”
(Berluti slogan)
Revenue increased
from €30m in 2011
to €150m
in 2016
“I see myself as a
family entrepreneur
— someone who is
leading a company
with a history but who
is also looking for new
ways forward.”
Catharina Cramer
A fresh brew
9th generation
of one of the
biggest brewers
in Germany
First female to join
Warsteiner’s
executive
management
team, at the
age of 26
- Badr Jafar – 36,
CEO, Crescent
Enterprises
- Majid Jafar – 39,
CEO, Crescent
Petroleum
Brotherly
concerns
The family business model
in the Arab world
“Global statistics show that only
30% of family businesses survive
the transition between second
and third generations, simply
because of being unprepared.”
Badr Jafar
Youth unemployment
“It drove the
Arab uprisings
three years ago,
and will continue
to cause
unrest if left
unaddressed.”
Majid Jafar
Establishers of change
A concoction
of her own
The Blooom Award,
a prize that
celebrates young
artists – part of
Cramer’s strategy
to branch out
to new, young
audiences
Badr Jafar
Founder of The Pearl Initiative –
an independent, not-for-profit
institution to improve corporate
accountability and transparency
Majid Jafar
2013 Visionary
of the Year
at the CEO
Middle East
Awards
Sources: Fashion Market Secrets, Haute Today, Luxury Daily, Business Wire, New York Times, EY, Campdenfb, Warsteiner Group, Contact Centre Solutions
© The Economist Intelligence Unit 2016
7
Motivated by impact:
A new generation seek to make their mark
Social capital
We meet two millennial entrepreneurs using their business savvy to do good and
explain why enterprise in the 21st century has to pass the “mum test”
W
hen Eddie Holmes was 20 years old, the
Prince’s Trust—a UK youth charity—gave
him money and mentoring to help his start-up.
Things went well until four years ago,
when relations turned sour with his
business partners. Bereft of his
company, the young entrepreneur
returned to the charity. “During
that time I found a lot of
reward in mentoring [other
entrepreneurs],” says Mr Holmes,
now 32. “I realised what the trust
did was good, but they weren’t
tackling some other important
issues, such as how expensive
office space is.”
A canny businessman, Mr Holmes
spotted a gap in the market. The
difference was that this gap was an
unfulfilled social need. So Mr Holmes
set up Launch22, an incubator, to provide
subsidised desk space and mentoring,
with 30% of spaces allocated for free to less
advantaged entrepreneurs. It offers belowmarket rental rates, leaving more in a start-up’s
kitty: it costs £60-260 (US$80-345 at current
exchange rates) a month to join the London
branch, depending on membership type,
compared with some £600 (US$795)a month
charged by other incubators, according to
Mr Holmes. The real impact comes from
the formal and informal mentoring on offer,
which helps build entrepreneurs’ social and
intellectual capital. Since 2014 more than 250
businesses have passed through its doors,
according to Mr Holmes.
Launch22 is just one example of a growing
trend. Young entrepreneurs are increasingly
concerned with the societal repercussions
of their activities: Deloitte’s 2016 Millennial
Survey found that 87% of millennials polled
across 29 countries believe business success
should be measured by more than financial
performance. At the same time, enterprise is
8
© The Economist Intelligence Unit Limited 2016
not the enemy—three-quarters also believe
business has a positive social impact.
Coupled with disillusionment with traditional
charity—“I wouldn’t want to be reliant on
the largesse of others,” says Mr Holmes—
the result is a move to find ways to do
good, and to do it well. For young
entrepreneurs this can manifest
itself in social enterprise,
although debates rage over
what precisely that means.
Models under the banner
range from income-generating,
non-profit entities to for-profit
outfits with an explicit strategy
to achieve social change.
However, all these organisations
operate with a “double bottom
line”: using business tenets to solve
a social or environmental ill in a
financially sustainable way. There are an
estimated 70,000 social enterprises in the UK
contributing £24bn (US$32bn)to the economy,
according to the State of Social Enterprise
Survey 2015.
87% of millennials polled
across 29 countries believed
business success should be
measured by more than financial
performance, according to
Deloitte’s 2016 Millennial Survey.
Another entrepreneur is tackling the issue of
tuition fees. Thomas Woolf, 36, launched EdAid
in March this year to offer an alternative to the
sky-high interest rates of between 3.5% and 15%
on student debt that put many off university.
The debt of UK students, to the government
and banks, adds up to £20bn (US$27bn),
according to market researcher YouGov.
Mr Woolf speaks of his own experience,
Motivated by impact:
A new generation seek to make their mark
£20bn
3/4
The debt of UK
students owed to
the government
and banks
of millenials
believe business
has a positive
social impact
EdAid is a blend of profit and purpose. The crowdfunded
money is channelled into a foundation, a registered charity,
which recycles repayments into more loans. Although the
company takes a 5% fee, this only covers EdAid’s processing
costs, notes Mr Woolf. The for-profit part of the business will
come later, by matching employers with graduates.
“The data we get over time will be valuable to us,” he says.
The entrepreneur characterises EdAid as a technology
business. For this reason, making a profit is necessary to
attract—and retain—tech talent, he argues. Still, the social
mission is at the heart of the idea. “Financial services tend
to punish the poorest. The cheapest rates go to those with
the most money,” explains Mr Woolf. “People are frustrated
by the lip service that’s been paid to social impact by the
largest organisations.”
But marrying profit with purpose is not without its challenges.
Warren Buffett, the famous investor, believes that “it’s too
tough to serve two masters”. Launch22’s Mr Holmes agrees:
“You’ve got two competing journeys, both of which require
the same amount of effort.”
Still, for a millennial generation of entrepreneurs there is
what Mr Woolf calls the “mum test”. “There’s a shift in the
way of doing business,” he says. “If you can call your mum
and tell her what you’ve done each day, and be proud of
that, then you are most likely running a decent business.”
which inspired the idea: “I was the first in my family to go
to university, and I was the first generation to have student
loans. It’s a very personal mission.”
EdAid offers a peer-to-peer solution: crowdfunded loans—
from friends, family and corporate backers—which students
pay back, interest-free, once they start earning. Mr Woolf
estimates that his system will cut the repayment period by
half by jettisoning compound interest. So far 40 students
have got to their total; he hopes to reach up to 1,000 in the
company’s first year before ramping up to 15,000 students
by year three.
© The Economist Intelligence Unit Limited 2016
9
Motivated by impact:
A new generation seek to make their mark
The other 1%
Technology entrepreneur Scott Farquhar, co-founder of the Pledge 1% movement of corporate
philanthropy, explains why doing good is good for business and why every young start-up
should put a philanthropic stake in the ground
W
The old model of business was to work hard
your entire life, then go and do something
good for the world. But in the same way
Generation Y [those born in the 1980s and
1990s] wants to mix work and play, they want
everything to happen together, and the
same applies to philanthropy. The technology
world is more Gen Y-focused, so you might
see more corporate philanthropy in this sector
because of the demographic of founders
and employees.
ith 56% of millennials saying they
would never work for an organisation
whose values they didn’t believe in, the next
generation is challenging firms to look beyond
the bottom line. We talk to Scott Farquhar, the
36-year-old co-founder of enterprise software
firm Atlassian that was valued at US$5.8bn
when it went public last year.
Its profits are not the only thing on the rise:
the firm has been growing its philanthropic
credentials, too. Atlassian is one of the founding
members of Pledge 1%, a collection of more
than 700 companies dedicating 1% of equity,
1% of staff time and 1% of their products to
their communities.
Why did you help establish the Pledge
1% movement?
A couple of decades ago there were many
institutions other than business through which
people could engage in philanthropy —
through the church or social organisations,
for example. Those institutions are not as strong
now, so I think it is business’s duty to provide
a way in which employees can give back.
I read about [US-cloud computing firm]
Salesforce, which had been pledging 1% of
their equity, time and products and thought
it sounded like a very easy thing to do. All those
elements were worth zero at Atlassian at the
time, but we knew that if we were successful,
one day we could give back.
Then in 2015 I wrote down my goals for the
year. We’d been so successful with Pledge
1% internally, I thought it would be an easy
medium for us to spread the word of
corporate philanthropy.
What role has technology played?
Technology businesses aren’t naturally more
philanthropic. But they do have a chance to
grow incredibly quickly, so the timeframe from
pledging to turning into real cash can be under
a decade.
10
56%
of millennials saying they
would never work for an
organisation whose values
they didn’t believe in
$5.8bn
Value of Atlassian when it
went public last year
>700
companies dedicating 1%
of equity, 1% of staff time
and 1% of their products to
their communities
$6bn
© The Economist Intelligence Unit Limited 2016
Amount that would be
raised if all unicorns
pledged 1%
What has been Atlassian’s impact to date
using the Pledge 1% approach?
The part of the programme that probably
makes the most difference is the equity
element, because once you’ve chosen to
do it, you can’t back out. If just the unicorns
[pre-IPO companies valued at more than
US$1bn] pledged 1%, it would be worth US$6bn
alone. We can have a significant impact.
We have also given away about US$100m
worth of software—some 35,000 product
licenses—to non-profits for free. One NGO
[non-governmental organisation] that uses our
products is Mercy Ships. The non-profit sails a
ship around the coast of Africa, offering surgery
to people who have non-life-threatening,
but serious, illnesses that wouldn’t otherwise
get treated. Mercy Ships uses our products
to help co-ordinate all the operations on the
floating hospital.
At Atlassian we have donated more than
10,000 hours of foundation holiday days to
volunteering, which—based on an eight-hour
day—is more than five years of skilled time.
What are the upsides for enterprises of
the pledge?
One benefit is attraction of staff. The pledge
has been so successful that our staff members
say it is one of the top three reasons why they
join. Younger workers value this a lot more than
older employees; it has become a competitive
Motivated by impact:
A new generation seek to make their mark
advantage for us in comparison with companies that have
no system of corporate philanthropy.
The other benefit is keeping staff. Research shows that
companies with corporate citizenship programmes have
2.3 times the employee retention.
Starting Pledge 1% is one of the best decisions I ever made.
Having a great company culture allows you to attract
great people and—beyond any commercial reason—it is
fantastic to see employees have an outlet for giving back.
The most successful approach is when you have one
passionate employee who rallies others. One cause we
support is Room to Read, a non-profit for improving literacy.
We have sent ten employees each year to Cambodia,
where the schools we support are located, to see the
impact we can have. One employee came back and
encouraged others to donate US$1 a day from their own
pay checks. Some 700 employees have signed up so far.
Starting Pledge 1% is one of the best
decisions I ever made. Having a
great company culture allows you to
attract great people and – beyond any
commercial reason – it is fantastic to see
employees have an outlet for giving back.
Staff time
What do you hope to achieve through the movement?
Equity
Products
What are the challenges with implementing
the pledge?
There are some bureaucratic hurdles. We have been
working with governments around the world to try and
resolve tax incentives. We want people to be able to make
a pledge when the company is worth nothing but get the
benefits later when the company is successful.
The pledge’s most difficult target to reach is 1% of employee
time. Atlassian gives all staff members up to five days a
year for volunteering. That is a little over 2% in fact, but most
people don’t take it. The idea is that those who are most
passionate will make up for some of the people who are not.
One reason why more companies don’t pledge is just
lack of awareness. People think Pledge 1% is too hard to
implement. I spend my 1% of time on the initiative so that
if a firm shows interest we can follow up.
Our goal is for the pledge to be part of a company’s
articles of association—almost a tick box at the end of the
constitution, where you can donate 1% of equity to charity.
It really should be something companies incorporate from
day one.
I would advise other entrepreneurs to put a stake in the
ground—that philanthropy is important to them. Then go
and run a successful business, because without a successful
business you don’t have the means to give back. Pledge 1%
has a real opportunity to make a difference.
We have yet to hit that 1% goal; I don’t know a single
company that has. We try out different methods
to encourage people, such as getting them into a
volunteering programme within the first three months of
joining Atlassian.
© The Economist Intelligence Unit Limited 2016
11
Motivated by impact:
A new generation seek to make their mark
The socially-conscious investor
In the hunt for profits with purpose, impact investing is starting to gain traction globally.
We meet the organisations helping investors put their money where their mouth is and reap
social—as well as financial—returns
I
n 2014 American investor Marc Andreessen
said he would “run screaming from a B corp”
[companies wishing to benefit society as
well as their shareholders]. However, not long
afterwards his firm, Andreessen Horowitz, took
part in a US$33m funding round for just such
a company, AltSchool, a network of micro
schools that offers highly tailored education
to boost learning.
Institutional investors such as BlackRock and
Goldman Sachs are starting to latch on to
impact investing—even the Pope is a fan.
Such hybrid models—where investors seek out
organisations that promise financial returns
and positive social or environmental change—
are growing in popularity. Investors injected
US$15.2bn into impact investments globally
in 2015, according to a survey by the Global
Impact Investing Network (GIIN). Nearly half
the capital came from fund managers. In all,
the survey’s 156 respondents were managing
US$77.4bn in impact-investing assets by the
end of 2015.
Impact investing has its roots in the divestment
movement, where investors got rid of
morally dubious funds in the likes of
the arms or tobacco industries.
Coined as a term in 2007, actively
choosing investments with a social
purpose got a push in 2008, says
David Hutchison, chief executive
of Social Finance, a UK-based
non-profit that structures such
deals. “There is an element to
which people woke up after
the financial crisis and realised
how they invested their money
was an important consideration.”
Younger investors are particularly
exercised, he adds, thanks to a
greater awareness of market failures
and that “the hunt for short-term profits
doesn’t lead to the right answer in terms
of social outcomes”.
12
© The Economist Intelligence Unit Limited 2016
A range of for-profit vehicles exists for the
socially-conscious investor, although they
are still not as widely available as, say, green
energy products. One of these is the social
impact bond (SIB), pioneered by Mr Hutchison’s
firm in 2010. An SIB combines the public,
private and third sectors by getting investors
to pay upfront for a project. The donor pays
the investor back if certain social outcomes
are met. Project implementers are typically
non-governmental organisations (NGOs)
or charities.
“A lot of people drawn to us have already
been engaged in philanthropy, but have
been frustrated by the lack of systemic
change that flows from the projects and the
lack of evidence,” explains Mr Hutchison.
Social Finance has mobilised around £100m
(US$132m at current exchange rates) since
2007, with one-quarter of that going to SIBs.
It targets returns in the “mid-to-high single
digits”, according to Mr Hutchison. “We’ve
been oversubscribed in each of the
fundraisings we’ve had for SIBs,” he adds.
Another organisation in this space is
Prodigy Finance. Split between the UK
and South Africa, the company offers
loans to postgraduate students who
struggle to get funding for pricey
MBAs in the world’s top business
schools. Students pay the loan
back at 7%, plus a 2% fee;
three-quarters of the students
are from developing countries.
Investors get financial returns of
around 5.5% that compensate
for the risk, as well as the
satisfaction of knowing that they
helped fund the next generation
of leaders, says Prodigy’s 38-year-old
CEO, Cameron Stevens. Prodigy has
helped more than 4,000 students since
2008; Mr Stevens hopes this will ramp up to
Motivated by impact:
A new generation seek to make their mark
an entry-level qualification. But drawing a line between
investment and outcome to investors’ satisfaction is tricky,
notes Mr Hutchison. “Investors don’t want to pay for what
would have occurred anyway,” he says. “They [also] don’t
want some macroeconomic event to make it look like the
project failed, when holding a particular outcome steady
was a huge result.”
There have been failures, too, of course. A Goldman Sachs
and Bloomberg Philanthropies-backed US$7.2m SIB aimed
at reducing reoffending rates for inmates at Rikers Island
prison in New York was not a success.
10,000 students just this year, targeting US$400m worth
of funding in 2016 alone.
The key to piquing more interest in impact investments
is to offer comparable yields to a traditional investment,
otherwise “you end up in the 0.6% of income that’s donated
every year, not the 25% that is invested”, says Mr Stevens.
The average internal rate of return for impact funds
was 6.9%, compared with 8.1% for their non-impact
counterparts, according to the GIIN study.
For all the talk, impact investing remains the prerogative
of a substantial minority, not the majority, observes Mr
Hutchison. Still, its mainstream appeal may yet grow. “I’ve
noticed that some investors, who invest across a wide range
of instruments, talk about their impact investments the most.
It’s the one they are proudest of. That process of talking
about it will do a huge amount to expand the market.”
Younger investors have been at the vanguard of the trend,
driven by technology entrepreneurs who want to give back
in different ways, he notes. Still, the “sweet spot” for Prodigy’s
investors is those in their 40s, because the amount needed
to invest to date has been quite large.
Tracking impact is as important in building confidence in
the sector as it is to the individual programme, says Social
Finance’s Mr Hutchison. Both Social Finance and Prodigy
Finance employ data analysts to crunch the numbers;
Prodigy swallows the cost and Social Finance charges
a 5-10% fee. In response to investor demand, Prodigy added
economic status to its dataset: 58% of students are the first
in their family to pursue postgraduate studies, and Prodigy
recipients have started 12 businesses.
One of Social Finance’s programmes paired up toddlers
with troubled teenagers to help the latter stay in school. It
measured behaviour, school attendance and qualifications
attained. At the end, 73% of the 14-16-year-olds achieved
© The Economist Intelligence Unit Limited 2016
13
Motivated by impact:
A new generation seek to make their mark
Sense and investability
English financier and environmentalist Ben Goldsmith talks
about why impact investing, beyond the ethical benefits,
is just good business sense
Generating a measurable, positive social and environmental impact is a key
consideration for young investors, who are increasingly pursuing impact investing as
a core component of their investment strategy. Ben Goldsmith, the youngest son of Sir
James Goldsmith and nephew of Green Party UK founder Terry Goldsmith, is one such
millennial investor. He helped establish WHEB Asset Management, its spin-off Alpina Partners
and, most recently, Menhaden Capital – all geared towards investing in environmentally
responsible companies. In our conversation with him, he explains what’s driving this generation
of investors towards investments with a purpose beyond profit.
Key motivations
I grew up in a family in which
the environment was considered
a core concern of humanity.
My uncle was one of the founders
of the Green Party UK. So I grew up
a passionate environmentalist.
Achieving those goals through three funds he helped
establish: Alpina Partners, WHEB Asset Management,
Menhaden Capital
So the thematic interest is the same across all three
businesses I helped create. We are interested in the green
industry broadly defined – not just energy but businesses
which help industrial sectors use resources more efficiently.
The difference between the vehicles is that Alpina Partners
only invests in private companies of a certain size, WHEB
Asset Management only invests in large publicly-listed
companies, whereas the newest vehicle, Menhaden
Capital, has a completely unconstrained mandate - it can
provide loans to people building wind farms in Bavaria or
invest in a hydroelectric company in Vietnam.
14
© The Economist Intelligence Unit Limited 2016
I was always drawn to finance and
wanted to be commercial as well.
That was the motivating force in
me. I suppose I’m lucky to live in
an era in which those two aims
can be achieved simultaneously.
Taking a long-term view...
All three are long-term vehicles, but in different ways.
The private equity funds managed by Alpina Partners have
a fixed ten-year life. So you have to invest, grow and sell the
business within a ten-year period, which is typical of private
equity. At WHEB Asset Management, the time horizon is
open-ended, which means they can take a long-term view.
But investors can take their money out at any time, so they
cannot invest in something illiquid as they may have to
return funds to investors on short notice.
At Menhaden Capital, we have permanent capital which
allows us to be really patient in our approach without the risk
of an investor drawing out funds.
Motivated by impact:
A new generation seek to make their mark
Is there a generational shift in how these investments are perceived?
I think there is, yes. What I think is happening with younger investors, who are more switched on about the [environmental]
changes taking place, is that they are looking to weed out the negative impact from their portfolios. So investors are looking
at all their investments and thinking: Are we investing in businesses engaged in harmful practices - ripping out rainforests,
digging coal, employing child labour, polluting rivers?
I think there is an increasing recognition, particularly among younger investors, that doing so is no longer sustainable—
it is not only the wrong thing to do morally, but also financially, because these businesses are no longer going to be able
to survive in a world where there is tremendous transparency and visibility. Social media makes it very difficult. Therefore,
it is making increasingly good sense to try and avoid investing in the “bad” guys.
Commercial returns vs. environmental impact
This is an area where we are seeing, and will continue to
see, significant growth – evident in the examples of installed
solar capacity, electric vehicles, LED lighting, to name a few.
So I think that, in fact, you are likely to make money investing
in this [sector] than in other areas if you are smart about it.
There are two sides of the coin when it comes to impact
investment. On the one hand, impact investment means
reducing the amount of negative
impact created by your portfolio
- child labour, polluted rivers,
deforestation. On the other hand,
you invest in businesses that are
actually making a positive impact
– solar, wind, LED lighting, efficient
lavatory systems.
The evidence suggests that by
reducing the negative impact you
actually make more money, whereas the commonly
held wisdom previously was that you would sacrifice your
financial returns. In turns out the opposite is true.
Have you had to exit from investments?
Yes, of course. But in anything you invest, if something
changes in the macro environment or if the business model
is flawed, as an investor you need to be open to changing
your position. Investors have lost money in a lot of places.
Look at the collapse of SunEdison during the first quarter
of this year. So, the answer to that question is yes, but no
more so than with any other area in which you might invest.
But why are these businesses outperforming financially
when there is a significant investment cost attached to
“going green”?
First of all, the payback is enormous. It may cost to insulate
your building and install LED lighting, but the savings on
your energy bill allow you to recover your investment within
12 to 18 months. So they get an enormous rate of return just
by reducing their power bill.
But more important, companies
which are not thoughtful about the
negative impacts of their business
tend to be less thoughtful about
other aspects like strategy,
human resources, and the
general management of
their business, and tend to
underperform. The evidence is
mounting that you tend to get better
financial performance from companies
that are thoughtful across the board. Do you really want
invest in a company that is not looking at opportunities
to make a 30-40% return on investment by investing in
insulation or LED lighting for its buildings?
“
I don’t think there is a separate category of
investing which is called impact investing.
I’m not a huge believer in that. I just think
it’s about investing in better [managed]
companies and not investing in [badly
managed] companies and, in some cases,
investing in companies that are actually
going out and delivering change.
”
© The Economist Intelligence Unit Limited 2016
15
Motivated by impact:
A new generation of investors and philanthropists
A new generation are blurring the boundaries between investment and philanthropy.
Millennials are pursuing investments that go beyond delivering a profit to having
a measureable social impact as well.
UP CLOSE AND PERSONAL
56%
of millennials in the US are
motivated to give by a personal
connection or trust in the
leadership of the organisation
Affluent millennials
in the US are
investing in:
30% Gender equality
39% Water
Investments are a way to express
social, political, or environmental
values for:
39% Environment
34%
MATURE
BABY BOOMERS
36%
58% Education
44%
GEN X
MILLENNIALS
67%
63%
of British millennials think
values-based investing
delivers the same or better
financial returns
A GLOBAL PERSPECTIVE
With increasing exposure to global issues, young investors
and philanthropists are increasingly supporting causes in
distant parts of the world
Mark Zuckerberg (San Francisco)
Founder of Facebook, 32,
donated $25m to tackle Ebola
in West Africa
Ruth Yeoh (Singapore),
Executive director YTL, 32, has
invested in habitat protection of
rare birds in the UK
Joe Gebbia (San Francisco)
co-founder Airbnb, 34, created a
tool for hosts to offer free
accommodation in response to
the Nepal earthquake
Paul Blackburne (Australia),
founder of Blackburne
Property Group, 40, established
the Child Protection Unit with the
Cambodian Children’s Fund
MAKING AN IMPACT
High-net-worth investors in
the US who currently own or
are interested in social
impact investments:
MILLENNIALS
85%
16
GEN X
55%
48% of 18-24 year olds in London
would give more if they had more
information on the impact of their
financial donation
BABY
BOOMERS
28%
MATURE
24%
How are organisations measuring the impact
of financial donations?
Social return on
investment (SROI)
Logic model
Mission alignment
methods
Experimental
methods
Sources: Oppenheimer Funds; Achieve (Millennial Impact Report 2015); US Trust; City Philanthropy; Harvard Business School Social Enterprise Initiative;
Standard Life Investments / YouGov. © The Economist Intelligence Unit 2016
Motivated by impact:
A new generation seek to make their mark
Global vision
Technology has made the world smaller for a millennial generation who view the world
through a global lens. We meet the young investors looking to do good with the dollars under
their control, and to do so on a grand scale
“I
was working in fashion, selling US$200,000
one-page magazine adverts. And then
I met some of my peers, who were raising the
same amount but supporting incredible
organisations that work in Africa or
girls’ education [in developing
countries],” says Stephanie Cordes,
vice chair of US-based Cordes
Foundation. “It put my current
job into perspective.”
Not long after, the 26-year-old
quit her job and joined the
family foundation set up by
her father, which focuses its
US$10m portfolio on impact
investments in Africa and Latin
America and on improving life
for women and girls. For Ms Cordes,
the opportunity to use your money
to move the needle on some of
the world’s biggest challenges
“just makes sense”.
“You could be investing in something that
at the same time goes against what your
philanthropic dollars are trying to solve…
Sometimes I don’t think older generations see
that circle,” she observes. “By investing in things
that are aligned with your values you can
create much more impact.”
While studies ricochet between labelling
millennials as the most civic-minded and the
most selfish of generations, what is clear is
they are constantly plugged into world events.
A global perspective is the norm. Easy access
to information and travel helps: almost half
of 18-24-year-olds check their smartphone
within five minutes of waking up, according to
a 2015 Deloitte study, while a survey by Boston
Consulting Group found that 70% of millennials
wish to visit every continent on earth,
compared with 48% of other age groups.
They are also a generation whose early careers
were shaped by the 2008 financial crisis, but in
which youth and optimism combine in a desire
to fix the problems they see. One of those
tools, increasingly, is cash: 93% of millennials
believe social impact is key to their investing
decisions, according to an annual study
by US Trust.
The younger generation of investors
is more globally minded than ever,
and technology is one of the
key drivers, agrees Ms Cordes.
The foundation’s portfolio
reaches more than 70 countries
by investing in various funds
and directly into organisations
such as Bridge International
Academies, which provides
low-cost private schools in Africa.
“We are able to connect with
people in developing countries
much more easily, for example via
Skype or social media, and we’re so
much more aware of what is going on,”
she notes. “Having more access to information
definitely gives you bigger ambitions.”
Size matters to millennials. Impact investing
in emerging markets is appealing as it allows
you to invest in businesses with the potential
to reach millions, says Stewart Langdon,
37, a partner at LeapFrog Investments,
a private equity firm that manages assets
of US$1bn in financial services for the poor in
Africa and Asia.
Size matters to millennials.
Impact investing in emerging
markets is appealing as it allows
you to invest in businesses with
the potential to reach millions,
says Stewart Langdon, 37,
partner at LeapFrog Investments.
© The Economist Intelligence Unit Limited 2016
17
Motivated by impact:
A new generation seek to make their mark
An investment banker, Mr Langdon joined LeapFrog in 2010.
“When you work for a corporation, people will do projects
such as paint a school, which is noble,” he says. “[But] I loved
the idea of being able to use my skills every day to have
a major impact on the fight against poverty... We didn’t
want to do projects that reached just a few thousand, but
which changed the lives of millions and millions of people.”
The number of companies LeapFrog invests in has reached
almost 85m since 2007, according to the firm, by offering
services such as micro insurance and savings that many in
developing countries are using for the first time. The firm uses
a traditional private-equity structure, charging a 2% fee
and offering a 20% return above a certain hurdle.
One of the companies in LeapFrog’s portfolio is Swedenbased Bima. The firm teams up with mobile operators in
15 countries to reach poorer customers with low-cost life
and health insurance for under US$1 a month. Bima has
20m subscribers, more than 90% of whom live on less than
US$10 a day. “Bima is run by people in their early 30s,”
explains Mr Langdon. “There is no way we would have
been able to attract young, dynamic talent into the
organisation if they weren’t motivated by the idea of
building something big that had real purpose.”
The coming years will see more funds popping up
concentrated on climate change and on women’s
empowerment for the same reason, argues Mr Langdon.
“That’s a big coming trend in impact investing because
women’s lives are so challenging in the developing world.”
For Ms Cordes, marrying your career with doing good—
whether through a job, start-up or investment—and doing
it on a global scale is a no-brainer. “Philanthropy can’t
solve some of the world’s toughest problems on its own,”
she says. “The capital market is a way to create more
business opportunity with a social component that allows
us to align our investments with what we are interested in,
which is how to make a positive change in the world.”
70%
93%
18
of millennials
wish to visit every
continent on earth
of millennials
believe social
impact is key to their
investing decisions
© The Economist Intelligence Unit Limited 2016
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