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November 15, 2017

Impact investing becomes growing priority for entrepreneurs

By Saloni Sardana

Achieving profit targets has always been at the forefront of entrepreneurs’ minds. But new research from BNP Paribas Wealth Management reveals the concept of positive impact, which consists in ensuring that business, investments and personal practices make the world, better, has moved up the agenda for entrepreneurs globally.

BNP Paribas Wealth Management’s 2018 Global Entrepreneur Report reveals that 39% of the world’s most successful entrepreneurs – dubbed “Elite Entrepreneurs” now consider a ‘positive impact’ to be core to how they assess business performance – compared to 10% of respondents two years ago.

While achieving performance targets is important for entrepreneurs, it’s clear there has also been a shift in their mindsets, and this is across all regions.

For example, some 55% of the elite entrepreneurs said that they earmarked a proportion of their wealth for investment in socially responsible outcomes.

Collectively, they have contributed $2.27bn to socially responsible outcomes

Over the next five years BNP Paribas Wealth Management said 34% of elite entrepreneurs expect to invest more in investment funds, 34% in start-up financing and 32% in equity funding. Impact investing is expected to rise by another 29%.

 

Regional differences

BNP Paribas Wealth Management’s research noted stark differences in how impact investing was perceived across the globe.

In Europe, clean energy remained the top priority, while climate preservation was a key social consideration for impact investors. Add question

However, in USA and the Middle East, job creation was the main form of social responsible investment.

 

Responsible investing

When considering impact investing, it can be quite easy to confuse the term with responsible investment.

While both aim to add some social element to their investments, responsible investment is conducted through negative screening, and whichever industry generates a negative result will be excluded from the entrepreneur’s portfolio.

Conversely, impact investment follows a positive screening process, and entrepreneurs naturally navigate towards the investments that yield both profits and address a social issue.

In France, the report said enthusiasm for impact-investing, green bonds and crowd funding is higher than it is in Asia even.

Meanwhile, entrepreneurs in USA use environmental, social and governance codes to screen and eliminate any investments deemed unethical.

Some 42% of entrepreneurs in USA said this was because it was reassuring to know that their investments were not generating any harm. Responsible investment activity is highest in USA, China and France.

Private Banker International reporter (PBI) Saloni Sardana attended BNP Paribas Wealth Management’s presentation of the report in Paris where she spoke to senior members of the wealth manager’s team to understand what 2018 will likely hold for entrepreneurs.

BNP Paribas Wealth Management Co-CEO, Sofia Merlo, said their wealth management clients recently broke the €10bn threshold in responsible investments, a ten-fold increase from six years ago.

“Their [elite entrepreneurs’] investments can amplify their ambitions to create a better environment for the next generation while reflecting their values,” BNP Paribas Wealth Management co-CEO, Vincent Lecomte said.

Lecomte added that 64% of millennipreneurs – entrepreneurs aged 35 or under- are involved in impact investing.

Awareness threat

Social impact is now the second most important goal for entrepreneurs after making a profit on their initial investment.

Some 53% of entrepreneurs said making a profit on an initial investment is an indicator of their success. This was the only option that fared better than making a social impact, out of eight categories asked to respondents.

Tasha Vashist, senior manager at Scorpio Consultancy, the firm that co-produced the report with BNP Paribas Wealth Management says: “Entrepreneurs in emerging economies are most passionate about [making a social impact]. They are stepping in to play the role that otherwise the state might do,” Vashist says

Some 29% of millennipreneurs are hoping to show socially positive results within the next year, through business expansion, better career progression or through introducing new social responsibility.

While, nobody can contest a general revived appetite for investors to make better socially ethical investments, this comes with its hurdles and exceptions to the rule.

The report highlights that only one in four boomerpreneurs- entrepreneurs aged 55 or over- are likely to prioritise social impact as a key focus compared to younger generations.

Responding to the biggest challenge facing entrepreneurs wishing to invest responsibly, Vashisht identifies a lack of awareness on investment products. This is particularly acute with boomerpreneurs,

“The research suggests lack of awareness of vehicles they could take combined with some of these products are not relevant to them. It really comes down to the marketing information they have received from the industry,” says Vashisht.

It may also be a surprise to some that all entrepreneurs are expected to make riskier investments looking forward.

Not only do entrepreneurs care more about the social impact, but they are becoming increasingly less concerned about taking on higher risk and are interested in investing in equities  So why the change of heart?

Increased risk appetite

BNP Paribas chief investment officer Florent Brones says this is a result of entrepreneurs wanting higher returns following almost a decade of low interest rates.

Brones says: “Because interest rates are so low, there is greater willingness for investors and particularly entrepreneurs to invest in assets that may have higher risk, but have potential for greater returns.

“So some investors are taking on more risk in the long-run. Entrepreneurs know that better than others.”

The key highlight from the report is that entrepreneurs are not only interested in making profits, but they are striving to make the world a better place. That better world though is subject to different geopolitical differences.

Younger entrepreneurs are more minded to invest in a social way than their older counterparts. Next year could be an exciting year of higher returns coupled with entrepreneurs from all walks of life investing in a way that makes a social difference.

But this trend can only be sustainable if boomerpreneurs receive better information on different socially optimal investment options facing them to keep up the momentum.

Overall, the BNP Paribas Wealth Management report polled 2,706 multimillionaire entrepreneurs based in 22 countries, handling a total wealth of $36bn.

 

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