Market Momentum: Impact Investing And High Net Worth Canadians

Market alert: wealthy Canadians want impact investing in their investment portfolio in 2018.
Photo by Ambir Tolang on Unsplash

According to a recent MaRS Capital report by SVX called Market Momentum: Impact Investing and High Net Worth Canadians, ninety percent of high net worth Canadians are interested in impact investing, one-third are already making impact investments, and almost half plan to increase their asset allocation to impact investing over the next year.

This impact momentum is not driven by a handful of tech titans and fifth generation railroad scions. There are hundreds of leaders, and a total potential market of 376,680 Canadians representing a trillion dollar market opportunity for financial institutions, advisors, intermediaries, and issuers seeking capital.

Why is it important to understand the impact investing interest and activity of wealthy Canadians?

At SVX, we wanted to develop a greater understanding of wealthy Canadians’ interest and activity in impact investing:

  • Wealthy Canadians hold a significant and growing portion of total capital in Canada. Wealthy Canadians currently hold $1.2 trillion in assets and by 2024, the total assets of high net worth Canadians are expected to be $4.3 trillion, or 69 percent of all assets. This is a great deal of capital which could be dedicated to tackling social and environmental problems.
  • In other countries and around the world, there has been demonstrated interest and activity in impact investing among HNWIs. According to a recent survey by U.S. Trust, 45% of all high net worth investors in the United States either own impact investments or are interested in adding them to their portfolios. In 2016, according to Capgemini, 92% of HNWIs globally ascribed some level of importance to driving social impact, with 60% of HNWIs reporting that it was extremely or very important.
  • Current Canadian research on impact investing has focused on institutional activity and as such, there is a lack of in-depth insights into individual investors’ views on impact investing. We wanted to know whether the current and potential level of impact investing activity amongst wealthy Canadians matches global trends.
  • Wealthy individuals are often the first movers in making impact investments, and they have capital available for taking new and novel approaches to investing. Investment leaders such as Sir Ronald Cohen in the United Kingdom and Bill Young in Canada, and networks of high net worth impact investors such as Toniic and ImPact Network in the United States, have been critical to the development and momentum of the impact investment marketplace.

We also hope this provides a compass bearing for the market, mainstream institutions, issuers, intermediaries and fellow investors. Greater insights into this community will help us gauge the potential for market growth, inform the future strategies and activities of Canadian financial institutions and financial services firms, and provide valuable insights for the current market of impact issuers, investors and intermediaries.

Five key trends

So, what did we learn through our research? We saw five key trends:

Trend 1: The vast majority of wealthy Canadians are interested in impact investing.

  • 89.8% of all investors surveyed expressed some degree of interest in impact investing
  • More significant interest was shown by investors who are more experienced, younger, wealthier, and female

Trend 2: Many high net worth Canadians are active impact investors or would like to make impact investments in the next year.

  • 33.5% of all respondents have already invested with impact, with 19.1% of investors currently considering options
  • 47.9% of all respondents indicated plans to increase their allocation of assets toward impact investing in the next year

Trend 3: High net worth Canadians want to invest with their existing institutions or financial advisors.

  • 51.5% of all respondents would be interested in making impact investments only through financial institutions or advisors
  • Almost 3 in 4 respondents (73.2%) sourced from a general pool of financial institution clients would pursue impact investing options with their current financial institutions or advisors

Trend 4: Wealthy Canadians are willing to take some risk and pay additional fees for impact investing.

  • 47% of all respondents were willing to take at least some risk with portions of their portfolios
  • 48.6% of all respondents were willing to pay additional fees to facilitate impact investing transactions, if required

Trend 5: There are barriers to impact investing among wealthy Canadians.

Impact investing is not straightforward, particularly through financial advisors and institutions. The top three barriers are:

  1. Lack of qualified advice and expertise
  2. Lack of viable products and investment options
  3. Lack of liquidity

These trends demonstrate that there is significant market momentum and a major opportunity in impact investing for wealthy Canadians

It is clear that the interest and activity in impact investing amongst wealthy Canadians is remarkably high. Investors are already beginning to take action and planning for a future in which impact investing will feature prominently in their investment portfolios.

There is also a clear beachhead market of wealthy Canadians, with roughly one in three wealthy Canadians across the trend categories that have significant interest, activity, and plans for impact investing, alongside a willingness to pay a bit more for impact integration in their portfolios.

In order to take advantage of this market momentum and opportunity, we have offered a set of general recommendations to key players:

Wealthy Canadians should ask for impact:

  • Raise questions about portfolio composition, impact investment options and impact measurement during regular engagement with wealth managers or investment advisors.

Public and private ventures and funds should manage and measure their impact:

  • Manage businesses and offerings with clear, direct, intentional and measurable impact to establish advantage and a unique value proposition for investors.

Financial institutions and advisors should offer impact options and train and hire for impact:

  • Develop a diverse pipeline of impact investment products and offerings across asset classes in collaboration with impact investing market stakeholders.
  • Acquire and develop staff expertise in impact investing through professional development, ongoing training, and hiring activities.

There is a major market opening for one of Canada’s large financial institutions to serve wealthy clients with impact investing solutions. Large global players like UBS and Morgan Stanley have set-up shop, and early market movers like Desjardins and Vancity are leading on sustainable and impact investing.

SVX also offers a community and platform for wealthy Canadians interested in learning about and making impact investments. We plan to do more. We will soon be announcing a new partnership and service offering to facilitate impact investing across asset classes for both wealthy Canadians and foundations seeking counsel and managed solutions for their investments.

We’re looking forward to seeing this market momentum catch fire on Bay Street as major clients seek impact investing solutions from the major banks and institutions.

Acknowledgements
MaRS and SVX would like to extend a special thank you to the sponsor of this research. This work has been graciously supported through the Social Enterprise Demonstration Fund (SEDF). We would also like to recognize our survey distribution partners including BMO, Scotiabank, Toniic, VERGE Capital, and Tides Canada.

Read the full report now!