Imagine a world where more and more people are looking to invest their money to help make the World a better place…… Now imagine that this new investment priority represented a huge wall of money aimed at making a social and ethical impact as well as generating returns. Sounds too good to be true, but I am pleased to report that it looks like it’s happening …
As part of the investment process undertaken by the Investment Committee here at Pynk, we seek to unearth powerful long term global themes and trends (we call them thesis investments) which we feel will lead to superior long-term investment returns. The growing interest and weight of money pouring into ESG investing is one example of a thesis investment we are currently considering. Read on to learn how the evidence is piling up to show that newer generations have different investing priorities. This change may be all the more powerful because young people stand to benefit from the largest transfer of wealth that the World has ever seen in the years ahead.
Younger People see the World Differently
To better understand environmental attitudes across generations, MIT AgeLab conducted a survey that asked Millennials (born between 1980 – 2000) how they perceived their environmental attitudes and behaviours relative to the older generations. And they also asked Boomers (born between 1946–1964, the Boomers) and Gen Xers (the latter born between 1965-79) to compare their attitudes and behaviours to their younger selves.
Baby Boomer, Gen X & Millennial perceptions of their commitment to the environment compared to other… Source: MIT AgeLab
Most Millennials believed that they were more concerned than the older generations about protecting the environment. The AgeLab findings may help explain the fast-growing level of interest in ESG Investments, which have grown by more than 97% in the last 20 years. ESG investments are those that take into account the environmental and social impact of companies in the process of investing.
The findings of the AgeLab study don’t come as much of a surprise to anyone who spends time with younger people: they are fired up like never before to improve the World through their own proactive and direct actions.
More and more Millennials are making substantial changes to their lifestyles to create and sustain a healthier earth. For instance, many 20-somethings have embraced a vegan lifestyle. By eliminating animal products from their diet, vegan eaters help reduce their negative impact on the earth. Millennials aren’t afraid to stand up to fight for what they believe in.
Massive Growth in ESG Investing
Young investors increasingly want to see their money used responsibly and are prioritising funds and businesses based on their social and environmental credentials.
When considering investment opportunities, Millennials are more likely to choose a company to invest in that has created a written declaration of social responsibility. They also tend to favour those with a clearly defined mission. According to Forbes Magazine, current favourites among Millennial investors include organizations with a strong environmental focus.
Of course, Millennials aren’t the only ones interested in ESG investing. It’s in such high demand that industry analysts estimate that the ESG market is currently valued at one trillion dollars.
This market is primed for further growth: a global survey conducted by financial advisory firm deVere Group found environmental, social, and governance (ESG) attributes are the most important consideration for 77 per cent of Millennials (born between the early 1980s and late 1990s). Anticipated returns were only cited as a top priority by 10 per cent of the Millennials surveyed. Past performance of an investment was top of mind for a paltry 7 per cent, while risk tolerance was prioritised by only 4 per cent.
Nigel Green, chief executive of deVere Group, said the research “underscores that whilst traditional factors … are important factors in Millennial respondents’ investment decision-making, they are no longer enough. Indeed, environmental social and governance considerations now sit at the heart of that process, and that preference for responsible investing could fundamentally reshape the investment landscape within ten years.”
A New Investment Priority
A 2017 Morgan Stanley survey found that Millennials are twice as likely as other investors to put their money into social or environmental investments. How lovely to think that this growing trend is strengthening our society while focusing on the greater good of the future.
A Fidelity Charitable study supports that finding, showing that 77% of affluent Millennials have put money into an ESG investment, defined as one that offers social or environmental benefits but still generates a return. Further, the same survey found that 95% of affluent Millennial investors said they preferred to make investments that had a positive effect on the environment.
In 2015, Nielsen polled 30,000 consumers in 60 countries around the world. They wanted to know more about what influences how people feel about brands, and how those feelings impact buying behaviour. One overwhelming conclusion of the report? That across the board, consumers are willing to pay extra for one thing: sustainability.
“Despite the fact that Millennials are coming of age in one of the most difficult economic climates in the past 100 years, they continue to be the most willing to pay extra for sustainable offerings–almost three-out-of-four respondents,” says Nielsen.
What all this means is that younger people are putting their money where their mouth is and investing, not just based on expected returns, but in companies that support their ideals. This new investment focus on companies that have a positive effect on the environment, society and technological growth has obvious investing implications.
This is a relatively new perspective for consumers. For most of the history of the modern economy, the sourcing of products didn’t even cross the minds of those shopping. But in an increasingly interconnected world, it’s starting to be normal to think critically about where things come from and whether the company you’re supporting is a responsible corporate citizen.
This trend was even commented on by a United States Treasury survey: Millennials are investing in organizations that prioritise the greater good more than any previous generation. They want to make strategic investments with the intention of positively impacting the World. In a survey of 684 investors, Millennials were found to make more “social impact investments” than any other segment of America, while 85% of those in this age group signalled interest for this type of investing.
This new investment priority can also be seen elsewhere in the World: in a World Economic Forum study, 5,000 Millennials surveyed in 18 different countries indicated that the overall top priority for any business should be “to improve society.”
The Largest Transfer of Wealth the World has Ever Seen
In the coming decade, economists predict the largest-ever transfer of wealth from one generation to another – in this case from baby boomers to Millennials – with $US30 trillion expected to change hands in the US alone. What’s more, Nicholas Tedesco, senior philanthropy advisor for J.P. Morgan, goes further, predicting that Millennials stand to inherit double that amount ($60trillion) if we look out over four decades. A similar inheritance pattern will be seen across the rest of the developed world, magnifying the impact.
It isn’t too much of a stretch therefore to predict that as Millennials become the beneficiaries of this enormous transfer of wealth, financial product providers who are experts in the ESG space will benefit disproportionately from these money flows.
ESG Trend is Here to Stay and is Backed by a Wall of Money
Catalysts for Change suggests that the Millennial generation in the US — all 75 million of them — are likely to become the wealthiest generation in America’s history.
The ESG investing market is currently worth a staggering $1 trillion and the key drivers as we have seen show no signs of slowing.
ESG investing is becoming the method of choice for young people who want to bring about positive, incremental change in the World around them, and who derive happiness — at home and at work — from making a difference. What makes this trend more powerful is that it’s backed by a large wall of money.
Disclaimer: Please bear in mind that this information does not constitute any form of advice or recommendation by Pynk One Ltd. and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision. When investing, your capital is at risk and you may recover less than the initial investment.