In this article, we explore how Millennials and ESG Investing.
As analysed in our recent What is ESG investing feature, companies and investors are increasingly aligning with the concept of Environmental, Social and Corporate Governance (ESG). Unsurprisingly, Millennials are spearheading the drive behind ESG investing, with those in this age group being the most likely to want to work for, spend money and invest in companies having a strong sense of woke culture. This quick look into Millennials and ESG investing will delve into the growing influence of the demographic group on business and investment: The Millennial HNWI investor wants their money to grow in ethical ways that transform the world for good’
The Millennial Investor & Sustainable Investing
As Millennials mature and start to achieve an income level that supports regular investing, we’re witnessing a revolution in the demand for sustainable and responsible investing – opportunities with the potential to compound both economically and socially.
The typical Millennial investor would prefer to invest in a shoe company that offer their workers fair working conditions and pay in the Far East, than a brand that has a non-transparent history of employee welfare. As a result, a growing number of Millennial investors are seeking ethical businesses and ESG funds, such as those that embrace workforce diversity, combat environmental impact, and forge relationships with their communities to negate inequality and build better social infrastructures for the future.
Data published in an Ernst & Young report found that younger investors, in their 20’s and 30’s, were twice as likely to invest in ESG aligned ventures or funds. Similarly, the report suggests that 20% of Millennials seek financial experts who offer ESG investments. Crucially, in the US (and with a similar trend in the developed world), Millennials are predicted to inherit over $30-trillion of wealth, creating a potential surge in the demand for ESG investment options.
Given the explicit desire for young investors and for conscious investing, ESG is likely to become a dominant choice.
Millennial Investors: ESG or SRI?
When it comes to ethical investing, Millennials have two similar options – Socially Responsible Investing (SRI), or Environmental, Social and Corporate Governance (ESG).
SRI investing: Enables Millennial investors to select funds and shares, using positive and negative screening. This screening process enables investors to discard companies who have negative traits, such as child labour, high carbon footprint, or socially questionable business interests. Conversely, positive screening may highlight concepts such as employee diversity and reducing carbon emissions.
ESG investing: Broader analysis of companies based on their collective environmental, social and governance objectives, and how these factors impact the performance of a brand. For example, a gambling company could be deemed to be an ESG investment, if it is working hard to promote responsible gambling, has a strong track record of regulation and supports problem gambling charities.
The global SRI-based screening industry is valued at circa $15-trillion according to the Global Sustainable Investment Review, published by the Global Sustainable Investment Alliance (GSIA) in 2016. ESG analysis is currently valued at just over $10.4-trillion, with particular prominence in Asia, North America and Australasia. Negative screening remains a strong ethical investment measure across Europe. Over the next 5-10 years, we can expect Millennial to utilise both SRI and ESG methods to optimise their investment portfolios, particularly given the fact that ESG may enhances business value.
Millennial Investors Seek Sustainable Investing Options
Across all investment sectors, ESG analysis is gaining traction, something highlighted in a report from the CFA Institute, which looked at the percentage of investment professionals who use ESG analysis to select companies to invest in:
Europe, Africa, Middle East 85%
Asia Pacific 81%
As the Millennial investor gains influence in the markets, these figures are likely to continue their upward trajectory. Correspondingly, according the PwC, companies across the world are becoming more visible when it comes to disclosing their ESG strategies and implementations. The Millennial investor isn’t only seeking profit – many would rather make ethical gains that align with their sense of social responsibility, than invest in companies with poor ESG alignment; a clean water project in a developing nation, may ethically trump an oil drilling company in the Far East.
Millennials & Sustainable Investments: Enjoy The Journey
When it comes to Millennials and ESG investing, there are two key routes available. Firstly, seeking investment professionals and online services that specialise in ethical investing is a logical and effective option. Alternatively, Millennial investors can educate themselves to make their own ESG stock and fund picks, aided by the increasing desire for companies to release transparent ESG data via bodies such as the Global Reporting Initiative and the Carbon Disclosure Project.
Millennials and ESG investing will be the core of our world evolves into a more sustainable future!