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Building wealth for the future is important, but increasingly people want their investments to do more than make money. Investing ethically means different things to different people.
According to a new global survey[1], almost eight out of 10 millennials now prioritise socially responsible and impactful investing. Environmental, social and governance issues are now their top priority. They understand that it is perfectly possible – and increasingly necessary – to make a profit while positively and proactively protecting people and the planet.
Environmental, Social and Governance (ESG)
Some 77% of millennials – people who were born in the time period ranging from the early 1980s to the mid-1990s and early 2000s – cite Environmental, Social and Governance (ESG) investing as their top priority when considering investment opportunities.
To understand the matters that millennials deem deserving of their investment, let’s consider what the ESG acronym stands for. The ‘E’ is for ‘environment’ and includes issues such as climate change policies, carbon footprint and use of renewable energies. ‘S’ is for ‘social’ and includes workers’ rights and protections. ‘G’ is for ‘governance’ and includes executive compensations, diversity of the board and corporate transparency.
Progressive and forward-looking investment decisions
This survey underscores that whilst traditional factors – such as anticipated returns (10%), past performance (7%), risk tolerance (4%) and tactical allocation (2%) – are important factors in millennial respondents’ investment decision-making, they are no longer enough.
The findings highlight that ESG considerations now sit at the heart of that process. It’s millennials today that appear to be leading the charge in socially responsible and impactful investing. They are keen to look for investment solutions that are progressive and forward-looking.
Investing in sustainable, impactful business models
A study by Morgan Stanley[2], which evaluated more than 10,000 funds and managed accounts, shows that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.
Additionally, according to the study, when compared with non-millennial investors, millennials are incorporating sustainability not only into investment decisions but overall consumer behaviour, with millennials achieving greater integration of their money and values by seeking personal fulfilment in their careers, applying a global consciousness to purchases, and investing in sustainable, impactful business models.
Responsible investing increasingly becoming mainstream
As responsible investing becomes increasingly mainstream, and millennials become the major beneficiaries of the transfer of wealth, we can also expect institutional investors (such as pension funds, amongst others) to broaden their exposure to ESG over the next few years, with wealth and asset managers seeing a significant influx of investor funds flowing into sustainable investments.
Much has been made of the demographic changes underfoot in each generation, but none more so than that of millennials, who are far from being old enough to retire but have reached working age. They not only have a major influence on consumer trends, particularly in the digital arena, but also disposable incomes that will grow with age and look set to have their own demands and characteristics in terms of financial services.
At Waverton we have developed a ‘Responsible Futures’ portfolio, which was designed to deliver a positive outcome for your own future, but also for the planet and the people we share it with, by focusing on the UN Sustainable Development Goals. You can you can find out more about our new portfolio here.
Source data:
[1] Global poll of 1,125 people was carried out by deVere Group 2 January 2020
[2] Sustainable Signals: The Individual Investor Perspective – Morgan Stanley – https://www.morganstanley.com/sustainableinvesting/pdf/Sustainable_Signals.pdf, accessed 1 June 2016
If you’d like to ask any questions about our Responsible Futures portfolio, then please contact Waverton Wealth Director, Alan Reid.
