Future Returns: Millennials and Sustainable Investing
Millenials are more eager than any group to invest funds sustainably according to their value.
Millenials are more eager than any group to invest funds sustainably according to their value.
They’re about to inherit a US$30 trillion wealth transfer, and more eager than any group to invest funds sustainably according to their values. But millennials are still the biggest believers that doing so means facing a financial tradeoff, says a new report.
Last month, Morgan Stanley’s Institute for Sustainable Investing published its fourth Sustainable Signals white paper, which surveyed 800 American individual investors 18 and over with minimum investable assets of US$100,000. Just over a quarter were millennials aged 25-38.
The findings show sustainable investing interest is reaching new levels, even with the economic uncertainty caused by the Covid-19 pandemic. Millennial interest in sustainable investing grew by four points to 99%, compared to a six point decline to 79% among the general population.
Yet there’s a paradoxical finding: Despite record levels of interest, more millennials—83% opposed to 70% in the general population—believe the debunked “trade-off” myth that sustainable investing means sacrificing returns.
For Matt Slovik, head of global sustainable finance at Morgan Stanley, it was one of the most interesting findings of the survey.
“This shows that if you look at the percentage of millennials that are interested in sustainable investing, there’s a real desire and recognition that finance can do more,” Stovik says. “And there’s more to finance than simply focusing on the return aspect.”
Morgan Stanley found no trade-off between financial performance between sustainable and traditional U.S. equity funds between 2004 and 2020, and as millennial investors become more educated and move into this investing arena they have the power to transform it.
Slovik spoke to Penta about some of the most surprising insights the survey unearthed about millennial investors.
New Face of Financial Consumption
“There’s a desire to consume finance in many of the same ways that millennials and others have really taken to clothing and food and other things in their lives,” Slovik says. Just as millennial investors ask questions about impact, sourcing, and production when shopping for themselves, they’re starting to look at their portfolios with a similar fine tooth comb. “I think that the finance and the integration of sustainability considerations is a natural evolution outgrowth of that trend.”
Slovik said multiple factors contribute to these changing habits, from the way millennials drive consumption, to where they were in life during the financial crisis, to the impacts they’re seeing from climate change.
“All of that really informs the fact that the data seems to suggest that they’re thinking holistically and more broadly about their investments than I think we’ve seen broadly and historically,” he says.
Greenwashing Won’t Cut It
It’s not just that millennial investors are looking for key data, there’s a higher watermark for what they find. Millennial investors have more sophisticated demands for what it means to do environmental or sustainable good, and lower tolerance for greenwashing, where companies make green claims that aren’t backed up through practices.
Sustainable Signals uncovered a growing concern over how authentic a firm’s ESG activities are. On a question about barriers to including sustainable investing for individuals the second place answer was brand new to this year’s survey: “concerns about authenticity or greenwashing.” (A third, also new, was “lack of tools to measure sustainable impact.”)
“As the market has evolved and matured, investors are focused on understanding what it is that they’re getting,” Slovik says. Though he says we’re entering a clear “data age of ESG” investing, thanks to increasing disclosures from companies and a growing number of data providers, he adds this is still in early days.
Among the resources available to investors, he says, is Morgan Stanley’s own Impact Quotient (or IQ) program that helps provide additional transparency for clients on over 100 environmental or impact preferences.
“As people are better able to understand the impact or exposure or alignment of their investments, you’re also seeing a desire to bring those in line with personal or organizational mission and goals,” Slovik says.
Money Follows Social Movements
Though climate change is still a top concern for millennial investors, there’s evidence that their definition of sustainability is expanding.
“Millennials are looking for more out of finance, and I think this idea of sustainability really does connect with the way that they seem to see the world more broadly,” Slovik says. Two things which have impacted that world view recently have been the pandemic and the racial justice movement.
The pandemic shifted investors’ thematic priorities when it comes to sustainability. Covid-19 led millennials to a heightened interest in addressing public health through their investment activity (69% of millennials compared to 61% of the general population) as well as supporting small businesses (68% to 61% of the general population).
Millennials believe their money has the power to change. The previous Sustainable Signals paper noted 85% of millennials believe their investments could influence climate change, and 89% that their investments could lift people out of poverty.
The 2021 report also finds 75% of millennial investors have made or plan to make investment changes within 12 months in response to racial justice movements. Comparatively, only 50% of the general population planned to do the same.
Slovik says this trend has accelerated since last summer, though it existed before. This type of investment shift can include “supporting diverse-owned, or -run asset managers, to thinking about how individual companies may either excel or lag related to racial equity records,” he adds.
Reprinted by permission of Penta. Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: November 23, 2021.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.
A leading Australian economist says two years on, the long term implications of COVID for the economy have emerged
AMP chief economist Dr Shane Oliver says the effects of the pandemic continue to reverberate across the world, with seven key lasting impacts leading to “a more fragmented and volatile world for investment returns”.
“Perhaps the biggest impact is that the pandemic related stimulus broke the back of the ultra-low inflation seen pre-pandemic,” said Dr Oliver. “Together with bigger government and reduced globalisation, this means a more inflation-prone world. So, a return to pre-pandemic ultra-low inflation and interest rates looks unlikely.”
Here is a summary of Dr Oliver’s explanation of the seven key lasting impacts of COVID for investors.
The pandemic added to support for bigger government by showcasing the power of government to protect households and businesses from shocks, enhancing perceptions of inequality, and adding support to the view that governments should ensure supply chains by bringing production back home. IMF projections for government spending in advanced countries show it settling nearly 2 percent of GDP higher than pre-COVID levels.
Implications for investors: … likely to be less productive economies, lower than otherwise living standards and less personal freedom.
After the pandemic, labour markets have tightened reflecting the rebound in demand post-pandemic, lower participation rates in some countries and a degree of labour hoarding as labour shortages made companies reluctant to let workers go. As a result, wages growth increased, possibly breaking the pre-pandemic malaise of weak wages growth.
Implications for investors: Tighter labour markets run the risk that wages growth exceeds levels consistent with two to three percent inflation.
A backlash against globalisation became evident last decade in the rise of Trump, Brexit and populist leaders …. Also, geopolitical tensions were on the rise with the relative decline of the US and faith in liberal democracies waning ... The pandemic inflamed both with supply side disruptions adding to pressure for the onshoring of production [and] heightened tensions between the west and China … we are seeing more protectionism (e.g.,with subsidies and regulation favouring local production) and increased defence spending.
Implications for investors: Reduced globalisation risks leading to reduced potential economic growth for the emerging world and reduced productivity if supply chains are managed on other than economic grounds.
Inflation [due to stimulus payments to households and supply chain disruptions] is now starting to come under control … but the pandemic has likely ushered in a more inflation-prone world by boosting bigger government, adding to a reversal in globalisation and adding to geopolitical tensions. All of which combine with ageing populations to potentially result in higher rates of inflation.
Implications for investors: Higher inflation than seen pre-pandemic means higher than otherwise interest rates over the medium term, which reduces the upside potential for growth assets like shares and property.
… the lockdowns and working from home drove increased demand for houses over units and interest in smaller cities and regional locations. As a result, Australian home prices surged to record levels. Meanwhile, the impact of higher interest rates in the last two years on home prices was swamped by housing shortages as immigration surged in a catch-up. The end result is now record low levels of housing affordability for buyers …
Implications for investors: Ever worse housing affordability means ongoing intergenerational inequality and even higher household debt.
There are huge benefits to physically working together around culture, collaboration, idea generation and learning but there are also benefits to working from home with no commute time, greater focus, less damage to the environment, better life balance and for companies – lower costs, more diverse workforces and happier staff. So the ideal is probably a hybrid model.
Implications for investors: Less office space demand as leases expire resulting in higher vacancy rates/lower rents, more people living in cities as vacated office space is converted, and reinvigorated life in suburbs and regions.
Lockdowns dramatically accelerated the move to a digital world. Many have now embraced online retail, working from home and virtual meetings. It may be argued that this fuller embrace of technology will enable the full productivity-enhancing potential of technology to be unleashed. The rapid adoption of AI will likely help.
Implications for investors: … a faster embrace of online retailing … at the expense of traditional retailing, virtual meeting attendance becoming the norm for many … and business travel settling at a lower level.
This stylish family home combines a classic palette and finishes with a flexible floorplan
Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.