Millennials place planet before profit, while becoming a crucial component of the modern investment market
Those born between the early 1980s and the early 2000s, appear to be taking more of a moral stand than their predecessors when it comes to investment
The rise of the millennial generation is dramatically changing the investment industry landscape, according to industry experts, as the demographic cohort places increasing importance on environmental, social and governance issues in gauging investment performance,
Compared with their older peers, a larger portion of millennials now consider the social and environmental impact of their money, rather than just focusing on financial returns, says Suzanne Duncan, global head of research for State Street, the Boston-based financial services company, citing results of a recent survey it has just carried out.
Millennials generally refer to those born between the early 1980s and the early 2000s.
“A third of millennial investors [we have talked to] even indicated ESG (environmental, social, governance) is the only type of investing they are interested in,” Duncan told the South China Morning Post.
ESG is a set of standards that has gained in popularity in recent years in measuring the sustainability and ethical impact of an investment.
“They want their money to have a positive impact on the planet and society,” Duncan said.
Between May 2015 and October 2016, State Street teamed up with CFA Institute – a global association of investment professionals that sets the standard for excellence in the industry – to interview nearly 7,000 people, including 3,600 individual investors and more than 3,300 investment professionals across 20 countries.
According to the results, a third of individual millennial investors were “only interested” in ESG targets. But of those considered “Generation X” – those born from the early 1960s to mid-1970s – only 26 per cent considered that a priority.
The ratio is even smaller among “baby boomers” (15 per cent), those born in the years following the Second World War.
Despite appearing close, the three ratios, Duncan said, are “statistically significant”, given the sheer numbers of respondents.
However the same patterns may not play out among those actually working in the industry, she suggested, with millennial investment managers especially placing a lower emphasis on the environmental and social impact of their decisions made on behalf of clients,
She added this may be because a lot of millennials choose not to work in the industry at all.
The State Street findings, meanwhile, are mirrored in another survey conducted by London-based asset management firm, Schroders.
It polled an even larger snapshot of 20,000 investors in 28 countries, and its analysts found ESG factors again proved more of a priority for millennials aged between 18 to 35 in their decisions compared with older investment professionals.
“But opinions between the two age groups differed the most on world-based social outcomes, such poverty and climate change, with millennials rating these highly (7.2/10) compared to older investor groups (6.4/10), on average,” it said.
Millennials were also more likely to actively pull funds from companies with poor ESG records, such as those associated with weapons manufacturing or dealing, or linked to repressive regimes.
Separate research released last year by Boston Consulting Group (BCG) concluded too that greater attention should be given to millennial investors (aged between 21 and 35), as they are becoming instrumental in reshaping the entire wealth management industry.
“Since millennials are often socially and professionally connected across different regions and cultures, they are frequently marked out by their peers by a wish to invest in socially responsible products,” said researchers from BCG.
According to its poll of more than 500 wealth-management clients in 2016, nearly 70 per cent of millennial respondents said they would prefer to invest in such products, including renewable energy indexes, microfinance, and conservation finance.
Some 58 per cent of its millennials indicated they would apply the same investment criteria when choosing their wealth managers, higher than 44 per cent of all respondents.
“Overall, millennials represent a growing pool of prospective clients who are highly discriminating, sceptical, and inclined to carry out their own proactive research,” BCG researchers said.
“Socially responsible investing, therefore, represents an opportunity for fast-moving wealth managers.”