The opportunity to maintain financial success and couple it with value-based investing has become an increasingly popular investment strategy, especially for millennials. Millennials have demonstrated a stronger inclination than previous generations to choose investments that align with their values. In fact, a recent Morgan Stanley survey found that 84% of millennials prioritize investing with a focus on ESG impact.
Wealth and asset managers must recognize the demographic changes occurring in the investment industry. In order to serve the over USD 4 trillion market, they must adapt quickly and consider sustainable investments to attract the coming wave of millennial investors.
Millennials are becoming more involved in their investments, seeking to have more control over their financial future. They are not just interested in making a profit but also in using their investments to create positive social and environmental impacts. They are nearly twice as likely as non-millennial investors to take this approach, according to a Morgan Stanley study. For millennials, values-based investing is the third most important priority out of the nine identified priorities.
In addition, they prefer to purchase products from sustainable brands and are more likely to exit investment positions due to objectionable firm activity. They are also more concerned about environmental, social, and governance (ESG) practices when making investment decisions, with 17% indicating they seek to invest in companies that use high-quality ESG practices compared to 9% of non-millennial investors.
A study by Inyova in Germany determined that 86% of millennials are interested in impact investing and are twice as likely to invest in funds related to ESG causes. Moreover, the newer generations, such as 72% of Gen Z’s, see sustainable funding as a long- term solution. Some investors wish to “do good” for society by providing capital to companies with favorable ESG features (without compromising risk-adjusted returns), making ESG a crucial pillar of sustainable investing.
The sustainable investing market has seen remarkable growth, with a compound annual growth rate of 107.4% and an increase in AUM from USD 1.0 trillion in 2012 to USD 4.3 trillion in 2014, according to The Forum for Sustainable and Responsible Investment’s 2014 report. Moreover, the number of sustainable investing funds available has almost tripled since 2008.
This impressive market growth is only driven by millennials but also by evolving macroeconomic trends. With an estimated 2 billion additional people expected to be added to the world population by 2050, the global demand for food, water, and energy will necessitate innovative improvements in infrastructure to address the resource demands associated with a growing population.