Young investors increasingly want to see their money used responsibly and are prioritising funds and businesses based on their social and environmental credentials.
A global survey conducted by financial advisory firm deVere Group found environmental, social, and governance (ESG) attributes are the most important consideration for 77 per cent of millennials (born between the early 1980s and late 1990s).
Anticipated returns was only cited as a top priority by 10 per cent of the millennials surveyed.
Past performance of an investment was top of mind for a paltry 7 per cent, while risk tolerance was prioritised by only 4 per cent.
Nigel Green, chief executive of deVere Group, said the research “underscores that whilst traditional factors … are important factors in millennial respondents’ investment decision-making, they are no longer enough”.
“Indeed, environmental social and governance considerations now sit at the heart of that process,” he said.
And that preference for responsible investing could “fundamentally reshape” the investment landscape within ten years, Mr Green added.
In the coming decade economists predict the largest-ever transfer of wealth from one generation to another – in this case from baby boomers to millennials – with $US30 trillion ($43.2 trillion) expected to change hands in the US alone.
In Australia, it’s expected that sum will be closer to $3 trillion.
“Millennials 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,” Mr Green said.
“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 pile into ESG over the next few years.”
ESG gaining traction in Australia
Separate research from the Responsible Investment Association Australasia (RIAA) found responsible investments in Australia grew 13 per cent in 2018.
Australians now have $980 billion invested in the responsible investment market.
“Globally, momentum is building to better align finance with the world’s sustainable development needs,” the report said.
“Countries and regions around the world are setting out sustainable finance roadmaps that provide pathways and policy signals and set frameworks to enable the finance sector to contribute more systematically to the transition to a more resilient and sustainable economy, consistent with these global goals.”
But the same report also found that fund managers focus on the wrong kinds of businesses when screening companies out.
The research compared fund managers’ lists of exclusions (types of businesses they won’t invest in) with the search terms consumers used when comparing responsible funds on the RIAA’s Responsible Returns tool.
Only 5 per cent of the fund managers included in the study excluded businesses involved in the fossil fuel industry, despite 32 per cent of consumers searching for exactly that.
Super funds reaping the benefits
Super funds are increasingly factoring ESG considerations into their investment portfolios, and according to RIAA that’s good news for members.
An RIAA survey of the 57 largest funds found those with more comprehensive responsible investment guidelines delivered better returns over a one, three, and five-year long investment horizon.
Over all three lengths of time, the responsible funds were typically 1 per cent better off.
This reinforces how important the consideration of environmental, social and corporate governance factors is to delivering the best possible outcomes for super fund members,” said RIAA chief executive Simon O’Connor.
“This report shows us that this responsible investment is not just something Australians want, but is a critical part of delivering stronger member outcomes.”
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