Everybody today seems to be talking about ‘millennials’, the cohort also known as Generation Y which can broadly be defined as people born between the early 1980s and early 2000s, and which has become known for being technology-savvy, liberal, well-educated and socially and environmentally aware.[1] By 2025, it is estimated that millennials will form 75% of the global workforce[2] and in many countries they will be the largest generation ever born. With all this economic power in their hands, the hype makes sense; they are the ‘interconnected’ generation and can collectively influence their peers all over the world in seconds, making their opinions heard on business, products and even potential dates with the swipe of a fingertip.

A Sustainable Future?

Marketing gurus have quickly clocked on to the fact that this generation is taking environmental and social aspects into consideration when making all sorts of decisions, from what jeans to buy, to which companies they choose to work for. Such values are also beginning to influence how they want to invest their savings. One way to address these concerns could be through ESG investing, which aims to incorporate environmental, social and governance factors into investment decisions in order to better manage risk and generate sustainable, long-term returns. According to a recent study of 20,000 end-investors in 28 countries, millennials ranked ESG factors as equally important as investment outcomes when considering investment decisions.[3] In addition, research has found millennials are driving the growing sustainable investing market.[4]

As a millennial, I thought I was something of an anomaly for thinking about what my pension will be investing in over the next 40-odd years. But having spoken to a (politically and professionally) broad range of my contemporaries, many have similar concerns. One friend would like their pension to support groundbreaking cancer research. Another wants their savings to develop renewable-energy technology, and another, who feels strongly about the benefits of diversity, wants to invest in companies with diverse businesses. My friends were also aware of the perception that there can be financial trade-offs from investing sustainably. However, when I mentioned that sustainable investments can perform in line with, or even outperform, traditional ones,[5] they wanted to find out more.

Meeting Modern-Day Investors’ Requirements

This all raises important questions for retirement plans and asset managers. For plan sponsors, the growing challenge is to understand what participants’ expectations actually are and how to address them. We think asset managers, meanwhile, will need to define exactly what ESG investing means and offer products that do what they say on the tin. While some are already rising to the challenge, the entire industry will ultimately have to respond to the changing requirements of both millennial and other modern-day investors. And with more and more decisions being made through the tap of a smartphone, we think that those providing clear and genuine investment solutions are likely to be the winners.

 

 

[1] Bank of America Merrill Lynch, Generation Next – Millennials Primer, May 2015

[2] https://www2.deloitte.com/content/dam/Deloitte/global/Documents/About-Deloitte/gx-dttl-2014-millennial-survey-report.pdf

[3] http://www.schroders.com/en/media-relations/newsroom/all_news_releases/schroders-global-investor-study-2016-millennials-put-greater-importance-on-esg-factors/

[4] http://www.morganstanley.com/ideas/sustainable-socially-responsible-investing-millennials-drive-growth.html

[5] https://www.researchgate.net/publication/271517703_From_The_Stockholder_To_The_Stakeholder_-_How_Sustainability_Can_Drive_Financial_Outperformance

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This is a financial promotion. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.

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