Millennials are demanding that their money is put into companies that are truly doing good.
Environmental, Social, and Corporate Governance (ESG) investing is on the rise, driven in large part by millennials who want to make a difference. Millennials agree with financial advisors, such as Thomas Van Dyck, senior VP, RBC Wealth Management who says that “investment is the economic expression of our thoughts and values.”
In fact, a recent survey conducted by Morgan Stanley found that millennials are twice as likely to both invest in companies or funds that target specific social / environmental outcomes and divest because of objectionable corporate activity. A US Trust survey of 680 high-net-worth and ultra-high-net-worth adults found that 67% of millennials view their investment decisions as a way to express their social, political and environmental values, and 73% believe that it is possible to achieve market-rate returns investing in companies based on their social or environmental impact.
At the same time, a growing number of asset managers have teams dedicated to evaluating and building ESG portfolios. According to the Forum for Sustainable and Responsible Investment (USSIF), ESG investments under professional management in the U.S. grew from $3.74 trillion at in 2011 to $6.57 trillion in 2013. Blackrock Impact, Goldman Sachs, Bank of America, JP Morgan Chase all have ESG initiatives; and ESG mutual funds have also skyrocketed in recent years.
Factoring personal values into financial investments is hardly a new phenomenon. But it has gained significant traction with millennials, especially since the 2008 financial crisis and the demand for financial services organizations to have greater transparency.
Banks are responding to millennials who are impressively relentless with their demands for transparency and accountability in most aspects of their lives. According to recent surveys by PwC and Deloitte among many others, millennials are very discriminating about the jobs they choose, the products they buy, where they shop and how they invest.
USSIF, The United Nations, NASDAQ, asset managers, investment are all working toward defining criteria and principles for ESG so that asset managers can ensure that their investments include companies that are truly responsible, such as reducing carbon emissions and supporting corporate diversity.
In an effort to achieve transparency and accountability, a number of investment banks and other institutions, such as the Global Impact Investing Network, have developed tools and standards. Principles for Responsible Investment also has more than 1,300 signatories supporting its criteria for ESG. Most of the leading investment banks also post criteria and methodologies they use to choose and verify the authenticity and impact of their ESG investments.
While these new initiatives are valuable, they are still in very early stages. Millennial investors committed to ESG may need to do their own due diligence and pressure their financial advisors to perpetually refine and improve transparency and accountability.
In a recent interview in Forbes, Michael Muyot, founder of CRD Analytics, a provider of independent sustainability investment analytics, said, “The more clarity we can bring to our expectations, the sooner we can expect companies to deliver… Imagine what it would look like if the entire country was united to invest in our physical infrastructure, a tech-based educational system, an innovative clean energy network and a cutting edge IT-based commerce system built to last for the next 100 years.”