Millennials are very particular when it comes to investment, and this generation generally prefers to close the gap between personal and societal well-being. This is largely reflected in their investment pattern. In fact, 90% of the millennials aim to customize investment bases on their set values, especially ESG (Environmental, Social, and Governance) factor.
Additionally, a 2018 survey indicates that 87% of high net worth millennials prefer going through the company’s ESG before investing in it. In fact, 17% of millennials prefer investing in companies with high quality ESG practices, compared to 9% of non-millennial investors. But why this inclination?
Millennials show greater integration of money and values by investing in sustainable and impactful business models. Even if we leave out environmental activists like Greta Thunberg, there are many like Bank of England’s governor Mark Carney who have from time to time underscored the risks that climate change poses to the financial system. And ESG plays a crucial role here.
Among the three components of ESG, Environmental takes into account how the company is tackling related issues. This may include lower energy consumption, greater use of renewable resources, and lower carbon footprint of their operations.
The social criteria focus on company’s treatment of employees and relationships with other businesses. Lastly, governance stands for company's accounting and investment practices.
Impact Investment a Priority for Millennials
Millennials’ inclination toward ESG investment is quite evident. iShares ESG MSCI USA Leaders ETF (SUSL) has accrued $1.79 billion and risen 7.5% since its launch in May 2019. In fact, the fund’s top holdings are Microsoft Corporation MSFT, Alphabet Inc. GOOGL and Johnson & Johnson JNJ.
Millennial investors do not just want to earn a return from their investment but also want it to reflect their personal values and contribute to the social good. Microsoft has been a winner in this. The tech giant has received the top rating of AAA from index provider MSCI. And why not? Microsoft excels in privacy and data security, corporate governance, lack of corruption, and clean-tech-innovation capacity. In fact, the company aims to become carbon negative by 2030.
Per a report by Morgan Stanley MS, approximately 84% of millennials have started investing with focus on ESG. According to MSCI, 90% of the millennials want to increase their investment in socially responsible investments. This will drive U.S.-based ESG investments between $15 trillion to $20 trillion.
Though ESG investment has carved a niche in stock markets, millennials will be the ones driving rapid growth. In fact, Bank of America Corporation BAC estimates that in the next 20 years, there will be $20 trillion of asset growth in ESG funds, which will be equivalent to the S&P 500’s value.
Overall, the future of ESG investment looks bright. It witnessed compounded annual growth rate of 17.4%, and increased assets under management from $8.7 trillion to $12.0 trillion in 2018.
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