The message that principles and profits aren’t mutually exclusive is a compelling one for Millennials.
Since the most recent global financial crisis, the financial services industry has had its work cut out rebuilding clients’ trust. In the decade since Lehman Brothers’ collapse, stock markets have rallied spectacularly; but investors’ confidence has been much slower to recover. Runaway executive pay, spectacular boardroom failures (Volkswagen and Carillion to name but two) and environmental disasters like Deepwater Horizon haven’t helped.
So far, so dismal. But behind the sensationalist headlines there is a good news story for wealth managers to share with their clients: the embedding of environmental, social and governance (ESG) principles in the investment selection process. ESG factors include how companies respond to climate change, how they manage their supply chains, how well they treat their workers and how they maintain a healthy, trustworthy culture in the workplace and in the boardroom. And there’s more good news: research shows that companies with strong ESG ratings deliver better long-term returns to shareholders.
It’s a narrative that plays particularly well with a growing number of investors who are looking to align their finances more closely to their values, according to a recent report by Ernst & Young. This is especially true of Millennials and Generation Z, who are not only abandoning takeaway coffee cups and embracing climate change activism, but are also seeking out more ethical ways of saving and investing.*
Studies have shown that they are more likely to react than older generations if they believe their money is being invested in companies with poor track records for child labor, animal testing or environmental pollution. And they are not afraid to put pressure on companies and institutions to clean up their act. In the U.K., in response to lobbying from the students who support the Fossil Free movement, 69 universities have ditched their investments in coal, oil and gas extraction.
For ethically-minded investors, there’s an even more compelling proposition. “Impact investing” goes beyond the ESG “do no harm” approach – it’s about putting money into enterprises that make a positive contribution to society and the environment. It’s in this space that wealth managers can really grab the younger generation’s attention. Content that’s grounded in detailed case studies and human interest stories, rather than charts and graphs, that highlights how money can be a force for good. It makes an emotional connection, and with Millennials set to inherit an estimated $30 trillion* in wealth from the Baby Boomers in the next 20 years, it’s a connection that the industry can’t afford to ignore.
See how Bookmark created tailored investment content for MoneyPlus Portfolio, Standard Life’s bi-annual magazine for affluent and financially savvy audience.
*Source: “Sustainable investing: the millennial investor,” Ernst & Young LLP., 2017.