The importance of ethical investing across the generations

While the younger generations may be facing up to the effects of climate change and numerous other environmental, social and governance (ESG) issues, they are also acknowledged as having far less money to invest than their parents and older generations.

So where is the investment coming from if it is not coming from the cash-strapped yet ethically conscious millennials?

It would be naïve to dismiss the older generations and the parents of millennials as having little or no interest in where their money is invested.

In other words, ethical investing and its appeal across the generations is a far more complex and multi-faceted trend.

Adrie Heinsbroek, head of responsible investing at NN Investment Partners, notes: “In the 2017 Shapers Survey (one of the world's largest surveys of young people, initiated by the World Economic Forum or WEF), 25,000 young people aged 18-35 from 186 countries shared their views on topics like the economy and global outlook, civic engagement, innovation, values and society, and business and the workplace.”

He recalls that among the 18-35 age group, they identified the most serious issues affecting the world as climate change, inequality, poverty and both food and water security, as well as general wellbeing.

Of course, for younger generations the impact of climate change, growing global populations and resource scarcity are problems that they will have to face in their lifetimes, so this may add a sense of urgency.John David

“From this overview, one could conclude that most millennials’ concerns are aligned with several key elements of sustainable investments frameworks,” he points out. “At the same time, in overviews of the World Economic Forum, topics that are of concern to business executives and government officials are social instability, extreme weather events and food and water crises. 

“Semantics aside, the similarities in concerns and hopes for the planet and people are the same. This makes sustainable investing a cross-generational need and necessity.”

The generation game

The Schroders Global Investor Study 2017, published in September, breaks it down in more detail. It reveals 54 per cent of UK investors have increased their allocation to sustainable investment funds compared to five years ago.

The study, which surveyed more than 22,000 investors globally and over 1,000 in the UK, found that globally, 78 per cent of investors say sustainable investing has become more important to them.

Schroders finds this varies by generation, with 86 per cent of millennials (defined as 18-35 year olds) citing its importance to them, followed by 79 per cent of Gen Xers (36 to 50 year olds) and 67 per cent of Baby Boomers (51-69 year olds).

Figure 1: The percentage of each generation which feels sustainable investing has become more important for them over the past five years

Source: Schroders Global Investor Study 2017

John David, head of Rathbone Greenbank Investments, agrees sustainable and ethical investment is suitable for all investors who wish to reflect their values in their investments, regardless of age or wealth.

Yet, he acknowledges: “Of course, for younger generations the impact of climate change, growing global populations and resource scarcity are problems that they will have to face in their lifetimes, so this may add a sense of urgency.”

He insists they are not alone in their concerns, citing a survey by YouGov for Good Money Week 2016, which revealed 69 per cent of respondents wanted a new law requiring advisers to ask customers whether they would like to exclude certain sectors or companies.

“Fortunately, there are opportunities for all investors even if they have less to invest,” Mr David notes. “There are some excellent ethical investment funds available to those just starting to invest, including multi-asset funds. And for those not prepared or able to commit to the uncertainty of financial markets there are ethical bank accounts.”

Leaving a legacy

Bonny Landers, head of sustainable, responsible and impact investing at Sandaire, wants to see a certain amount of due given to the older generations who she believes are just as concerned, if not more so, about ESG issues, sustainability and ethical investing.

“There is a drive from the next gen which I would say is more environmentally focused or social focused than the parents but it’s very hard to say it’s all driven by next gen,” she argues.

“I’ve got more clients towards the end of their careers saying, ‘we want to do something with all this money we made’. Several are the wealth creators, some are the inheritors.”

She accepts though that there may be some urgency on the part of the next generation “because they know the problems are now and they’re trying to solve them now”.

In terms of client demand for this type of more responsible strategies, we think there is already a massive transfer of wealth happening and clients are already very much interested in ESG investing today.Kathryn McDonald

Darius McDermott, managing director at Chelsea Financial Services observes: “Anecdotal evidence suggests that millennials have stronger SRI considerations than their parents, but this could probably be said for each generation – we tend to be more activist/anti-establishment/environmentally conscious in our younger years.”

Presumably then, it is never too late to begin thinking about investing more responsibly.

Ms Landers agrees that investing responsibly, in whatever form that takes, can be done at any age.

“And in fact, where I tend to get some of the elder wealth owners is when they start thinking about what it all means,” she says. “What is my reputation? What is going to be my legacy?

“What did they do that made the world better? That’s a good human motivation and I find it translates very well in investment.”

One of the questions older investors may ask themselves when it comes to investing more responsibly is whether they have enough time left to make a difference.

Ms Landers recalls: “I had a client who said, ‘I want to do something about the environment but my money isn’t enough to solve it’. And I said, it’s true. However, if you don’t do anything or you continue to invest the way you are, you may be exacerbating the problem.”

Those in their 40s and older are also more likely to have regular access to a financial adviser, in addition to the available finances to invest.

A broad movement

Kathryn McDonald, head of sustainable investing at Rosenberg Equities, points out: “In terms of client demand for this type of more responsible strategies, we think there is already a massive transfer of wealth happening and clients are already very much interested in ESG investing today. 

“Therefore we don’t need to necessarily wait for the millennials to see this market boom. People in their 40s and 50s have already grown up in a world where access to company information is so readily available that there is an ever-growing expectation for companies to demonstrate certain kinds of behaviour in order to preserve their brand value.”

She notes also that various studies show women are increasingly making the financial decisions on behalf of their households and that they tend to prefer more ethical values in investing. 

The recent extreme weather conditions, such as the hurricanes which have hit parts of South America and the US, may have brought home the seriousness of issues such as climate change.

Damian Payiatakis, director of the impact investing business at Barclays, says: “A lot of times it is general exposure to inequality or political zeitgeist that is driving interest in this space.

“I would say it’s not solely the younger generations who are more interested, I think it’s a broader movement of people who are more aware of their role in society and how they can live in a way that is aligned with how they want to.”

eleanor.duncan@ft.com