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January 24, 2019

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How millennials drive the demand for sustainable investments

January 22, 2019

 

Sustainable investing has been on the rise for the past few years, throughout which asset and wealth managers have seen a big influx of funds going into responsible investments.  According to the 2018 report of The Forum for Sustainable and Responsible Investment, this investment strategy has experienced a compound annual growth rate of 13.6 percent. ESG investing is estimated at over $20 trillion in assets under management, but to see the truly staggering growth of sustainable investments we also look at the rising issuance of green bonds. Green bonds are fixed-income financial instruments designated to be used for climate change and environmental projects and their issuance has grown from $42.2 billion in 2015 to $160.8 billion in 2017, marking a quadruple increase in just 2 years. Clearly, sustainable investing is growing at a fast rate, but what is the reason behind its recent surge in popularity?

 

A major factor in the rise of the demand for sustainable investments is a new generation that chooses to invest in line with their personal values and beliefs - millennials. Millennials are much more socially engaged compared to previous generations and seek ways to make an impact with how they shop, where they work, and ultimately, with how they invest their money. Reports suggest that they are twice as likely to invest in companies with a social or environmental purpose relative to the overall investor population. 75% of millennials believe that their investments can impact climate change while 85% of them think that their investments can help people get out of poverty, which shows that this generation truly believes that they can make a positive change in society with their investment decisions. With the increased access to information on issues such as world hunger, climate change, and poverty, millennials are able to recognize inequalities in our world more than ever. On the other hand, technology allows them to do something about such issues by making it easier to donate to causes that they care about or to invest in purpose-driven companies. This awareness and increased activism creates a sense of global responsibility in the overall population and in turn drives the demand for sustainable investments.

 

Ultimately, the Baby Boomer generation is going to pass down its wealth to millennials as inheritance - reports estimate that by the year 2020, $30 billion are going to be changing hands. With this amount of money in the hands of people who believe that making an impact and investing go hand in hand, we can be sure that future investments are going to be more and more focused on sustainability. The higher demand for this investment strategy can not only create a positive change on the world but change the way we think of investments as a whole.

 

 

References:

https://www.morganstanley.com/ideas/sustainable-socially-responsible-investing-millennials-drive-growth

https://www.linkedin.com/pulse/why-millennials-interested-sustainable-investing-you-wachira-cpt-/

https://www.climatebonds.net/resources/reports/green-bonds-market-summary-q1-2018

https://www.ussif.org/files/Trends/Trends%202018%20executive%20summary%20FINAL.pdf

https://www.ey.com/Publication/vwLUAssets/ey-sustainable-investing-the-millennial-investor-gl/$FILE/ey-sustainable-investing-the-millennial-investor.pdf

 

 

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