Rob Csernyik
November 23, 2021
Barron’s
They’re about to inherit a US$30 trillion wealth transfer, and more eager than any group to invest funds sustainably according to their values. But millennials are still the biggest believers that doing so means facing a financial tradeoff, says a new report.
Last month, Morgan Stanley’s Institute for Sustainable Investing published its fourth Sustainable Signals white paper, which surveyed 800 American individual investors 18 and over with minimum investable assets of US$100,000. Just over a quarter were millennials aged 25-38.
The findings show sustainable investing interest is reaching new levels, even with the economic uncertainty caused by the Covid-19 pandemic. Millennial interest in sustainable investing grew by four points to 99%, compared to a six point decline to 79% among the general population.
Yet there’s a paradoxical finding: Despite record levels of interest, more millennials—83% opposed to 70% in the general population—believe the debunked “trade-off” myth that sustainable investing means sacrificing returns.https://tpc.googlesyndication.com/safeframe/1-0-38/html/container.html
For Matt Slovik, head of global sustainable finance at Morgan Stanley, it was one of the most interesting findings of the survey.
“This shows that if you look at the percentage of millennials that are interested in sustainable investing, there’s a real desire and recognition that finance can do more,” Slovik says. “And there’s more to finance than simply focusing on the return aspect.”
Morgan Stanley found no trade-off between financial performance between sustainable and traditional U.S. equity funds between 2004 and 2020, and as millennial investors become more educated and move into this investing arena they have the power to transform it.https://tpc.googlesyndication.com/safeframe/1-0-38/html/container.html
Slovik spoke to Penta about some of the most surprising insights the survey unearthed about millennial investors.
New Face of Financial Consumption
“There’s a desire to consume finance in many of the same ways that millennials and others have really taken to clothing and food and other things in their lives,” Slovik says. Just as millennial investors ask questions about impact, sourcing, and production when shopping for themselves, they’re starting to look at their portfolios with a similar fine tooth comb. “I think that the finance and the integration of sustainability considerations is a natural evolution outgrowth of that trend.”
Slovik said multiple factors contribute to these changing habits, from the way millennials drive consumption, to where they were in life during the financial crisis, to the impacts they’re seeing from climate change.
“All of that really informs the fact that the data seems to suggest that they’re thinking holistically and more broadly about their investments than I think we’ve seen broadly and historically,” he says.
Greenwashing Won’t Cut It
It’s not just that millennial investors are looking for key data, there’s a higher watermark for what they find. Millennial investors have more sophisticated demands for what it means to do environmental or sustainable good, and lower tolerance for greenwashing, where companies make green claims that aren’t backed up through practices.
Sustainable Signals uncovered a growing concern over how authentic a firm’s ESG activities are. On a question about barriers to including sustainable investing for individuals the second place answer was brand new to this year’s survey: “concerns about authenticity or greenwashing.” (A third, also new, was “lack of tools to measure sustainable impact.”)
“As the market has evolved and matured, investors are focused on understanding what it is that they’re getting,” Slovik says. Though he says we’re entering a clear “data age of ESG” investing, thanks to increasing disclosures from companies and a growing number of data providers, he adds this is still in early days.https://0688187c83a6c5bd4f29f958e3e6997c.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Among the resources available to investors, he says, is Morgan Stanley’s own Impact Quotient (or IQ) program that helps provide additional transparency for clients on over 100 environmental or impact preferences.
“As people are better able to understand the impact or exposure or alignment of their investments, you’re also seeing a desire to bring those in line with personal or organizational mission and goals,” Slovik says.
Money Follows Social Movements
Though climate change is still a top concern for millennial investors, there’s evidence that their definition of sustainability is expanding.
“Millennials are looking for more out of finance, and I think this idea of sustainability really does connect with the way that they seem to see the world more broadly,” Slovik says. Two things which have impacted that world view recently have been the pandemic and the racial justice movement.
The pandemic shifted investors’ thematic priorities when it comes to sustainability. Covid-19 led millennials to a heightened interest in addressing public health through their investment activity (69% of millennials compared to 61% of the general population) as well as supporting small businesses (68% to 61% of the general population).https://0688187c83a6c5bd4f29f958e3e6997c.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Millennials believe their money has the power to change. The previous Sustainable Signals paper noted 85% of millennials believe their investments could influence climate change, and 89% that their investments could lift people out of poverty.
The 2021 report also finds 75% of millennial investors have made or plan to make investment changes within 12 months in response to racial justice movements. Comparatively, only 50% of the general population planned to do the same.
Slovik says this trend has accelerated since last summer, though it existed before. This type of investment shift can include “supporting diverse-owned, or -run asset managers, to thinking about how individual companies may either excel or lag related to racial equity records,” he adds.