Moral but not moneyed – the millennial investment dilemma

Written by Rebecca O'Connor on 6th September 2018

Ah, the younger generation, glued to their phones, unable to avoid the word “like” in a sentence and drifting through life like snowflakes.

Actually, it turns out they are pretty laser focused when it comes to what they want to do with their money – and they want it to make a positive difference to the world.

“Millennials” – that generic catch-all term for those under roughly 35 – are more likely to invest in line with their values, while their parents and grandparents appear to be more motivated by money alone – or at least unaware that their money can do good too.

According to research published this week from Rathbone Greenbank Investments, just over a quarter (27 per cent) of millennials are more likely to make ethical investments than their parents, and would take their investment out of a company if it faced allegations of misconduct.

A separate study from Triodos Bank, a Good Egg mark firm, shows that almost half  (47 per cent) of 18 to 34 year olds are planning to make a socially responsible investment over the coming years, compared with 19 per cent of all investors.

The Triodos research also identified a “resist investing” trend, with more than half of millennials investing in an ethical fund as a result of “something bad happening in the news”, like, say, the VW emissions scandal, or Facebook’s use of data.

Are the oldies just an uncaring bunch of Victor Meldrews? Not quite. It’s more that they are just not conditioned to thinking about money in the sense of what it can do in the world, only what it can do for oneself – and that they just haven’t been told about ethical investing AT ALL.

An astonishing 73 per cent of UK investors have never been offered ethical investment opportunities, despite more than half of investors saying they would like their money to support companies that contribute to society and the environment. Not surprisingly, more than two thirds of investors would like to have more knowledge and transparency about exactly what their money is being used for.

Bevis Watts, managing director of Triodos Bank UK, said: “Demographic changes, social media and awareness of the challenges facing our planet mean that investors are waking up to the fact that there really is no such thing as a neutral investment. Every investment has an impact on individuals, society and the economy.”

The investment industry is responding. Wealthify, the robo-investment platform, last month launched at ethical option for customers, joining Moola, PensionBee and WealthSimple among the millennial driven robo-platforms leading the ethical charge. However they could be in for a long wait for the market to ignite, as millennials, hamstrung by debt, low incomes and relatively high living costs, feel that just getting by – let alone investing for the greater good of humanity – is challenge enough.

John David, Head of Rathbone Greenbank Investments, said: “There is a growing concern among investors about the need to ensure that investments are socially responsible and these figures suggest that millennials, and especially HNW millennials, are leading the way. As millennials come of age and begin to think seriously about investments, it is clear that this generation is taking a different approach towards saving – one that looks at social and environmental impact as well as financial return. While this is happening, ethical investing has at the same time become easier than ever, with an increased number of investment options available and better performance.”

Despite the currently low volume of disposable income possessed by millennials, Triodos expects the UK market for socially responsible investing (SRI) to grow by 173 per cent from now to reach £48bn by 2027 – it’s “on the cusp of momentous growth”, as this new generation of socially conscious millennial investors see increases in their incomes, the research predicts a “tipping point” of accelerated growth from 2023.

So millennials take heart – you might feel poor now, but the sustainable investment industry is banking on you not being in a decade’s time.

Mainstreaming of impact investing – good or not so good?

A best-in-class investment in the tobacco or arms sector is not going to help make our society more sustainable.

Bevis Watts, managing director of Triodos Bank UK

If you like the sound of more responsible investing but are worried it might not exactly do what it says on the tin, that’s probably a reasonable concern.

As impact investing goes mainstream, there are fears among investors who care that it is being “watered down” by some fund managers – the equivalent of buying barn eggs that come in packaging to make them look and feel more free range and organic – when in fact they are not.

Almost half (45 per cent) of investors are worried that some investment funds labelled as SRI (that’s Socially Responsible to you and me) are in fact still investing in companies which have a negative impact on society or the environment. Over a third (39 per cent) think SRI funds need stricter criteria.

Bevis Watts adds: “The Socially Responsible Investing (SRI) market is growing quickly but we must be careful that it isn’t just labelled as sustainable investment on the surface. Otherwise it might come down to just doing things slightly less badly. A best-in-class investment in the tobacco or arms sector is not going to help make our society more sustainable. We encourage all investors to seek out funds that are not only best-in-class, but that apply strict sustainability criteria. Triodos is supporting a government taskforce examining issues like product standards and transparent reporting.”

Investors are clear about which industries they would not consider investing in, citing the following top five issues and sectors:

  1. Manufacturing or selling of arms and weapons (38%)
  2. Worker / supply chain exploitation (37%)
  3. Environmental negligence (36%)
  4. Tobacco (30%)
  5. Gambling (29%)

Natasha Hurley, campaign manager at a London-based NGO, said: “When choosing to invest through Triodos, my primary concern was to find a bank that was working for positive social and environmental change. That said, more evidence is pointing to the fact that responsible investing also gives higher returns. I like the idea that I can invest in new technologies that are helping to solve some of society’s biggest problems. For me it’s a win-win that my money is being used in a way that benefits both society and me financially.”

Good With Money launched the Good Egg Mark in May 2017 as a way for people to identify financial services companies that are doing more than their bit for the environment and society. Triodos Bank was awarded a Good Egg in March this year.

Triodos Bank offers two award-winning Socially Responsible Investment (SRI) funds in the UK – the Triodos Sustainable Pioneer fund and the Triodos Sustainable Equity fund. The Triodos Sustainable Pioneer fund is a global equities fund investing in small and medium-sized listed companies that are focused on the sustainable themes of climate protection, healthy living and clean planet, or are pioneers in corporate social responsibility. Examples include wind turbine manufacturer Vestas, food company Hain Celestial (Ella’s Kitchen/ Yorkshire Provider), First Solar in the US, Shimano and Wessanen (Kallo/ Clipper Tea).

Long term performance of the funds show an average annual return of 10.5 per cent for the Triodos Sustainable Equity fund and 11.4 per cent return with the Triodos Sustainable Pioneer fund over a 5 year period.

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