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SPECIAL REPORT | THE INDEPENDENT | Almost 73% of Millennials and Generation Z demand that their investment portfolios include Environmental, Social, and Governance (ESG) criteria, according to a new global study conducted by one of the world’s largest independent financial and asset management organizations.
Environmental, social, and governance (ESG), is a set of aspects, including environmental issues, social issues, and corporate governance that can be considered in investing. Investing with ESG considerations is sometimes referred to as responsible investing or, in more proactive cases, impact investing.
In the deVere Group poll of more than 800 clients around the world, 72.8% said it was a clear preference in portfolio allocation.
Of the survey, Nigel Green, the CEO of deVere Group, notes: “This survey is a massive wake-up call.“Over the next few decades, an estimated $68 trillion will be transferred from Baby Boomers and Generation X to Millennials and Gen Z.
“The study shows financial advisors need to adapt their strategies to meet the evolving preferences of younger clients, incorporating ESG criteria into their offerings; investment firms must develop and promote ESG-compliant investment products to attract and retain the growing base of younger investors; regulators need to recognize the importance of ESG investments and ensure that regulations support and encourage sustainable investing practices; and companies need to up their ESG credentials if they want to grow in the long-term.
”Millennials and Gen Z’s mindsets have been shaped by significant social and environmental challenges, such as climate change and social inequality. Consequently, they are more inclined to seek investments that reflect their values. The deVere Group’s findings underscore this trend, showing a strong preference for ESG-oriented investments among younger investors.
This shift not only highlights the importance of incorporating ESG criteria into investment strategies but also signals a broader transformation in the financial landscape.Despite the clear demand for ESG investments, there has been a notable backlash, especially in the United States.
Critics argue that impact investing can compromise financial returns by prioritizing social and environmental goals over profitability. Some have labeled ESG initiatives as ‘woke capitalism,’ suggesting that they impose ideological agendas on businesses at the expense of shareholder value.This backlash has been fueled by concerns about the subjectivity and inconsistency of ESG metrics.
Critics point out that measuring and comparing ESG performance can be challenging, leading to skepticism about the real impact of these initiatives.
Additionally, there are fears that ESG investing could lead to overregulation and reduced corporate profitability, ultimately harming investors.However, the deVere Group’s study suggests that these criticisms are not deterring younger investors.
“The high demand for ESG-oriented portfolios among Millennials and Gen Z indicates a growing recognition that financial performance and ethical considerations are not mutually exclusive,” says Nigel Green.
“As younger generations seem to appreciate, the argument against ESG investing overlooks a growing body of evidence that suggests companies with strong ESG practices tend to perform better over the long term.”
Numerous studies have shown that sustainable and responsible business practices can lead to improved financial performance, reduced risks, and enhanced corporate reputation.
Companies that prioritize ESG factors are often better positioned to manage risks and capitalize on opportunities related to environmental and social changes. For example, businesses that implement sustainable practices may reduce operational costs, improve resource efficiency, and enhance resilience against regulatory changes and environmental disruptions.
In addition, ESG criteria help identify and mitigate risks that could impact financial performance. Companies with robust governance practices are less likely to face legal and reputational issues, while those addressing social and environmental concerns can avoid controversies and regulatory penalties.
There’s growing consumer and investor demand for companies that demonstrate a commitment to ESG principles. Businesses that align with these values can attract a loyal customer base and enjoy greater investor support.
This trend is particularly pronounced among younger generations, who are more likely to invest in and support companies that reflect their values.Furthermore, global regulatory trends are increasingly favoring ESG practices.
The deVere Group CEO concludes: “Our experience had taught us that younger generations would be interested in impact investing – but even we were surprised by the extent of their conviction that this study reveals.”
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