Millennials and Women Lead Sustainable Investing

Millennials are more progressive than Gen X and Baby Boomers and women are more progressive than men when it comes to sustainable investing, new research by Morgan Stanley reveals.

Sustainable Signals: The Individual Investor Perspective by the Morgan Stanley Institute for Sustainable Investing in the US, found that millennials were twice as likely to both invest in companies or funds that targeted specific social/environmental outcomes and divest because of objectionable corporate activity.

Millennials were most open to the idea of sustainable investing (84 per cent) as compared to Gen X (79 per cent) and Baby Boomers (66 per cent).

Women were also more likely to consider sustainable investing than men, with 76 per cent of surveyed investors showing interest in sustainable investing, compared to 62 per cent of men.

They were nearly twice as likely as male investors to consider rate of return as well as the impact of their investment when making an investment decision (40 per cent compared to 23 per cent.

The research considered the views of 800 individual investors based in the US, a quarter of those aged 18 to 32.

Over seventy percent of active individual investors (71 per cent) described themselves as interested in sustainable investing, and nearly two in three (65 per cent) believed sustainable investing would become more prevalent over the next five years.

“The trajectory for sustainable investing continues to point upward.  What used to be a bifurcated decision – one between investing to make money and giving to do good – is increasingly becoming a blended conversation as investors look to harness the power of the capital markets as a force for positive impact,” Managing Director and CEO of the Institute for Sustainable Investing at Morgan Stanley, Audrey Choi said.

“The survey shows that the perception of trade-off between profitable and sustainable investments is still a major barrier to the growth of the field – we and others trying to advance sustainable investing at scale have a job to do, demonstrating that it is possible to achieve positive impact and market-rate returns,” Choi said.  

“Why does this matter?  We believe that it is necessary to mobilise private capital at scale to address global challenges.”

Results from the survey point to how individual investors already factor sustainability into their investment decisions:  

• Nearly three out of four active individual investors (72 per cent) believed that companies with good Environmental, Social and Governance (ESG) practices can achieve higher profitability and are better long-term investments.

• Individual investors said that on average, 46 per cent of their total portfolio should be invested sustainably.

• At the same time, investors are divided over the perception of sustainability and financial gains as being a trade-off (54 per cent yes vs. 46 per cent no).

The report came as the The Global Impact Investing Network (GIIN) released ImpactBase Snapshot: An Analysis of 300+ Impact Investing Funds, which looked at 310 funds published on the GIIN’s online global directory of impact investment funds.

Impact investing is an emerging form of sustainable investing where funds are invested with the intention of generating both financial and environmental/social returns.  

Highlights from that report included:  

• Despite the nascent state of the industry, many funds had a track record. More than 40 percent of the funds that were analysed reported having a 3+ year track record.  

• There were significant market-rate investment opportunities in the industry. More than 75 percent of the funds targeted returns comparable to traditional investments of a similar risk-return profile.  

• Fund managers were actively looking to raise capital. The average committed capital of funds that were analysed was $52.5 million and the average target assets under management was $110 million.  

• Impact measurement was core to fund manager activity. Nearly all impact fund managers used metrics to quantify their social and/or environmental impact. Many also reported that they have been formally rated on their impact performance.

“The data demonstrates the breadth and the depth of impact investing opportunities – the market includes funds that could fit the strategies of nearly every investor, regardless of their target geography, asset class, impact theme, or rate of return,” GIIN CEO Amit Bouri said.

Read the GIIN report here.