Millennial investors are bringing increased attention to sustainable, responsible and impact investing.
Wealth Management piece published By Morgan Stanley – March 2017
According to research conducted by Morgan Stanley, 86% of Millennials say they are interested in socially responsible investing. Millennials are also twice as likely to invest in a stock or a fund if social responsibility is part of the value-creation thesis.
Sustainable, socially responsible or ESG (environmental, social and governance) investing—representing different approaches to Investing with Impact—has been gaining traction with investors of all ages, as many look to generate market-rate financial returns alongside positive social and environmental impact. But it’s among Millennials where a preference toward this dynamic investment approach is more prevalent.
With Millennials taking the reins as the largest demographic in America— by 2020, one in three U.S. adults will be a Millennial—the growing interest in Investing with Impact among this cohort cannot be ignored. However, most sustainable investing opportunities are perceived to cater to individuals with significant wealth, while Millennials are still early in earning years. In response, Morgan Stanley is launching the Impact Access Model Portfolios to provide access to diversified investments with reduced account minimums.
Increased interest in Investing with Impact may stem in part from the ongoing evolution of these kinds of investments over the last decade. Early approaches often simply screened out so-called “sin stocks” such as tobacco or weapons. Today’s sustainable portfolios can be far more sophisticated.
“Sustainable investing now encompasses a wide range of factors, from environmental impact to gender and diversity,” says Lily Trager, Director of Investing with Impact at Morgan Stanley. “These funds don’t simply avoid bad actors; by allocating assets to companies that perform high on ESG factors and, in some cases, use their leverage as shareholders, they can be catalysts for positive corporate change.”
The Investing with Impact Platform has responded to the growing demand with thematic approaches focused on faith-based, fossil fuel aware and gender diverse investing. By adopting a flexible platform, Investing with Impact empowers each client to align their investments with their own unique values and mission.
Millennial interest in Investing with Impact comes at a time where evidence of the performance potential of these types of investments is more readily available. As recently as a few years ago, sustainable investing still carried the stigma of positive change at the cost of performance. But several factors are changing this perception.
A 2015 study by the Institute for Sustainable Investing examined performance data from 10,228 open-end mutual funds and 2,874 separately managed accounts over seven years and found that investing in sustainability has usually met, and often exceeded, the performance of comparable traditional investments, both on an absolute and a risk-adjusted basis, across asset classes and over time. The study also showed lower median volatility for the funds and SMAs studied since companies that score well on ESG also tend to be less vulnerable to negative headline risks, large-scale lawsuits or environmental risks.
Sustainable investing has seen 135% growth from 2012-2016. As more investors and consumers—particularly Millennials—put real focus on how companies stack up on environmental, social and governance criteria, these factors influence markets, and by extension, business. Many investors are looking for ways to invest along with their values and to incorporate sustainability issues into their portfolios.
Source: Morgan Stanley. Read full content.