Aligning investments with personal views used to be associated with millennials, but ESG investing amongst baby boomers has increased dramatically
Booming trade: ethical investing on the rise with veteran investors
- Baby boomers are increasingly showing an interest in ESG, with inflows in ESG funds up 107% among this age group
- Young people are likely to invest in companies reflecting their values, with almost half of Gen Z's and millennials choosing values over profits
- While a more modest increase, investors aged over 75 have also invested more in ESG since the offset of the coronavirus pandemic, with a 14% increase in trades from the same period last year
The coronavirus pandemic has shaken financial markets and has led investors to take a closer look at their investments. These changes have created opportunities to enhance long-term portfolio objectives and in this new environment investors are looking to invest in strategies they find meaningful and motivating.
The narrative around environmental, social and governance (ESG) investing has traditionally focused on the younger generation’s potential to influence its transition from a niche to a mainstream strategy. Our research1 found almost half of Gen Z's (49%) and 47% of millennials would be happy to make slightly less profit if the company they invest in is more aligned with their values.
However, recent trading activity from our customers shows investors from all generations are becoming increasingly aware of the trend; it’s becoming more evident that older generations want to educate themselves on how to make ESG investment decisions and how best to align their investment objectives with their values.2
While responsible investing continues to be popular among millennials and Gen z's, recent analysis of trading activity shows over the period of the Coronavirus pandemic there has been an increase of 107% in the number of trades in ESG funds by Baby Boomer investors.3 Likewise, investors over 75 have increased their exposure to ESG funds, with trades up 14% from the same period last year.
A common objective shared by baby boomers, Gen Xers, and millennials is that aligning investments with their values does not come at the cost of portfolio performance, a belief which has historically been held by many. However recent data has shown these concerns to be misplaced with sustainable funds containing strong ESG principles outperforming conventional funds in the first quarter of 2020 according to research.4
It’s becoming increasingly clear all generations want to reimagine the future of investing especially now there is an opportunity to create change in the aftermath of the pandemic. Record inflows into ESG funds certainly reflect this mind set.
It would appear investor’s concerns of sacrificing performance for principles are misplaced. Many believed the coronavirus pandemic would halt the unprecedented momentum of responsible investing witnessed in 2019, the recent strong performance of funds incorporating ESG factors has proved the cynics wrong.
As more generations understand it doesn’t have to be a choice between performance and principles, ESG investing could reshape the investment landscape assisted by the biggest-ever generational transfer of wealth - from baby boomers to millennials. The recent pandemic will hopefully only fasten the pace of this revolution and enable us to ‘build, back, better’ creating both a more sustainable world and corporations alike.
We recommend the following three funds to invest in to help ‘build back better’:
BMO Responsible Global Equity: A leading player in responsible investing, BMO’s Responsible Global Equity fund seeks to invest in sustainable companies that are proactively managing their ESG opportunities and risks to make a positive impact on society and the environment.
After two decades of running the strategy the managers have no doubt that global sustainability and financial performance go hand in hand. This is demonstrated by the fund’s first quartile performance over one, three, five and 10 year periods, outperforming both its benchmark the MSCI World and the IA Global sector.
Baillie Gifford Positive Change: This concentrated, global equity fund invests in companies which deliver positive social change in one of four areas: Social Inclusion and Education, Environment and Resource Needs, Healthcare and Quality of Life and Base of the Pyramid - addressing the needs of the world’s poorest populations.
Investors should be aware this fund has a higher volatility than its peers; however it has delivered outstanding risk-adjusted returns for investors since launch in 2017 posting first quartile returns and outperforming the IA Global sector by a considerable margin.
VT Gravis Clean Energy: Coal and oil still account for over 60% of total global energy supply and are both finite resources; therefore there is a large and growing market for companies involved in making energy generation and supply cleaner and more efficient.
The team at Gravis has considerable experience in this area and invest in renewable energy such as wind, solar and hydro via companies owning renewable energy assets or operations directly linked to the funding, construction, generation and supply of renewable energy. The fund also invests in greener energy - companies that derive a significant part of its revenue from increasing the efficiency of or reducing pollution from generating and supplying energy or using energy.
The fund aims to deliver a regular income of 4.5% per annum as well as preserving investor’s capital with the potential for growth.
1Opinium polled 2,449 people aged 16+ online between 13t and 17 December 2019
2 Fund data was analysed over the following time period: 01/01/19 – 31/05/20 and is based on the total number of trades (buys and sells) made by personal investors at The Share Centre
3 Comparison between trades of our customers aged 56-74 between 01/03/19-31/05/19 and 01/03/20-31/05/20
4 MorningStar: 'Investors back ESG in the crisis'
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