Consumer behavior is constantly evolving. Emerging technologies, demographics, news cycles, tastes and shifts in generational preferences are all factors that contribute to those changes.
Businesses began to shift their focus towards the millennial generation since they will soon become the largest living generation and a major force in economic growth. As this generation continues to accumulate wealth and progress in their careers, it is clear to see why industries are shifting their marketing efforts to win their business.
One industry that has started to take note is the investment management arena, and rightfully so.
A Shift in Consumer Priorities
Although millennials are responsible for driving changes in consumer behavior, the shifts extend beyond this generation as well. The 2015 Nielsen Global Corporate Sustainability report concluded the following:
- 66% of respondents had said they were willing to pay extra for more sustainable brands.
- 73% of millennials said they were willing to pay extra for more sustainable brands.
- 81% of millennials expected their preferred companies to make public declarations of corporate citizenship.
It is clear that demand for social responsibility is very high. Therefore, businesses have begun to place an emphasis on social responsibility all in efforts to drive purchasing decisions that would, in turn, convert them into future investors.
This introduces a newer pillar to the investing realm.
The Rise of Sustainable Investing
Sustainable, impact, socially responsible or ESG (Environmental, Social and Governance) criteria is a set of standards for a company’s operations that socially conscious investors use to screen investments.
Breakdown of ESG Criteria:
- Environmental criteria are concerned with how the company performs in relation to the natural environment.
- The Social criterion identifies how a company manages relationships with their employees, customers, suppliers, vendors and the communities where it operates.
- The Governance aspect deals with the company’s leadership, executive pay, internal control, and shareholder rights.
Investing has poured into ESG-oriented investment vehicles with an incredible 135% growth from 2012 to 2016, and a 38% increase over the last two years through 2018. This illustrates a greater point in what was once considered an investing platform sacrificing financial return for greater impact.
That notion is quickly being disproved, with more awareness.
The MSCI KLD 400 Social Index (an index containing firms that meet a very high ESG standard), has outperformed the S&P 500 Index by 0.5 percentage points annually from May 1990 to March 2018, including dividends. With a long-term time frame, investors coupled with an initial strong interest will begin to seriously demand sustainable investment portfolios as a part of their core investment strategy.
Why Sustainability Matters
Millennials are more aware of the importance towards sustainability for a variety of reasons. It’s more than feeling like they are or want to do good, but more so about addressing long-term global trends. Trends that include climate change, population growth, world hunger, poverty and access to health care which ultimately create increased awareness, driving demand for sustainable investments.
The great news is not only the demand but the active response taken by organizations especially throughout the financial services industry. Although more ESG funds are being created on an annual basis by traditional financial institutions, there is a more innovative approach being taken in addressing this need.
Newday Investing is taking on a comprehensive approach by building holistic impact investment portfolios covering various sustainable development initiatives. This way, investors at a micro-level can build and structure their investment portfolios towards causes that matter the most to them.