22% of Total AUM in U.S. are Sustainable Investments

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

If you’ve been paying attention to your social media feeds or most news outlets, it should be pretty clear to you that millennials seem to be “killing” just about everything – from Applebee’s to the entire golf industry.

While this “killing” meme is obviously a ridiculous hyperbole, there is at least some truth to it.

As the largest generation in American history, millennials are gaining sway and buying power quickly – and businesses that do not take heed to their preferences could feel the burn. Even worse, over the long run, some industries and businesses may go the way of the dodo.

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Millennials Wealth Management

The Rise of Sustainable Investing

The latest thing that millennials are “killing”? It’s the act of investing solely just for financial returns.

There’s mounting evidence that millennials are putting their money towards investments that have another component: making a positive societal impact. This practice is called sustainable investing, and it considers criteria around environmental, social, and corporate governance for investments in addition to the aspect of financial returns.

Put another way, many millennials want to put their money towards companies and funds that are helping to do things like alleviate poverty, protect the environment, or further human rights around the world. They want to generate ROI in both financial and social spheres.

Proof in the Pudding

Over the last decade or so, the amount of assets under management (AUM) for sustainable investments has ballooned to a whopping $8.72 trillion in the U.S. for 2016:

Millennials Wealth Management

Since 2014, that’s a 33% increase – and even more interestingly, sustainable investments now make up 22% of the $40.3 trillion of total AUM in the United States.

Why is sustainable investing so popular among millennials? Here’s a rundown, mostly coming from recent research from Morgan Stanley:

  • Millennials are putting money in sustainable investments at a rate 2x higher than average.
  • 86% of millennial investors say they are “very interested” or “interested” in sustainable investing.
  • 61% have made at least one sustainable investment action in the last year.
  • 75% think their investments can influence climate change.
  • 84% think their investments can help fight poverty.

And with a $30 trillion wealth transfer coming to millennials over the coming decades, this preference of using investments as a vehicle for creating positive social change is more than just a trend.

The Big Question

There does remain one big question that millennials and wealth managers are focused on: do sustainable investments provide similar financial returns to regular investments?

Millennials are willing to take a risk that they don’t – in fact, Morgan Stanley found that 59% of millennials believe that there is a trade-off between social impact and financial returns.

Interestingly, some data is already providing a counterpoint to this narrative. In a report from Morningstar and WSJ, for example, it’s shown that funds focused on sustainable investments have offered superior performance to non-sustainable investments over periods of one, three, five, and 10 years.

Whether this stays true for the future remains to be seen – but it will be an important and fun metric to watch.

Article by Jeff Desjardins, Visual Capitalist