Increasingly, investors take environmental, social, and governance issues into consideration when deciding where to put their money. Craig Pearson, CEO of Private Wealth Systems says wealthy Millennials are the driving force behind this trend.
Nearly half (49%) of Millennials with a net worth of more than $1 million cite social responsibility as a factor in their choice of investment. (1)
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- Investors' interest in SRI (socially responsible investing) rooted in desire to improve the world for themselves and their descendants, plus belief that responsible corporate behavior is good business and thus a good investment.
Growing body of research supports this idea: Morgan Stanley suggests companies that think beyond the bottom line and take into consideration environmental and social concerns may actually be stronger and more competitive in the long run. (2)
- Additionally, firms making investments on material, environmental, social, and governance issues outperform their peers in the future in terms of risk-adjusted stock price performance, sales growth, and profit margin growth. (3)
"These investors see SRI as a way they can use their wealth to make a positive and lasting impact on causes that are personal to them." – Craig Pearson, CEO of Private Wealth Systems, Inc.
Per Pearson millennial investors also tend to have a very clear idea of what, for them, constitutes SRI, and they want their wealth to be managed, analyzed, and reported based on their own unique preferences – not a one-size-fits-all.
High-net-worth Millennials, aware of the doing-well-by-doing-good dynamics, increasingly look at philanthropy and investment through a single lens.
- Example: Hyatt Hotel heiress Liesel Pritzker Simmons seeks out investments that both offer market-rate returns and have a positive effect on society and the environment. "Financially, it's sensible risk mitigation," she said. "Our philanthropy becomes far more efficient if we don't need to undo damage done in our investment management."
- In keeping with this approach, Simmons helped launch "The ImPact," a network pledging to "create measurable social benefit" through its investments. The ImPact now has over 125 signatories, with an average net worth of around $700 million. (4)
But there’s a caveat: Pearson says the popularity of socially responsible investing does not make it a particularly easy strategy to carry out. Although managed funds and exchange-traded funds are being heavily marketed as reflecting environmental, social, and governance-related values, many of these funds contain investments that would surprise—and displease—many SRI-conscious investors, while others include companies that have not been socially responsible in the past. He maintains that socially conscious investors must take an active personal role in determining their investment portfolio.