As the population ages, the millennial cohort (typically defined as those born roughly between 1981 and 1994) is set to become the most influential set of investors and savers.

What this group – that numbered 12m at the last count in 2019 – decide to do with their money will have enormous consequences, not only for their own wealth but for the future direction of the UK economy.

So why now? Why does the millennial pound have greater potential to change things than that of Gen X or the Baby Boomers? There is a range of views. According to Deloitte’s recent Millennial survey, both Generation Z and Millennials said they would “make a special effort to more actively patronise and support businesses – especially smaller, local sellers – after the pandemic. But they won’t hesitate to penalise companies whose stated and practised values conflict with their own”.

At the same time, Schroders’ Global Investor Study 2020, which surveyed 23,000 people from across the globe on their attitudes towards sustainability, found that 75% of millennials would not invest against their personal beliefs for the sake of higher returns – though, interestingly, this percentage was marginally lower than other generations aged 38 and over.

Regardless, the trend line towards a more engaged and concerned investor base is now well established – so will it have a real and sustainable impact on how investment patterns play out?

The information generation

“I don’t think people change, but circumstances do,” says Clive Waller, chairman at The Investment Network and a seasoned investment research professional. “And one of the big changes is the availability of information. Millennials are much better informed about the issues facing themselves and the planet.”

Given that, it’s hardly surprising that investments – pensions, equities and so on – which align with millennial attitudes are growing increasingly popular.

“Over the past few decades younger people have become more interested in sustainability,” says Julia Dreblow, the co-founder of the sustainable investment consultancy Fund EcoMarket. “We always found that people in their 30s and 40s were really engaged in this. And millennials are far better educated about issues like climate change.

“They may not have had a lot of power as individual investors before, but they’re getting to that point where the industry wants to be ready to sell to them,” Dreblow explains. “And of course they will have a pension scheme so they will have other ways to express that – and campaigns like Make My Money Matter that target younger pension holders to demand better could influence this.”

Money talks

Co-founded by film director and activist Richard Curtis, Make My Money Matter is a simple scheme that encourages savers and investors to use the power of their cash to drive change. And that doesn’t just mean avoiding buying shares in defence or fossil fuel companies. It means pressuring asset managers and pensions funds to adhere to a set of principles that puts responsible investing at the heart of their strategies.

The effect of that pressure should, the group hopes, be felt beyond the FTSE 100. Many large pension funds devote a portion of their investments to private equity and other venture capital (VC) funds. By doing so they drive much of the investment in the UK’s SMEs, many of whom rely on VC funding to grow.

I don’t think people change, but circumstances do, and one of the changes is the availability of information. Millennials are better informed about issues facing themselves and the planet

Clive Waller
Chairman, The Investment Network

And while incremental change towards a more sustainable approach has made some inroads, pressure as millennials sign up to workplace pension schemes is beginning to tell. That was illustrated recently by the launch of what investment firm Cushon calls the world’s first net zero pension fund. Cushon says the scheme will be open to workplace savers initially, but will open the fund to direct investors later this year.

“This is a novel approach which we have not seen in the UK before,” Joe Dabrowski, of the Pensions and Lifetime Savings Association recently told the Financial Times.

“We’ve seen quite a big change over the last couple of years, with schemes starting to introduce climate-friendly funds into their pensions, in response to their members, with most of the market heading in this direction one way or another.”

Waller agrees: “If there’s any truth in the idea that millennials care more about sustainability, then pensions are where they can have the most impact. So the money they have – whether through inheritance, earning, redundancy or whatever – most millennials are savers. We used to invest in endowments, but now they invest via their pension and I think there’s a huge opportunity there for sustainable investing.”

Attracting investment

Of course millennial demands for more sustainably-led investments will also impact those looking to attract investment from millennials – whether through a direct investment or as part of a pension portfolio. In future, these businesses – even those not in what many would view as traditional ‘sustainable sectors’ such as renewables – must demonstrate their sustainability credentials.

“I think if companies can demonstrate they manage their climate and social risks well in a post-Covid world then they are much more likely to be successful over the long term. That’s a compelling message – not only for individual investors but for fund managers too,” says Dreblow, who points to a recent spike in young people investing during the recent pandemic. Indeed, back in August, a survey from fund tracker Calastone found that “69% of British millennials with investment portfolios have added to them in the past month or plan to do so in the next month”.

“Covid has been a wake-up call and a lot of people have realised quite how interdependent we are as a species, and how the way they invest can have a real impact,” she says. “I think for companies with a real story to tell, and that demonstrate that they’re a genuine investment, it’s a great time to attract investors.”

Four tips to attract investment

Carry out a sustainability audit: a whole market of advisers has emerged in the last decade to help SMEs understand where their risks and exposures are on the green agenda. A simple sustainability audit is a good way to start – and shows real intent.

Appoint a Green Champion – and back them up: bestowing power and prestige on the sustainability champion demonstrates a real commitment to working cleaner, and will give investors reassurance that the issue is taken seriously at the top.

Consider environmental certification: there are numerous schemes that offer certification of your sustainable practices; investing the time and money in achieving some genuinely rigorous standards goes a long way to convincing investors that you’re serious.

Buy green: it’s not difficult to ‘green’ your purchasing by creating a list of good suppliers (and a blacklist of those who aren’t committed to sustainability practices).

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