I’ve built my career in responsible investing, a term that broadly means doing well by also doing good. I got excited about capital markets early on when I realized philanthropic and government funding are not sufficient to solve a lot of our biggest social and environmental challenges. That was over a decade ago. Now, I’m obsessed with sharing my passion through researching and writing about new ways money can be channeled for good.
I’m also a Millennial and I’m at the edge of my seat witnessing the greatest transfer of wealth in U.S. history. In the U.S., an estimated $59 trillion forecasted to be transferred from 93.6 million American estates from 2007 to 2061. That’s over $1 trillion a year!
Needless to say, this is a lot of money. The question is, what will the next generation do with it?
The good news is that data shows that younger wealth holders are more socially and environmentally conscious than previous generations. According to the 2016 Deloitte Millennial Survey, nearly 87% of Millennials believe that the success of a business should be measured in terms of more than just its financial performance.”
But how do we translate these values into our investments?
Let me start with a quick definition because terms get thrown around a lot. ESG stands for environmental, social, and governance criteria. There is mounting evidence that looking at, and screening for, these criteria means less risk and either a neutral or positive relationship with corporate financial performance. This means companies that think about people and the planet, in addition to profit, also tend to perform better! In fact, in a recent example, as many economies shrank early in the COVID-19 pandemic, ESG funds actually outperformed the broader market.
Environmental criteria may include a company’s waste, pollution, and treatment of animals. Social criteria look at a company’s business relationships to ensure that it implements its values across its supply chain. For governance, transparency and accurate accounting measures are some of the key considerations.
In the United States, sustainable, responsible, and impact investing (which all use ESG criteria) assets have expanded to $12 trillion, up 38 percent from $8.7 trillion in 2016. This growth is reflected around the world, with over $89 trillion dollars of global capital markets currently represented under the United Nations-supported Principles for Responsible Investing (UNPRI).
Want to be part of the movement? The good news is, there are more and more ways to get involved! Stay tuned for next time when I will talk more about some of the different approaches to responsible investing.