ESG investing has captured the interest of investors across the globe and continues to spark the curiosity of individuals who align themselves with the values that ESG represents. These principles are shared by investors across all ages and generations. But it is specifically Gen Z, made up of people who are now between the ages of 12 and 27, that will push ESG into becoming the most dominant investing metric in the years to come.
More than other generations, Gen Zers utilize environmental and social impact criteria in their purchasing and investing decision-making. Morgan Stanley reports that by 2034, Gen Z will overtake number of millennials (Gen Y). These dynamics will compel corporations to include progressively more ESG considerations into their business operations.
Gen Z values
Many Gen Zers think about the fate of the planet on a daily basis, according to McKinsey & Company. This “climate anxiety” is understandable. Global warming and climate instabilities are being regularly reported in social media and other forums leading to growing anxiety about the perilous state of our planet.
Beyond their environmental concerns, Gen Z also places significant emphasis on social issues that disrupt the sense of serenity in their communities. As stated by Forbes, Gen Zers are prominent activists in addressing gender and racial injustices, advocating for equality and systemic change.
This generation’s principles are readily transferred to various aspects of their life, including investing. Gen Z uniquely values businesses that demonstrate a commitment to each element of ESG. These include,
Environmental
- Reducing carbon emissions
- Minimizing waste in production
- Improving recyclability
- Eco-friendly packaging
Social
- Positions on social/global conflicts
- Supporting charitable causes
- Partnering with progressive non-governmental organizations
- Promoting diversity within their organization. A workplace that reflects society in terms of gender, race, ethnicity, etc.
- Equal opportunities for all, inside and outside the company
Governance
- Integrity. Operations that include anti-corruption measures, preventing conflicts of interest within management and whistleblower protections.
- Ethics. Supply chain procurement and working conditions that respect human rights and dignity
- Transparency. Information is openly shared with the public and shareholders in a clear, verifiable and easily understandable fashion.
- Stakeholder engagement. Management systematically examines how a decision or action will impact the various groups and individuals involved including shareholders, workers, and local communities.
Purpose driven portfolios
According to Wells Fargo, the goal of investing is “to put your money to work and potentially build wealth.” However, investing as a Gen Zer has a completely different purpose. For this demographic, investing becomes a form of expression to endorse your interests. Research conducted by U.S. Bank found that approximately two thirds of Gen Z investors want to optimize their investment portfolios in a way that will benefit causes they are passionate about. As outlined in the survey report, four out of five Gen Zers “…are highly motivated to invest to pursue their interests.” On top of that, CNBC points out that 85% of Gen Zers are willing to accept returns below the S&P’s average of 12% to invest in a way that matters to them. This is a clear indication that members of the Gen Z community are willing to accept lower returns on their investments to support ESG initiatives that they align with.
How will Gen Z influence investing?
Gen Z values are ever expanding and will strongly influence how companies operate. A study by The Motley Fool found that 25% of Gen Z shareholders own stocks in companies that share similar beliefs about the environment, social injustices and corporate governance. Furthermore, Equities News cites research claiming that around two thirds of surveyed Gen Zers would be interested in reworking their portfolios towards causes they care about. Many businesses that don’t embrace ESG today will eventually incorporate ESG ideals into their organization to prevent them from losing young customers, investors, market share and profits.
For more insights and guidance on navigating the evolving landscape of ESG investing, stay tuned to our blog for future updates and expert analyses.
And help us build a more sustainable and prosperous world through responsible investment practices by becoming a member of the Advance ESG community. It’s free to join and there are no future financial obligations. Together, we can make a difference in safeguarding our planet for future generations.
