Generational shift drives sustainable investing and ESG opportunity

Almost all millennial investors say they are interested in sustainable investing according to a recent US survey. Pendal Group’s ANDREW PARRY explains the opportunity

• Inheritance is bringing younger clients to financial advisers
• Younger generation has acute awareness of changing social norms and environmental concerns
• Opportunity for advisers to educate the market

MANY investors wrongly believe sustainable investing implies a trade-off that involves giving up returns, says Pendal’s Andrew Parry.

This misperception is an opportunity for financial advisers to educate their clients, says Parry, who heads up investments at Pendal’s Regnan and J O Hambro Capital Management businesses.

“This is one of the education matters that we’re all going to have to deal with because we have to get over this barrier that integrating ESG considerations to your investment decisions costs money,” says Parry.

“I think a better way to frame it is that if you’re not thinking about these issues, you can’t have the complete picture and therefore you’re more likely to introduce more uncertainty by not having the full information when investing.”

Integrating environmental, social and governance considerations in investing is of critical importance for advisers because younger investors are increasingly demanding their money is managed sustainably.

More advisers offer sustainable investing

More than 40 per cent of advisers in Australia now offer responsible investment options, according to surveys by Wealth Insights.

The number is expected to pass 50 per cent this year and 65 per cent in the next few years.

“That’s going to continue to grow largely because of consumer preferences,” says Parry.

It’s not just greater awareness across society, but also a demographic shift in investors from older to younger generations, who have a more acute awareness of changing social norms and environmental concerns.

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“We’re beginning to see generational shift that is going to continue for a long time,” he says.

Almost 80 per cent of US investors and 99 per cent of millennial investors say they are interested in sustainable investing according to research by Morgan Stanley in December 2021.

“People are beginning to ask their investment advisers for advice on how to make the change — 75 per cent of millennial investors are planning to change the way that they invest to reflect their sense of social justice.

“There is a vast amount of money that is going to be inherited over the next 10 to 20 years.

“This is something that is going to reshape the demand for these products for many years to come.”

Parry was speaking at a recent Pendal webinar titled How making a difference can make money.

The presentation can be viewed along with other recent Pendal webinars at pendalgroup.com/webinars (free registration required).

Fast growth for sustainable investing

The past three years have seen an explosion in interest in sustainable investing which is showing no signs of stopping.

“On certain projections it’s expected that some $50 trillion of assets will be invested with some form of ESG target or integration by 2025,” Parry says.

“It’s not about ESG as a label — it’s about ESG as an input into all our decision-making.

“Why wouldn’t you think about the environmental influence on business models and on economic activity?”

“Why wouldn’t you think about the social consequences of how COVID is recalibrating the ability of companies to attract workers/.

“By missing out these inputs, you may be missing valuable and material information.

“ESG is not about the label — it’s simply finance 101.”

About Andrew Parry

Andrew is Head of Investments for Pendal Group’s sustainable investing business Regnan as well as our UK-based asset manager J O Hambro Capital management.

He has more than 30 years of asset management experience with a focus on equities, investment strategy, business development, leadership and strategic client relationships. Over the past decade Andrew has developed a special focus and indepth knowledge of sustainable and impact investing.