Millennials Set to Transform Sustainable Investing

(3BL Media/Justmeans) – There is a growing recognition that thinking about sustainability is consistent with a fundamental understanding of financial risk and rewards. A Morgan Stanley study that looked at the performance of 10,228 mutual funds over seven years found that 64 percent of the time, sustainable strategies matched or outperformed traditional funds in terms of returns. What’s more, the sustainable strategies had equal or lower volatility most of the time.

Sustainable investing appears to be set to receive a boost from Millennials, who have increasingly shown to be far more committed to sustainability than other generations. In a late-2014 poll, a survey by Morgan Stanley’s Institute of Sustainable Investing revealed that Millennials are markedly different from other generations in the matters of sustainability.

According to the survey, Millennials are nearly three times more likely to choose a job because of sustainability considerations. Audrey Choi, CEO of the Institute, said that Millennials want to work in a place they feel is going to have a positive impact on the world. They are also twice as likely to make product purchases based on sustainability criteria.

The study concluded that about 84 percent of Millennials were interested in sustainable investing. They are twice as likely to invest in a stock or a fund if sustainability is part of the value-creation thesis. According to Choi, this trend is only going to become more prevalent over time as the transfer of wealth to Millennials takes place.

Such trends are part of what led Morgan Stanley in 2013 to start the Institute for Sustainable Investing. Its broad aim is to work with businesses across the firm to help channel investments toward companies that address environmental, social, and governance (ESG) challenges. One of its goals is to get $10 billion of client assets into the firm’s Investing with Impact Portfolio by 2018. As of September, the firm was more than halfway there, with close to $6 billion.

For investors, one of the critical issues is to determine the best ESG metrics and performance indicators that impact companies’ financial results. A key group addressing such issues is the Sustainable Accounting Standards Board (SASB). Choi, who is a member of the board, says its goal is to raise the level of disclosure on sustainability criteria that are useful in making investment decisions.

To that end, SASB is developing sustainability accounting standards for 79 industries in 11 sectors. It is covering aspects such as water use, waste management, employee practices, and governance, which can actually have a material effect on financials, and ought to be part of the standard set of things that companies disclose.

Source and Image: 3BL Media