Investing in our future – ESG is given the green light by millennials

Fiona Wakelin

Environment, social and governance investing is gathering momentum – a Morningstar report in March 2020 revealed that 95% of millennials are interested in sustainability and investing in a manner which reflects their concerns.

This is corroborated by a Morgan Stanley study conducted last year which found that in the US investor enthusiasm for sustainability was “at an all time high”.

Results from the survey reveals four central themes in the sustainable investing field:

• Investor interest and adoption continues to rise; 85% are interested in sustainable investing and 95% of millennials now express interest in sustainable investing.
• Investors want products that match their interests; 84% want the ability to tailor their investments to their impact goals, 90% among millennials.

The survey also found strong interest among investors for tracking the impact return on their investments—84% wanted an impact report, 90% among millennials.

• Investor conviction outweighs financial trade-off concerns; 86% believe that corporate ESG practices can potentially lead to higher profitability and may be better long-term investments and 88% believe that it is possible to balance financial gains with a focus on social and environmental impact.
• Investors want more product choices; 65% cited lack of available financial products as a barrier to including sustainable investing in their portfolios.

In South Africa this investment into sustainability has been given a boost by the launching of the first local actively managed environmental, social and governance (ESG) equity fund by Old Mutual.

“ESG funds are increasingly shown to deliver sustainable adjusted long-term returns for clients. Businesses that prioritise ESG matters are better equipped to thrive in the long run,” – Elize Botha, Managing Director of Old Mutual Unit Trusts.

Morningstar data shows that amid the pandemic, 24 out of 26 index funds that focus on companies with the highest ESG scores outperformed their closest conventional counterparts.

“Sustainable investing has really taken off in the past five years. We saw this trend abroad and locally with the uptake of our own ESG passive funds launched two years ago. It was this and market intel that confirmed that there was an opportunity for a local, actively managed ESG unit trust.

“The fund is aimed at investors with a longer-term horizon and who are primarily seeking exposure to a domestic general equity fund with a high ESG focus,” ” – Fawaz Fakier, Fund Manager of the ESG Equity Fund.

Launched on May 31, the fund invests in companies that have “strong balance sheets, sustainable cash flows, are well priced and score highly on proprietary researched ESG criteria. “

Elize Botha corroborates the Morgan Stanley findings that ESG investing has grown in popularity and credibility over the past few years, with investors profiting from rewarding companies that look beyond just the bottom line. “This has been most pronounced in the choices of generation z and their millennial parents who think differently about how they spend, save and invest their money,” says Botha.

According to Botha, “many companies are adapting to the scrutiny that their business practices, and not only their bottom line, are under. Business leaders are increasingly committing to building their sustainability credentials; but they need to step up their efforts to achieve carbon neutrality in order to remain relevant”.

Sources

Morgan Stanley

Morningstar

Old Mutual