Big themes for today’s investors are low carbon strategies, as well as avoiding lightning rod issues such as AR15 manufacturers. For clients worried about the effects of climate change on their children and grandchildren, chances are they are trying to make changes in their lives to do their part. This might include swapping their SUV for an electric or hybrid vehicle. Or putting solar panels on their roof. They might have made the decision, maybe prompted by their Millennial or Gen Z kids, to stop buying throwaway plastic water bottles. If so, they also might be reusing grocery bags and filling them with more fruits and vegetables. You get the idea…
Even after doing all of this, let’s say their family carbon footprint is roughly 100 metric tons per year, which is actually twice the national average for a family of three.
Now let’s say this same family has $1M invested in an SP500 Index Fund. It turns out that in this new age of data transparency that we know a lot about every company in the SP500. We know the combined market cap is $21 trillion. We also know that the Scope 1 and 2 carbon emissions of SP500 as a whole are 4300 million tons per year.
To bring this math together, when someone invests $1M in an S&P500 index fund, they own an additional 227 metric tons of carbon. Each and every year. As today’s investors begin to understand they have choices including lower carbon investment strategies, we will see a shift in this direction. But what about the Millennial investors just around the corner? Is there any reason to believe they won’t demand low carbon investment options?
The better question might be: what are the chances today’s advisors will hold onto tomorrow’s clients? Sixty-six percent of children fire their parents’ financial adviser after they inherit their parents’ wealth, according to an InvestmentNews survey completed last year.1
With that data as a benchmark, my answer would be somewhere between slim and none. I say this because the advisor community as a whole has struggled to understand and embrace this broad-based, multi-generational movement toward sustainability and impact creation. Or maybe they don’t believe in climate risk. Or they are nearing retirement and can’t be bothered. For an increasing number of Americans, and for most Millennials and Gen Z’ers, this is a fight for their lives and those of their children.
Unlike their grandfathers who fought WWII with guns and bullets, Millennials are armed with technology, social media, and the desire to self-educate. They understand how all the pieces come together. They have built in bullshit detectors. They realize that corporations are critical to both the fight for social justice and a healthy planet. And even without much money they are forcing corporations to change for the better – at least the ones looking to access the bulk of an 80-million-member consumer marketplace.
Does anyone actually think that Millennials will own investment funds that hold companies they detest? There are plenty of Baby Boomers that detest Fox News. And probably just as many that feel the same way about CNN. But how many will go through the effort to figure out which index or mutual fund owns the parent company, sell the fund and then research alternatives? And how many of today’s advisors will show them the path? Very few, but no matter, as Millennials can do it themselves quite easily.
The financial services winners in the largest generational wealth transfer ever will be the brave few that get out in front of this process. Just because clients haven’t asked about sustainability doesn’t mean they don’t care about it. There are good products in the marketplace already and advisors need to educate themselves, so they are no longer the sand in the machine, but rather the lubricant needed to demand quality ESG products on their investment platforms, and then get these products in front of families. And by the way, not all of this need be equity products. There are a wide number of private investment products available in everything from biodegradable plastics to solar energy deployments. The good news is that Millennials will pay more for solutions that provide a public benefit, but it will be hard to fool them if the approach isn’t authentic.
I’ll end where we started. We already have the “greatest” generation. Millennials will be known as the “impact” generation and will accomplish at least as much as their predecessors dealing with modern day problems at least as thorny. For financial services firms and advisors that authentically embrace the ways in which Millennials look at the world and show the willingness to invest in products and services that meet their needs it will be both prosperous and transformative.
1 Skinner, Liz. “The Great Wealth Transfer Is Coming, Putting Investors at Risk.”www.investmentnews.com, 13 July 2015.