Sustainable Investing: Millennials have more money than you think — so expect ESG funds in your 401(k)

Mutual Funds


There are two certainties when discussing responsible investments. The first is that millennials will be invariably be listed as a primary driver of interest. The second is that someone will inevitably quip that it doesn’t matter what millennials may want to invest in since they all live in their parents’ basement anyway.

Even before the infamous 2018 eviction lawsuit between parents and millennial son, a wealth of Census Bureau data and well-funded studies provided fodder for both jobless millennial internet memes and poor millennial tropes. And if the idea of the impoverished millennial is true, the future of responsible investing, from environmental, social and governance (ESG) to socially responsible (SRI) to impact, does seem a little less secure.

But more surprising? Millennials — those born between 1981 and 1996, so making the oldest 37 years old — may be more than big hat, no cattle when it comes to making responsible investments. One study indicates that millennials comprise 23% of all millionaires. Other data point to a slightly lower percentage, where millennials comprise 19% of millionaires and Gen X (another strong supporter of responsible investing) another 18%.

But even those numbers may be hard for some to swallow: nearly one in five millionaires is a millennial? Say it isn’t so!

Meanwhile, surveys of investors almost universally point to millennials as the biggest fans of responsible or sustainable investors. Morgan Stanley surveyed 1,000 active investors in 2015 and 2017 and found that millennials were not only more interested in responsible investing (86% vs. 75% of the total population in 2017), but that their interest was growing. Between 2015 and 2017, the percentage of millennials who were “strongly interested” in sustainable investing jumped a massive 10 percentage points.

A more recent survey from Crossmark Global Investments showed an even starker contrast between millennials and their older investing peers. While a mere 6% of seniors were even familiar with ESG investing, a whopping 80% of those aged 23 to 39 were aware of the strategy and 26% had already made ESG investments.

To be clear, baby boomers still contain the largest segment of millionaires AND control 70% of disposable capital, but they are aging and will transfer up to another $30 trillion (with a “T”) to their Gen X and millennial children and grandchildren over the next decade and a half-ish.

Based on these figures, it would seem that millennials can (or will) be able to put their money where their mouths are when it comes to responsible investments, and why there are a host of investing options no matter where millennials fall on the income spectrum.

In addition, now that millennials are the dominant force in the workplace, there will likely be more adoption of responsible investment options within 401(k) plans, making it even easier for millennials investors to align their values with their investments. Although less than 10% of 401(k)s currently offer ESG options, large financial firms (think BlackRock, Wells Fargo and Natixis to name a few) are betting that will change and are developing products for the 401(k) marketplace.

Away from retirement accounts, a number of low-minimum roboadvisors have already jumped into the sustainable investing game, hoping to capture millennial dollars early, including WealthSimple, Betterment and Ellevest (all with no minimum account balance), Swell Investing ($50 minimum) and Motif ($1,000 minimum).

For the self-directed, there are low-minimum investment options for a variety of responsible investment interests and for all but the emptiest wallets.

Want a low carbon footprint? The SPDR S&P 500 Fossil Fuel Reserves Free

SPYX, -0.44%

the iShares MSCI ACWI Low Carbon Target ETF

CRBN, -0.23%

 or the American Funds New Economy Fund

ANEFX, +0.02%

 could be worth a look.

Want more social justice? The Impact Shares NAACP Minority Empowerment ETF

NACP, -0.05%

SPDR SSGA Gender Diversity Index ETF

SHE, -0.32%

 or the Pax Ellevate Global Women’s Leadership Fund

PXWEX, -0.32%

 are just a few options available.

Interested in supporting companies with good environmental, social and governance characteristics? The Parnassus Endeavor Fund

PARWX, -1.04%

the iShares MSCI USA ESG Select ETF

SUSA, -0.42%

 or one of Vanguard’s new ESG ETFs — the Vanguard ESG US Stock ETF

ESGV, -0.25%

and the Vanguard ESG International Stock ETF

VSGX, -0.11%

 — are a few of a growing number of fund offerings.

The ETFs require the purchase of a single share, while the mutual funds have minimums ranging from a low of $250 (American Funds New Economy Fund) to a high of $2,000 (Parnassus Endeavor Fund

PARWX, -1.04%

).

In short, if millennial investors want to invest responsibly through their employer’s retirement offering or from the comfort of their parents’ basement, a growing number of them can, and likely will.

Meredith Jones is an alternative-investment consultant and author of “Women of The Street: Why Female Money Managers Generate Higher Returns (And How You Can Too)”. Follow her on Twitter @MJ_Meredith_J.

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