Monetizing Millennial Consumers, from Sustainable Brands to Sustainable Investing

In what has become a clear trend, millennial consumers are putting their money where their ideals are. They are choosing products and services from brands that reflect their concerns about the environment and social issues. This generation is also providing a bottom line incentive for companies to adopt more sustainable practices, and that could be just the tip of the iceberg in terms of consumer influence. A recent survey of individual investors from Morgan Stanley suggests that there is still ample room for consumers to add the weight of their financial choices to the sustainability movement as well.

Investors are on the alert for sustainable options

The new survey, titled Sustainable Signals, was released on September 12 by the Morgan Stanley Institute for Sustainable Investing.

As the third survey in a series, the new report provides an opportunity to take stock of trends concerning global warming and other environmental issues, especially among younger adults.

The survey finds that “interest and adoption of sustainable investing has grown steadily since 2015,” with 85 percent of individual investors in the U.S. now expressing interest in sustainable investing strategies.

In the group of millennials interest in sustainable investment is even higher, at 95 percent.

Most significant, perhaps, is the increasing proportion of investors who are “very” interested in sustainable investing.

“The trends continue to go up in terms of interest and general knowledge. That’s exciting,” notes Jamie Martin, an Executive Director in Morgan Stanley's Global Sustainable Finance group.

“We are most excited about the interest numbers,” he explains. “The intensity of interest — ‘very interested’ — is up. Our thesis around all of this is that sustainability trends are driving consumer decision making and the brands that consumers are supporting, and that is trickling over into their investment behavior.”

The value of science-based targets

The new survey results demonstrates the ongoing trickle-over effect. As with consumers who select groceries and household goods based on a brand’s reputation for sustainability, investors are becoming more sophisticated, and they are looking for financial products that follow their interests.

Investor sophistication also translates into a greater awareness of goal-setting and evidence-based achievements.

That trend supports the efforts of companies that have signed on to the Science Based Targets (SBTi) initiative. The SBTi program measures and certifies corporate sustainability actions in the context of the goals of the Paris Agreement on climate change.

“Science based targets are one way for investors to understand the impacts,” Martin says. “Some companies are embedding those into their corporate strategies, and those goals will be what they communicate to investors. We think there is enormous value in helping our clients better understand what they own in their portfolios.”

From interest to action

Unfortunately, the survey also reflects the disconnect between consumers having an interest, and those who actually act on that interest.

Although the survey found 85 percent of investors interested in sustainability, it also found that only 52 percent of the general public has undertaken a sustainability investment (for example, investing in funds aimed at specific environmental or social goals). Millennials fared somewhat better, at 67 percent.

That gap may indicate some lingering doubt over the financial advantages of sustainable investing. The survey did find evidence that many investors still perceive a trade-off, with 64 percent responding that “investors must choose between financial gains and sustainability.”

On the bright side, the survey also indicates that investors are primed to increase their activity in the sustainable investment field, with 86 percent of respondents believing that “corporate ESG practices can potentially lead to higher profitability and may be better long-term investments.”

In addition, the survey found that 88 percent “believe that it is possible to balance financial gains with a focus on social and environmental impact.”

“The reality of sustainable investment is they perform quite similarly to traditional investment,” Martin says. “It’s about companies activating their strategies proactively to address issues like climate change, gender diversity, and plastics.”

Aggregating the power of the consumer

Overall, the survey suggests that individual consumers control a large, untapped well of financial resources that could help accelerate the transition to a low carbon economy, in addition to addressing other areas of social concern.

That means stakeholders in the financial services profession have a role to play in shaping and channeling investor choices to achieve maximum impact.

“This idea of individuals voting with their dollars and the choices that they make is powerful,” explains Martin. "It has to be harnessed and aggregated in a way that moves the needle, and companies are positioning themselves to resonate with the next generation.”

Financial stakeholders can only do so much, though. For example, harnessing the sustainable investment power of 401(k) retirement accounts would create a significant impact. However, according to a recent report by CNBC, almost 25 percent of adults in the U.S. have have no retirement savings at all, let alone a 401(k) plan.

There are other financial bottlenecks at work. Especially for millennials and the up-and-coming generation of potential investors, other obligations compete for their paycheck include student loans, along with the high cost of basic expenses like housing, health care and transportation.

Despite these obstacles, Morgan Stanley is among those foreseeing a strong upward trend in sustainable investing.

“These findings reaffirm that sustainable investing has entered the mainstream and is here to stay,” concludes Audrey Choi, the firm’s Chief Sustainability Officer and Chief Marketing Officer of Morgan Stanley. “Increasingly, investors want to know what they own and want those holdings to reflect their values.”

Image credit: Jake Ingle/Unsplash