By Ann Storr
Say “Investment portfolio” and what comes to mind? Chalk striped suits, old boys’ networks and ‘Succession’? You’re not the only one. With memories of 2008’s devastating crash still resonating, investing can feel like the province of the elite and wealthy, a dirty word and part of the old-world order.
Not so for the under 30s. A combination of challenges including an unobtainable housing market, COVID-19 and the climate crisis continues to challenge financial stability. To build a stronger future, young people are bucking the old notions of what it means to be an investor by buying into sustainable investment funds that both protect the planet and their financial futures.
The facts bear it out: assets in the sector increased from £9.5 billion to £16 billion over the three years to 2018, and ESG funds have out-performed ‘traditional’ funding pots during the pandemic.
A positive impact on the world
This trend reflects Gen Z’s rejection of fast fashion, factory-farmed meat and eschewing air travel.
Nick Agwuncha, 28, co-founder of the Money Medics, agrees that investing in environmental, social and governance (ESG) funds in the under 30s is rising because “people are becoming more conscious of the climate, sustainable fashion and how they can do good in society… if you ask the person on the street, they probably don’t understand what ESG is, but people want to have a positive impact on the world – they want to be altruistic”.
Around 48% of financial advisors report that their clients have asked them for more information about ethical funds, environmental investing, green investing, or what is most commonly called “ESG” ii. But, what’s the meaning of ESG?
- Environmental: companies who work in reducing energy consumption, reducing pollution, combating climate change, natural resource preservation
- Social: companies who actively support human rights and combat child and forced labour, engage with local communities, keep health and safety paramount, and prioritise both employee and stakeholder relations
- Governance: companies who have excellent management, an independent board, few conflicts of interest, reasonable and proportionate executive compensation, are transparent and have good shareholder rights
It’s estimated that the number of ESG funds for sale in the UK has increased ten-fold in the last ten years ii. But why is it rising? These two people have very different stories to tell about their journeys with ethical investing.
A personal choice
Paris Jordan, 29, wanted to make sure that securing her financial future and a career in trading did not cause harm to others by making sustainable investments: “I wanted to make a positive change in the world, reduce my carbon impact and support organisations which align with my values.
As an investor who manages other people’s money, I have the power to allocate large sums of money to worthy causes and make an immediate, impactful difference.” For Paris, the meaning of ESG encompasses sustainable investing and socially responsible investing. ESG funds don’t simply exclude the ‘bad’, such as tobacco and oil: they actively work for the betterment of the planet to support companies who are trying to make the world a better place.
Mayowa Ogunremi, 24, is a British graduate, working and living in London. Mayowa started investing in ESG when she was 22, a fresh graduate looking to secure her financial future.
With the UK housing market looking so out of reach for her generation and wanting to make every pay-check work for her retirement, Mayowa knew that any financial decision had to be aligned with socially responsible investing: “When I left uni at 22 I realised that I had a long life of work ahead of me, and I wanted my money to start working for me. After my first paycheck, I started looking around for the best ways to invest my money.
“I was trying to not buy things from Amazon due to its poor human rights record, so the idea of investing in them whilst minimising my consumer exposure felt redundant.
“I did about two months’ research looking at socially responsible investing, sustainability rankings, and individual company holdings and created my assessment of which companies I would negatively and positively screen into my portfolio.
A price worth paying
“I’ve experienced an 8% cumulative return since February 2019. There’s a perception that investing in ESG yields lower returns but in my experience, they have been comparable. I’m a long-term investor who’s not looking to take my money out for 10 or 20 years, so I would say it’s a price worth paying.
“In the long run, the science is clear: fossil fuels present serious risks to investors because these companies aren’t transitioning quickly to avoid stranded assets [assets that become less valuable due to economic or regulatory changes associated with the energy transition, such as coal mines]. So, long-term, minimising exposure to these companies through effective ESG investing feels like the only financially responsible decision.”
And that’s the financial truth: investing in ESG means you’re investing in funds that are looking towards the future, assessing its risks and challenges with open eyes and challenging the ‘business as usual’ norm.
Financial performance is still paramount, evidenced by ESG’s gains during the pandemic, outstripping ‘traditional’ funds, however, investments will fall and rise in value and you could get back less than you invested.
Paris has seen this trend at work, saying “There is increasing evidence that investing ethically does not harm performance; indeed, it appears to benefit performance. It is value-creating rather than value-destroying”.
Climate Transition Equality Fund
Aviva’s new ESG fund, the Climate Transition Equity Fund, makes it easy to start changing the world from your sofa. The fund focuses on inclusion rather than exclusion, helping companies who are building a more sustainable future and is more than a fund that simply excludes ‘bad’ themes such as tobacco and oil.
The fund’s objectives include long-term growth, positive climate risk management and monitoring and reporting climate outcome.
We all know we can’t solve the climate crisis overnight, but small sustainable changes all add up: take your canvas bags every time you shop. Don’t eat meat every day. Only boil as much water as you need for a cup of tea (and don’t forget to drink it).
By moving your investments to an ESG fund, you’re investing your capital with organisations who are looking to the future health of your investment and a world that could provide you with a comfortable, peaceful and prosperous future.