Figures continue to trace the rise of environmental, social, and governance (ESG) issues among US investors—72% of respondents to one Morningstar survey expressed at least some attraction to sustainable investing. Yet the most noticeable shift has been among a narrower demographic: the younger generations.
Gen Z and millennials show the keenest interest in sustainable investing, according to a CNBC poll. One-third of millennials and 19% of Gen Z report taking ESG factors into consideration in their investment decisions, while 16% of Gen X and only 2% of baby boomers say the same.
Why Do Gen Z and Millennials Matter?
Born between 1981 and 1996, millennials represented 72.1 million people in the United States in 2019. Gen Z—born from 1997 onward—meanwhile totalled 25.9% of Americans that year. Taken together, these generations represent significant wealth and purchasing power, particularly as millennials are poised to inherit $30 trillion dollars from their baby boomer parents. What they do with these assets has the potential to move the needle on ESG goals.
Gen Z and Millennials Are More Likely to Be Impact Investors
Despite being of different generations, Gen Z and millennials have largely common views on key social and policy issues. Both Gen Z and millennials represent more socially progressive generations than their older counterparts when it comes to issues such as climate change and race.
Millennials and members of Generation Z are also more likely than earlier generations to make purchasing or investment decisions based on personal and ESG values. According to a 2018 report, more than half (52%) of millennial investors see ESG as important investment criteria compared with less than 30% of baby boomers and 42% of Gen X investors. A 2021 Pathstone study indicates that millennial investors are more than twice as likely to be interested in making an impact with their investment decisions as older generations.
Statistics Highlight Younger Generations’ Focus on ESG Factors
Millennials represent the largest population in the workforce. Since they are currently making investments, that puts them in the driver’s seat when it comes to ESG investing:
- 86% of millennials are interested in impact investing.
- 89% of millennials expect their financial professional to thoroughly explore a company’s ESG factors and history before making an investment recommendation.
- 76% of older millennials consider climate change a serious threat to society.
- 74% of millennials consider themselves a “philanthropist.”
Gen Z is following closely behind, however, as they begin to enter the workforce and invest their money:
- Four out of five Gen Zers factor ESG into their investment decisions.
- Members of Gen Z are more likely to prefer buying sustainable brands and are willing to spend more to do so.
- 28% of Gen Zers see climate change as a top concern.
- 72% of Gen Zers expressed hope that responsible investing could improve sustainability outcomes.
Climate Change and Racial Equity Mark Timely Issues
Although the data shows that climate change is a prominent concern for Gen Zers and millennials alike, it is not their only priority. For instance, these generations both face striking wealth inequality. About 69% of millennials and 66% of Gen Zers believe there is an unequal distribution of wealth and income in society in Deloitte’s 2021 Millennial and Gen Z Survey. They also overwhelmingly agree that systemic racism is very or fairly widespread in society, with 60% Gen Zers and 56% of millennials reporting this belief in the survey.
The Outlook Looks Bright for Impact Investors
Gen Zers and millennials are bringing a new attitude to giving and investing. Millennials have already played a significant role in fueling ESG investing; they contributed $51.1 billion to sustainable funds in 2020 compared with less than $5 billion in 2015. This trend is only set to continue, particularly as more wealth transfers to them.
Gen Z seems to be following suit: in a 2021 survey of college students, 51% of respondents say they see green and sustainable investing as the trend with the biggest investment potential; another 40% say their investments decisions are driven by “companies with a purpose.” With an income expected to grow by 140% in the next five years, these attitudes have the momentum to encourage further interest in impact investments.
Members of younger generations are actively involved in a variety of social and political causes—and they are realizing that they can carry this same passion into their investment decisions. With such a huge and growing market share, Gen Z and millennials are positioned to drive demand for public equities that benefit the planet and society.