There has been a momentous shift towards inclusive, socially responsible investing across the board in recent times.
With the growing consciousness regarding ethical and sustainable investment choices, particularly from the millennial generation, we expect this sector to continue to grow in the coming years. As such, financial institutions and investment platforms are returning to the drawing board to cater to this demographic and participate in its growth, as traditional portfolio management alone does not suffice.
With greater connectivity and the availability of information, ethical questions about the world are permeating into portfolio decisions. Retail and institutional investors across the US and Europe are seeking to align their investment holdings with their belief systems, excluding sectors and firms that generate large portions of their revenues from unethical sources. Additionally, questions around corporate governance and inclusivity have forced corporate boards to examine their initiatives around diversity and representation.
According to a recent analysis from Morgan Stanley, up to 85 per cent of millennials are seeking more ethically sound investment spaces, as compared to 75 per cent of the general population. In addition, they are twice as likely to invest in companies targeting social or environmental goals.
One big question remains: can ethical investing remain sustainable?
Environment, social and governance (ESG), which refers to three core factors in measuring the sustainability and impact of an investment, has arisen as a metric in determining ethical investment decisions. More importantly, a desire to grow one's wealth in a morally sound manner has taken precedence. This is because this growing pool of young investors are driven by a common sentiment: that careful, conscious investing can bring about positive impact and real change in today's world. Insights from Deloitte note that 76 per cent of millennials believe that businesses can be a force for social good, however, these findings also indicate that only 59 per cent of multinational corporations are considered to be addressing millennials these concerns.
Ethical investing has become an attractive proposition for younger sects of investors and introduces a new consideration for where to invest their hard-earned capital. This is highlighted through a report by EY which implies that millennials "are achieving greater integration of their money and values" through more socially responsible investment practices.
While performance indicators and parameters of ethical investing require more clarification for longevity, there remains a contented commitment to sustainable investing, despite associated fears of financial trade-offs associated with sustainable motives. According to analysis from Deutsche Bank, investment literature and empirical evidence point towards ESG and ethical investing being far from a burden on portfolio performance. Previously held views that one had to sacrifice performance to invest ethically are being replaced by a belief that not only does ESG investing produce comparable returns, but its positive externalities on the world amplify that holistic bottom line.
At the crux of this vast shift in thinking and values, the importance of selecting ethically considerate investment products and astute financial planning has become more resonant. Younger populations yearn for change that inflicts global good and are fueled by the notion that 'if it's good for the world, it's good for me'.
By creating innovative solutions to cater to this demand, investment platforms are striving to incorporate the ethical Investment parameters into fundamental analysis, portfolio construction, and fund selection. As long as young investors continue to express a need for social good, and the idea gains traction and familiarity, these ethical investment options remain entirely sustainable alternatives to the traditional confines of the wealth management landscape.
Junaid Wahedna is the founder and CEO at Wahed Invest. Views expressed are his own and do not reflect the newspaper's policy.