Green and responsible, the investments younger generations like

Around 90% of millennials are interested in the world of ESG funds, a percentage still on the rise among the very young. The experience of Banca Generali, which created a platform able to identify the most sustainable companies

“There is no Planet B”. With this motto, thousands of young people around the world took to the streets to demand that governments take concrete action against climate change. Inspired by the message launched by Swedish activist Greta Thunberg with her “Fridays for Future”, the movement had a practical and evident impact on another issue that can no longer be ignored: sustainable investments. An issue that goes hand in hand with the younger generation’s commitment to strive for a fairer and more environmentally friendly world.

As early as 2017, while interviewing active individual investors, Morgan Stanley’s Institute for Sustainable Investing found that 86% of so-called millennials (or Generation Y – those born between 1981 and 1995) were interested in investing sustainably in companies or funds that aim to generate financial returns at market rates. Furthermore, 90% of them said they would like sustainable investment to be an option in their retirement funds.

It is worth remembering that today’s consumers appear more environmentally and socially conscious than in the past: according to a study by Cone Communications, 94% of Generation Z (those born between 1996 and 2010) believe that companies should help address social and environmental issues, compared to 87% of millennials and 86% of those interviewed. Moreover, 75% of active individual investors say they are interested in sustainable development and 80% say they would be more likely to invest sustainably if their financial tools allowed.

Other interesting results are presented in a UBS Investor Watch study. Among the 3,800 investors interviewed in 15 markets all over the world, almost 60% are more interested in sustainable investment than before the Covid pandemic; of these, almost two thirds are not only interested, but very interested in sustainable investment. Young people remain in the spotlight: millennials spurred the growth of sustainable investment during the 2010s - in the US alone, for example, investors contributed 51.1 billion dollars to sustainable funds in 2020, compared to less than 5 billion dollars in the previous decade.

In this context, sustainable investment or the use of environmental, social and governance (ESG) factors to determine which companies and industries would make a good addition to one’s portfolio can be applied to many social and political issues. Concerns over climate change, in particular, are one of the main reasons behind the sector’s growth, according to investment research firm Morningstar. The survey shows that around one third of millennials often or exclusively use investments that take ESG factors into account, compared to 16% of Gen X (those born between 1995 and 1980) and 2% of so-called Baby Boomers (those born between 1946 and 1964).

A green revolution led by young people: the example of Banca Generali

These figures are also confirmed by an analysis of Banca Generali's investments, which during the past year collected 1.4 billion euros from its customers through ESG-certified funds - accounting for 20% (or 6.5 billion euros) of the total savings managed by the bank controlled by Generali. Once again, young people are proving to be the most sensitive: almost 68% of Banca Generali’s customers in the I-Generation, born after 1996, and more than 65% of millennial customers invest in sustainability through the bank of the Lion of Trieste.

"We are in the midst of a historic change in the paradigms of an investment world where sustainability will be an increasingly more central element in the choices of both distributors and end customers in the future," comments Andrea Ragaini, Deputy General Manager of Banca Generali. A green revolution that has also involved Italy, as confirmed by the figures presented by Assogestioni at the last Salone del Risparmio. While around 64% of Italians see ESG investments as an economic opportunity and a concrete way of expressing their values, the percentage rises to 78% in the case of the younger generations.

What are the elements that facilitated this development in favour of sustainable investments? According to Banca Generali's experts, a major boost has come from the pandemic, which for the past two years has highlighted the strengths of ESG funds, encouraging their growth. But that's not all. The Lion’s bank, in fact, had already defined its vision before Covid. "Our long-standing commitment to a sustainable transition, including in the field of household investments, is rooted in the proprietary platform we launched in early 2019," Ragaini explains. "The pandemic has helped accentuate the perception among households of the importance of holding ESG instruments in their portfolios, but it is important to be able to match the right offering themes. This is what we have been working on in the last two years, during which we have broadened our thematic offering and the measurability of its sustainable impact.

In 2019, Banca Generali launched an update of BG Personal Portfolio: developed in collaboration with MainStreet Partners, the Banca Generali Private platform for financial investment management enables private bankers to create portfolios profiled on the basis of the Sustainable Development Goals of the UN 2030 Agenda. Moreover, the creation of a proprietary algorithm made it possible to quantify the concrete impacts generated by each customer’s investment, for each of the objectives identified by the United Nations.

Two years after the launch of the new services, Banca Generali assigned an ESG rating to over 5,000 mapped companies. In addition, the Bank created a basket of 250 top-rated bonds in terms of sustainability. "The added value of this project," emphasises Rodolfo Fracassi, founder and CEO of MainStreet Partners, "stems from the digital platform that allows us to tailor the depth of our analysis to the personal sensitivity of each customer.” A sensitivity that is particularly high in the case of younger people. Analytical studies carried out by Banca Generali on its customers have highlighted that, in a break with the past and despite the lower average per capita AuM (Assets under Management), the younger generations (I-Generation and Millenial) are more attentive to sustainability principles, with a high percentage of ESG customers and a higher propensity for ESG investments.

Youth and sustainability, is the future already here?

In addition to an unprecedented interest in environmental issues, which has undoubtedly been heightened by recent movements such as those led by Greta Thunberg, the younger generations’ availability and access to asset allocation has increased in recent years. While the first sustainable mutual fund was launched in the 1970s, millennials reached their prime investing years when ESG investment options became more abundant than ever, and at a time when information was readily available. Such factors have inevitably contributed to a generational gap in the last few years.

Now, millennials in the US alone are set to inherit around 30 trillion dollars over the next few decades, according to a report from investment research firm MSCI Inc. With growing awareness of the damage caused by climate change, a new trend is developing for corporations and the financial industry: to continue creating more and better sustainable investment options in the upcoming years. In the knowledge that the very real consequences of climate change on companies and their profits make it imperative to take ESG factors into consideration in the long term.