ESG Investing—Much More Than A Millennial Story

Environmental, social and governance (ESG) investing is a topic that is getting a lot of attention lately—and rightly so—as people are becoming more personally invested in the companies where they put their money. In fact, according to a recent study* which examined how consumers are feeling about ESG, nearly three quarters (73 percent) of people say that choosing an ESG investment is a way to reward good companies.

It’s possible you’ve already had some clients ask about adding an ESG component to their portfolio, and odds are they were on the younger side of your client base. This makes sense as nearly two-thirds (64 percent) of millennials in the study said ESG issues are important in their investing decisions. The study also found that millennials are more likely to be interested in learning about various types of ESG information and are more likely to take action based on issues that are important to them.

But if you think ESG investing is purely a millennial story, think again, there is more than millennial money that meets the eye when it comes to investments.

Interest across generations
Although the study found that millennials are more likely to make investment and purchasing decisions based on ESG topics, Gen Xers and baby boomers are also putting their values into action—and this is a trend that is only going to grow.

More than half (54 percent) of Gen Xers said ESG issues are important in their investing decisions with boomers not far behind at 42 percent. In addition, majorities across all generations say ESG is a key factor in which companies they choose to do business with (77 percent of millennials/64 percent of Gen Xers/61 percent of boomers).

Furthermore, baby boomers are actually more likely than millennials and Gen Xers to say that the reason they want to participate in ESG investing is to encourage companies to be good corporate citizens (61 percent of boomers, compared with 51 percent of millennials and 48 percent of Gen Xers). Baby boomers are also more likely than other generations to take their business elsewhere if they disagree with a company’s track record related to certain ESG issues including transparency in business practices and finances, levels of executive compensation, and charitable contributions.

Lack of action equals opportunity
It’s clear that people from all generations—not just millennials—are looking to learn more about ESG and want to put their values into action. But actual participation in ESG investing is still quite low. Only 17 percent of millennials are currently participating in ESG investing, with percentages much lower for both Gen Xers (seven percent) and boomers (three percent).

What could be causing this lack of ESG activity? Part of it is undoubtedly a lack of education and resources as survey respondents noted they need more information in order to feel comfortable making ESG investment decisions. Yet, an equally important factor to consider is the lack of guidance people are currently receiving about ESG investment opportunities.

The study showed that clients simply aren’t hearing enough about ESG options from their financial professionals. In fact, most financial professionals have yet to take a proactive approach helping clients learn about and participate in ESG investing.

Only 30 percent of Americans working with a financial professional say they have discussed ESG investing with their advisor, and most of the time it was the client who initiated the conversation (69 percent). This, despite the fact that three-quarters of respondents currently working with a financial professional said they have positive perceptions of ESG investing, and over half (51 percent) of those currently not involved with ESG investing are interested in it.

3 steps you can take today
So, how can you put this knowledge to good use and strengthen relationships with you clients? Here are three things you can do today to make ESG a bigger part of your practice:

  1. Do the research—As ESG investing is becoming more common, resources to better understand ESG investment opportunities are more readily available. A couple of good options that can help build your ESG knowledge include the United Nations Sustainable Development Goals and the Principles for Responsible Investment. Keep in mind that it’s also becoming easier to learn about companies’ business practices across the ESG spectrum— something more and more clients are coming to expect of their financial professionals. Take the time to understand the full picture before making any recommendations.
  2. Be proactive—Don’t wait for your clients to bring up ESG—let them know that you’re informed and able to provide sound advice about ESG options that could benefit their portfolio, especially when it comes to saving for retirement—after all, the majority of people already believe that companies that are good corporate citizens are better positioned for long-term success. It’s important to proactively work with clients to identify what issues are important to them and help them build their portfolio in a way that reflects their values.
  3. Be inclusive—One of the biggest takeaways from the ESG Investor Sentiment Study is the fact that—contrary to popular belief—all generations are interested in learning more about ESG investment options. Although millennials are a clear target for ESG discussions, don’t leave your Gen X or boomer clients out of the conversation. It’s likely they have opinions on ESG and would appreciate the opportunity to discuss and determine if some involvement with ESG investing might be right for their larger financial strategy.

Becoming more knowledgeable about a company’s operations, including its ethical impact and sustainability practices, can help your clients make better-informed spending and investing decisions. By taking the time to learn more about ESG investing, you can differentiate yourself and engage you clients in a new and meaningful way.

*Allianz Life Insurance Company of North America conducted an online survey, the Allianz Life ESG Investor Sentiment Study, in December, 2018, with a nationally representative sample of 1,000 respondents ages 18 years or older.

As Vice President of Advanced Markets for Allianz Life Insurance Company of North America (Allianz Life®), Kelly LaVigne oversees the Advanced Markets team and is responsible for its strategic direction. This includes providing content and expertise to assist financial professionals in acquiring and serving clients through retirement planning, estate planning, and other tax-related strategies.
Prior to joining Allianz Life, LaVigne was director of advanced markets and director of industry and regulatory strategies for Transamerica Capital Management. Before joining Transamerica, he served as vice president of advanced markets for AXA Equitable, where he and his team published a book on retirement income planning to help financial professionals enhance their retirement income practice. LaVigne has also had leadership roles at ING/Aetna Financial Services and Travelers Life and Annuity.
LaVigne holds a Juris Doctor (JD) from Western New England College School of Law in West Springfield, MA, and a Bachelor of Science degree in communications and marketing from Central Connecticut State University in New Britain. He holds FINRA 6 and 26 securities registrations, a Life and Health Insurance license, and is a Certified National Instructor for Life Insurance Continuing Education.
LaVigne can be contacted at Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416. Telephone: 763-765-6614. Email: Kelly.Lavigne@allianzlife.com.