A new survey from Swell Investing, a firm that focuses on socially and environmentally responsible investing, found that while most Millennial investors (78%) seriously consider a company’s impact on the earth and its people and shop accordingly, only 24% have actually taken actions to invest their money where their morals are.
Swell's CEO Dave Fanger says the majority of Swell's clients are between 25 and 44. "These are people who have grown up with immediate access to information. With a swipe on their smartphone they can find out a company's policies around its workforce and the environment. This has inspired a need to know more but also to do more. We’re big believers that people do the right thing once they are presented with the right information.”
Stefanie O'Connell is a millennial money expert and author of The Broke and Beautiful Life. “You'll see headlines pop up all the time about how Millennials are 'killing' the diamond industry or casual chain restaurants, and I think that's because it's easy to draw that correlation. If you're worried about fair trade, you know supporting the diamond industry could be problematic. If you're worried about your health and wellness, you know that eating at Applebee's might not be your best bet.” she said. “But when it comes to investing, most Millennials don't even have a vocabulary for how to begin investing, much less how to make socially responsible investments.”
In addition, the survey showed that though 37% of Millennials (vs. 22% of Gen Xers and 24% of Boomers) were concerned about a company’s labor policies, 49% of Millennial investors can’t name the top three companies in their portfolio. (Adults 18-36 years old are considered Millennials in this survey.)
O’Connell says the disconnect is likely a matter of having the bandwidth to dive deep into their investments—Millennials tend to use automatic options, such as employer 401(k) plans and selecting a target-date fund based on their age and anticipated date of retirement. And much of the time, they don’t feel they have the luxury to put money in an untouchable account, or one that feels like a gamble. “For those Millennials who are more savvy investors, there may still be a lot of unanswered questions about the performance of impact investments over time,” O’Connell said. “We have historical data to look back on the stock market performance as a whole, but impact investing is still relatively new. How will it perform in the long term? This is an essential question for a generation plagued by student loan debt and stagnant wages.”
The US SIF Foundation is an industry group that advocates for sustainable investing. In a recent report, the organization found that U.S. firms using sustainable and responsible investment (SRI) strategies grew 33% from 2014, to $8.7 trillion at the start of 2016. "But less than 1% of assets among the 2,390 private sector retirement plans reviewed for the report were invested in funds that explicitly market themselves as SRI," the foundation said in a press release. Criteria for what constitutes such companies can also be murky.
The Swell online survey of 2,207 U.S. adults showed that there’s a great need for more education around what impact investing is—19% of Millennials say they don’t understand these kinds of funds, while about a third of investors of all ages expressed concerns that returns from socially responsible and impact investments won’t yield the same results as more general funds. “We are seeing millennials beginning to take a stronger stand, with 78% currently invested in socially responsible and impact options or planning to be in the future. However, these options are relatively new. Traditionally, impact investing was available only to wealthy investors," said Fanger. "As more options have come to market, many have been cautious in taking the impact investment plunge because there’s a lack of education around how these companies are actually making a difference, coupled with minimums that are still quite high."
“These Millennials may also have questions about how impact investments fit into their overall investment strategy. Finally, there are cost considerations. Millennials are extremely value conscious and tend to favor low cost index funds and ETFs. If impact investments come with higher fees, this could be another potential barrier,” O’Connell said.