Sustainability matters

Maria Espadinha

Senior Reporter of Financial Adviser and FTAdviser

Millennials are known as ‘generation rent’, sometimes criticised for spending too much money on take away and avocados, and who usually are not particularly engaged with their pensions.

However, they are the generation most concerned with the environment and most engaged with sustainability, which can be a hook for increasing the attention they pay to their savings.

According to recent research from asset manager Franklin Templeton, young savers would boost their pension contributions to the tune of £1.2bn if providers gave more attention to responsible investment considerations in their products.

Financial advisers have a part to play it this, argued Lorna Blyth, head of investment solutions at Royal London.

She said: “It has been widely reported that millennials have an increased interest in issues such as climate change and that these interests inform the products they choose to buy.

It makes sense that this will also translate into the areas that millennials want to invest and so it is important that advisers highlight the availability of ESG related funds for pensions and Isas.

“It is to be hoped that knowing they are able to invest their money in a way that reflects their values will do a lot to boost engagement with pensions among this age group.”

According to Romi Savova, chief executive of consolidator PensionBee, millennials – which represent 56 per cent of its clients – are the most engaged with environment, social and governance issues, with 17 per cent of them investing in the Future World Plan.

Launched in October 2017, this fund invests in companies generating revenue through low-carbon activities.

Ms Savova said: “We believe that when millennial savers make a conscious decision on where to invest their money, they are more likely to contribute.

“Millennials invested in our Future World Plan are 21 per cent more likely to make additional contributions than customers in our auto-pick option.”

According to research published in September by Boring Money among 2,000 fund investors, a green approach – investing in businesses which actively help the environment and climate change - is the preferred option for 21 per cent of 18-34-year-olds. This compares to 11 per cent of those aged 35+.

Holly Mackay, Boring Money’s founder and chief executive, argued that as a general rule, “today’s investors are more likely to listen to the governance angle, whereas for a younger or a cash saver audience, it is the environmental and sustainable products which engage”.

She added: “Increasingly we see our readers raise questions about ethical or sustainable products and our latest research indicates advisers are underestimating interest.

“72 per cent of investors say they would value a conversation about ESG with their adviser – but advisers estimate about 30 per cent of all clients would be interested in such a conversation.”

There are financial advisers, however, who are aware of the importance of discussing sustainable investments with their clients.

Alan Chan, director and chartered financial planner at IFS Wealth & Pensions, believes that advisers can make use of this trend to get clients more engaged with their pensions and ultimately save more.

He said: “Clients will tell you they bank with XYZ bank because of their ethical stance, they minimise their carbon footprint by reducing energy consumption and so on, but yet they have not looked at how their pension is investing their money.

“In most cases, this is because they’re not aware that their pensions can be invested in ESG related investments. If they’re in a workplace pension, more often than not, they will just be in an off-the-shelf default fund choice.

“Some do not even offer ethical investing or have a very limited choice, in which case it may make sense to start up a separate personal pension to achieve this once they have maximised on their employer-matched contributions.”

If this is the path followed, savers can then tailor their investment choice to match their ethical views and have peace of mind knowing that their pension is invested responsibly, Mr Chan noted.

He added: “A number of ESG funds have brochures to outline the sustainable themes that drive their investment philosophy and also have real life examples alongside it to bring it all to life.

“This shows clients how their money is being used to improve ESG factors of companies and essentially provide a net benefit to society.

“This certainly makes pensions less boring and hopefully clients will become more engaged especially when they start to see brands they recognise, like PayPal, and could be keen to save more.”

Jon Page, director at Neon Financial Planning, argued that with sustainability being such a popular topic, “it would seem prevalent for advisers to be aware of the solutions available, and the additional factors that potential investors need to bear in mind”.

He said: “Often ESG comes at an additional cost, and there is less choice than ‘regular’ investments.

“Finding out what clients want to include or exclude can be a challenge - it’s often the case that when you drill down into ESG that clients realise it’s not black and white.

“For example supermarkets may promote sustainable food sources but they have a big problem with plastic packaging and sell alcohol and cigarettes. Are they ethical or not? I guess it depends on your personal viewpoint.”

Nevertheless, Mr Page “would love to see more young people improve their financial knowledge to make better decisions in life, and being open to the discussion of ESG is a great way to do that,” he concluded.

Published 07/10/2019

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