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Future of Investing 2019

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Excellent Making impact investing more inclusive Younger investors are said to care more about the environment than older generations, but are fi nancial services companies prioritising millennials and overlooking their senior peers when it comes to sustainable investing? he young are vocal about climate change, pollution and inequal- ity. Last year, Swedish schoolgirl Greta Thunberg was catapulted to fame when her climate protest sparked an inter- national wave of school strikes. The young- est-ever US congresswoman Alexandria Ocasio-Cortez has been making waves with her Green New Deal. One of the most powerful recent appeals, however, comes from Sir David Atten- borough and his documentary series Our Planet. Not exactly a millennial, you may note. After all, it's not just so-called snow- fl akes who care about global warming. When it comes to tackling climate change and inequality by investing in companies that work on solutions, sus- tainable investment has been on the rise. Also known as socially responsible invest- ing, this approach uses environmental, social and governance (ESG) factors to asks questions such as: How well does this company treat the workers in its sup- ply chain? How many tonnes of carbon has it managed to avoid? What's the ratio between the chief executive's pay and that of the lowest-paid employee? How diverse is the company board? Millennials have been a driving force of ESG investing. Of those investors aged 25 to 34, some 53 per cent go for sustainable funds, while 28 per cent of those over 65 do the same, according to Schroders Global Investor Study 2018. But have investment companies placed too much emphasis on courting millennials, when ESG should be a universal issue? And what impact has this millennial focus had on the market so far? When trying to appeal to millennials, there's a danger that some companies "stick on a badge or a graphic of the UN sustain- ability goals, without any substance", says John David, head of Rathbone Greenbank. "It could be questioned whether the focus on millennials has led to less money being invested in the sector," says Jeannie Boyle, director and chartered fi nancial planner at EQ Investors, noting that millennial gradu- ates have larger amounts of debt than previ- ous generations. On the upside, Ms Boyle says the focus on millennials has encouraged innovation. It's largely thanks to younger investors that "we have seen a pressure on providers to reduce their charges", adds Philippa Gee, who runs Philippa Gee Wealth Management. She says younger investors also demand more pas- sive products and digital products. These changes have benefi ted all generations. Oliver Balch Journalist specialising in sustainability, business and travel. He is the author of travelogues on South America, India and Wales. Tim Cooper Award-winning fi nancial journalist, he has written for publications including The Spectator, London Evening Standard, Guardian Weekly and Weekly Telegraph. Ian Fraser Financial journalist and author of Shredded: Inside RBS, The Bank That Broke Britain, he was business editor at The Sunday Times Scotland. Marina Gerner Award-winning arts, philosophy and fi nance feature writer, her work has been published in The Economist's 1843, The Times Literary Supplement and Standpoint. Jack Apollo George Writer and media specialist whose articles on technology and culture have been published by the New Statesman and CLOT Magazine. Matthew Staff Former editorial director, he is now applying his multi-sector B2B experience across numerous industry titles. ing," says Mark Fisher, director at char- tered fi nancial planners Ardent in York. He says clients don't often specify what that means, but assume tobacco companies are excluded, for example, while companies that "do good" are included. Tanya Pein, a responsible investment adviser, agrees that the intergenerational dialogue is strengthening. She says: "Young people rightly point out that the investment industry is largely run by people too old to bear the brunt of the decisions they cur- rently take. Increasingly, the school strikers are being joined by their parents and also grandparents. Why? Because action on cli- mate heating and environmental justice is a multigenerational issue." Can fi nancial companies do more to include all generations? "The wider issue across all generations is that savers are dis- engaged from what their money is doing," argues Mr Latham. Over the last few dec- ades, the industry has created more and more benchmarks, indices and terms like smart beta that are steps removed from the actual services and products a company provides. "It has become very layered," he says, adding there's an opportunity for companies that focus on ESG to show sav- ers of all ages what their money is actually going towards. For pensions, more needs to be done to include ESG investments. As Mr Fisher notes, many millennials, who are auto-en- rolled into a workplace pension, are invest- ing in "default funds that don't have an eth- ical option". He mentions one client, who works for a charity: "She was surprised to learn that her pension was not invested ethically and went storming off to HR." Ms Boyle echoes this concern. "More needs to be done to incorporate impact investment choices into defi ned contribution pension plans," she says. Wealth managers can do more to include ESG options in their offering. "The European Union has recently agreed new ESG requirements under MiFID II [Revised Markets in Financial Instru- ments Directive]," says Emma Foden-Pat- tinson, an investment manager at Charles Stanley. She notes that by 2020, it will be a requirement that all wealth managers confirm their clients' ESG preferences on an annual basis. In the past, people assumed ESG invest- ing has lower returns, but that's no longer the case. "We are now seeing companies whose activities are underpinned by a solid ESG policy delivering superior returns to their peers," says Ms Foden-Pattinson. The discourse is changing from personal values to broader sustainability issues, argues Kate Elliot, senior ethical researcher at Rathbone Greenbank. "What types of companies will survive and deliver the products that address climate change?" A "confl uence of factors" are creating momentum for ESG among all investors, says Maxime Le Floch, an investment ana- lyst at Hermes. There is higher awareness, more information available and new environ- mental policies in countries including China. Meanwhile, the need to address these chal- lenges is urgent. As Mr Le Floch concludes: "It seems there is a tipping point now." Distributed in Lead publisher Ellen Shannon Digital content executive Francesca Cassidy Head of production Justyna O'Connell Design Joanna Bird Sara Gelfgren Kellie Jerrard Harry Lewis-Irlam Celina Lucey Colm McDermott Samuele Motta Jack Woolrich Head of design Tim Whitlock Managing editor Benjamin Chiou Associate editor Peter Archer Published in association with Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0)20 8616 7400 or e-mail info@raconteur.net. Raconteur is a leading publisher of special-interest content and research. Its pub- lications and articles cover a wide range of topics, including business, fi nance, sustainability, healthcare, lifestyle and technology. Raconteur special reports are published exclu- sively in The Times and The Sunday Times as well as online at raconteur.net. The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced with- out the prior consent of the Publisher. © Raconteur Media /future-investing-2019 @raconteur /raconteur.net @raconteur_london FUTURE OF INVESTING C O G N I T I V E B I A S G E N D E R E Q U A L I T Y I M P A C T I N V E S T I N G Understanding behavioural biases can help decision-making and identify irrationalities Why companies with gender- equal boardrooms make for better investments An interview with Elizabeth Corley, the former head of Allianz Global Investors UK 02 04 05 raconteur.net Marina Gerner T I M P A C T Contributors Global Sustainable Investment Alliance 2018 $31trn 34% total value of global sustainable investing assets in 2018 increase in the value of assets since 2016 Schroders 2018 SUS TAINABLE INVES TING BEHAVIOURS BY AGE Percentage of the following investors who invest in sustainable investment funds 28% 65+ It could be questioned whether the focus on millennials has led to less money being invested in the sector I N D E P E N D E N T P U B L I C A T I O N B Y 2 1 / 0 7/ 2 0 1 9 # 0 6 0 6 R A C O N T E U R . N E T 32% 55-64 35% 45-54 49% 18-24 53% 25-34 46% 35-44 "Millennials may well be the more con- scious generation," says George Latham, managing partner at sustainable asset manager Wheb. "And they had some galva- nising eff ect on older generations, who have more money to invest." After all, genera- tions infl uence each other. "There's noth- ing wrong with focusing on millennials, because the intergenerational dialogue is very powerful," he says. What's more, we are on the cusp of one of the greatest wealth transfers in history. In the United States, it has been estimated that baby boomers may pass down some $30 trillion to their children and grand- children. This transfer creates intergener- ational dialogue. Should fi nancial compa- nies with an ESG focus pay more attention to the older end of the spectrum? "When it comes to legacy, we do see more clients thinking about the impact of their investments," says Simon Gibson, chief investment offi cer at wealth manager Mat- tioli Woods. "Climate change is clearly the top issue here." What are the questions fi nancial advisers are hearing? "We're fi nding more and more clients in their mid-40s to 60s are inter- ested in what they refer to as ethical invest- DISCLAIMER: Content in this publication should not be used as fi nancial advice – please ensure you always seek the help of a qualifi ed investment adviser of fi nancial professional.

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