The future of sustainable investing will depend on galvanising older investors. While today’s younger generations are most likely to invest sustainably, more needs to be done to close the generational gap, with this burgeoning investment category likely to play a central role both in the finance industry and in creating positive real-world change for generations to come.
 

More than ever, sustainability has become a core issue for the public, businesses, and governments, which are compelled under their Paris Agreement commitments to hit net-zero targets. All of this is leading to a shift in public and private spending, and creating increasing opportunities for people to invest with their consciences as well as with their wealth.

Divergence between acknowledgement and action                                                                            

Despite this, there is a divergence between acknowledgment and action. Though investors are increasingly recognising the importance of issues around sustainability, including climate change and food security, many are not bringing this into their investment strategies. This is reflected in a recent study conducted by Lombard Odier, which showed that 77% of respondents agree or strongly agree that taking into consideration sustainability factors can help deliver superior returns, but only 18.4% stated that they “have actively increased or plan to increase the proportion of sustainability investments” in their portfolios.
 

Education and communication are key. Understanding the issues underlying sustainability, like climate change, nature loss and food shortages, and the opportunities to mitigate them, can help focus attention and motivate interest in sustainable investments. Moreover, it is vital for investors to understand the investment tools that will increase exposure to sustainable themes. This includes being comfortable with innovations such as green bonds, and grassroots investment opportunities such as social enterprises, which are projects and small businesses (often not-for-profit, but also mission-oriented for-profit) that offer more local and directed services and solutions¹.

Find out more about Asia’s biodiversity challenge

Younger generation prepared to act

The younger generation appear more prepared to act than their elder counterparts, with our study finding that 32.4% of under-45s say sustainability is an essential focus of their investment strategy, compared with 21.7% of over-45s.
 

This increased willingness of Next Gens to align their values and personal beliefs with their investments should provide a huge boost to wider efforts to build a sustainable economy. Their comfort with digitisation, social networks, and grassroots solutions will build momentum for more direct or localised opportunities for investors in key areas like new food systems², green infrastructure and alternative forms of energy. Micro adaptations, such as changing diets to eat more sustainably, shunning single-use plastics, and environmental clean-ups, are also being embraced by the younger generation.
 

Meanwhile, philanthropy is benefiting from a deeper and younger pool of givers, as a more diverse group of people engage in solving the social and environmental problems facing the world.
 

Read about measuring impact in Asia Pacific

Changing attitudes

Things are changing among the older generation, with a growing recognition that doing well can accompany doing good. Various recent studies have concluded that attitudes are changing positively, with a greater acceptance that sustainable investing is not merely philanthropy. But more needs to be done. In addition to investor education, improving communication between generations and within families will be key to building knowledge, confidence, and momentum for change.

This will also stand the current younger generations in good stead when they become the older generation in years to come. Understanding and embracing new technologies and investment tools may come more easily to younger generations, but sustainable investing in the future will depend on the broad acceptance of key issues and solutions across demographics. Communication will therefore continue to be key.
 

Find out about the rise of a new “inheritance economy”

The goal should be to unify the investor base so that sustainable investments are not just a “nice to have” for some, but a central part of investment portfolios for all, as a major driver of returns.
 

¹ How the next generation will shape the next normal (EY.com)

² People and planet first: food systems under growing pressure to reform (Lombardodier.com)