Standard Life Investments

Published Article

The changing values of society will drive demand for a new type of investment


 

A new generation is beginning to think about savings and investments. This is particularly the case in countries like the UK, where this group enters the workforce and auto enrolment is introduced. Thousands of younger savers in the UK are now bringing down the average age of pension scheme membership, with many starting to set aside money for the future in a way which has not happened before.

This new generation - the Millennials - are those born between the early 1980s and early 2000s, and follow on from Generation X and the Baby-boomers. They have grown up in a time of rapid change and their outlook in life has been moulded by the generations and events that came before them, such as 9/11 and the banking crisis of the late noughties. They witnessed the long-hour working practices of the Baby Boomers, and are shaped by the radical social events their parents faced - the Vietnam War, the fall of the Berlin Wall and the Thatcher/Regan governments. They are a generation influenced by technological change, globalisation and challenging economic environments.

However, the biggest influence on this generation is technology. Millennials have grown up with the internet and smartphones, earning them the title of First Digital Natives. This technology has given them unprecedented access to information, driving their social beliefs and values.

The sheer volume of information also means they can quickly and easily understand the challenges facing the world. It has been some time since companies have operated in isolation. Major world events such as an earthquake, a political uprising or an explosion at a factory, can appear on social media in a matter of seconds. The BP Macondo spill, for instance, received extensive coverage as events unfurled. Access to information is reflected in purchasing decisions, where Millennials look beyond the brand of the item they are buying to consider the impact the products have on our wider society and environment.

This, coupled with evidence that Millennials have a stronger set of social values, needs to be considered when new products and services are developed.

 

Nowhere more so than in the financial industry. We are witnessing the emergence of a new generation of savers whose starting point for engaging with money is quite different to those who have gone before. Their drivers and values will influence how they think about their money over the next few years.

This group is acutely aware of environmental issues and has grown up witnessing a number of significant incidents, often associated with climate change. In response, a number of organisations have emerged focusing on offering services to fund managers on how to decarbonise portfolios and take active approaches to include climate change matters in portfolio construction and engagement with companies.

The demographic transformation we are witnessing, and shifts in societal expectations, will shape the demands of future investors. As well as investment returns, younger investors will want to know how companies are operating and the impact these companies have on wider society and the environment. Asset managers will have to make strategic choices about where they want to position themselves in order to meet this growing demand.

The consideration of corporate responsibility is nothing new. The very first company to issue shares was the Dutch East India Company in the early 1600s. It faced a boycott by religious institutions because of its involvement in the slave trade. However, this boycott made no difference to the ability of the business to raise capital. This was largely down to the company being acquired by a handful of wealthy individuals. Today, the stock market is owned by the masses through their pension funds. For this reason, the boycotts that failed over 400 years ago are succeeding today.

This led to the launch of Good Money Week (formerly National Ethical Investment Week) by the UK Sustainable Investment and Finance Association (UKSIF). Good Money Week promotes the concept of being good with your money, encouraging investors to question those trusted to look after their investments to ensure it is being done it in ways that benefits society and protects the environment.

To satisfy a new wave of environmentally and socially conscious investors, companies will have to ensure they act responsibly and investment managers will need to hold these companies to account through their investments. Forward thinking fund managers will develop values based investment products and services that reflect these principles for the customers of the future.

Amanda Young. Head of Responsible Investment, Standard Life Investments

First published in Investment Adviser – 19th October 2015