When you hear the term millennials, money probably isn't the first word to come to mind. In many parts of the world, including the US, millennials are lagging behind their parents' generation in terms of income and wealth accumulation. But this generation's fortunes are set to change. As our colleagues discussed in the report Millennials - the Global Guardians of Capital, Millennials are at a tipping point in wealth accumulation. This generation is set to benefit from one of the largest intergenerational wealth transfers ever. In North America alone, Baby Boomers are expected to pass down around USD 30 trillion between 2011 and 2050. Additionally, the older millennials are moving into their peak earnings years as they advance professionally, and millennials are starting more businesses (and starting them at a younger age) than the Boomer generation. As these trends materialize, we expect millennials' share of global wealth to grow, and we believe that this up-and-coming generation of investors will look for investment solutions that align with their unique needs and preferences.
Are millennials different?
Yes, millennials are different than prior generations, but not only in the ways that make for attention-grabbing headlines. This generation may spend more hours on social media, consume more avocado toast and pink wine, and co-habit longer with mom and dad than their predecessors, but these stereotypes overlook some of the millennials' most important characteristics. This is the most educated, technologically adept, and ethnically diverse generation in US history. And while this generation may be selfie-obsessed, it is far from selfish. Data points around millennials' consumption patterns reveal a keen sense of social consciousness. A Nielsen survey showed that 73% of millennials are willing to spend more on sustainable goods, and roughly half of millennials in the US consume plant-based meat at least once a month vs. just 20% of Boomers. Further, Millennials were more likely than older generations to state "better for the environment" as their reason for consuming it.1 We believe that this concern for people and planet will translate to millennials' financial decisions as well. In fact, a recent UBS Investor Watch Survey of investors with USD 1M or more showed evidence of this emerging trend: 72% of 18-34 year olds invest sustainably vs. just 6% of the 65+ cohort.
We believe that sustainable investing will continue to appeal to this emerging population of investors, and that using a thematic approach is an effective way to start the conversation.
What is a thematic approach to sustainable investing?
A thematic approach links long-term trends and related social and environmental challenges to investment ideas. One example is the relationship between the trend of urbanization and the challenge of increased air pollution, which then corresponds to investment opportunities in energy efficient technologies and electric vehicles, both of which have the potential to improve air quality. The investment opportunities we identify are companies whose goods and services, in some way, address the challenge at hand. At UBS, we have identified roughly 20 different investment themes that are grounded in sustainable investment principles and align with the UN's Sustainable Development Goals.
Why does a thematic approach resonate with millennials?
There are 3 reasons why we believe a thematic approach is a great way to start a conversation with millennials about sustainable investment opportunities.
- Focus on technological solutions to global challenges: Many of our sustainable themes focus on innovative solutions to social and environmental issues. Over the course of the next decade, a growing, urbanizing, and aging population will push the limits of available resources. Technological advances in fields such as robotics, industrial automation, health care, agriculture, and renewable energy, will help broaden access to critical resources and services, while conserving our environment. We believe that investing in technological solutions to global challenges will resonate with this tech-savvy and socially conscious generation.
- Long-term oriented: Our themes are based on long-term trends that should endure regardless of where we are in the business cycle. As these investment opportunities will play out over the next several decades, they are particularly well-suited for younger investors with long investment time horizons.
- Low barriers to entry: Most of our themes are investable through public market solutions. As a result, they do not require large up-front (and sometimes illiquid) capital investments like some private market impact opportunities do. This characteristic makes thematic investments palatable to millennials who are just starting to accumulate wealth. For those millennials who already have substantial levels of wealth, a broader spectrum of private and public thematic implementation options can be explored.
CIO's Sustainable Long Term Themes
Laura Kane, CFA, CPA, Head Thematic Research Americas, UBS Financial Services Inc. (UBS FS)
Michelle Laliberte, CFA, Thematic Investment Associate, UBS Financial Services Inc. (UBS FS)