Millennials As Investors of the Future

Investing in the Impact Generation (Part 3 of 3)

The following is an excerpt from a chapter titled “Investing in the Impact Generation,” written by Bill Davis, CEO of Stance Capital. This is the third and final installment of a three-part series. Read part 1 and part 2.

The Transition from Socially Responsible Investing (SRI) to Environmental, Social, and Governmental (ESG) Investing

Most of the wealth soon to be in motion to Millennials is currently guarded by (mostly Baby Boomer) financial advisors and firms that have a decidedly different world view and one informed by their own experiences. To Baby Boomers, socially responsible investing, which was the original name for what now falls under impact investing, is frivolous at best, and more likely deleterious to long term investment returns. Under their way of thinking, if an investor cares about a specific cause, let’s say lung cancer prevention, that investor should invest in such a way as to maximize returns, even if it means investing in tobacco companies. And then, with the profits, make charitable contributions to their favorite lung cancer prevention organization. Because the alternative, which in this example would be to construct a portfolio that excluded tobacco companies, creates risk of market underperformance.

In fairness, it is a reasonable argument for two reasons. The first is that assuming the return streams are better if tobacco companies are included, then the ability of the investor to create impact through charity is in fact greater. Especially when you consider that $1 invested in the tobacco sector in 1900 would have yielded $6,280,237 by 2015, making tobacco the single highest performing part of the economy to invest in over that 115-year history. [1]

The second reason advisors tend to dissuade clients from socially responsible investing is a bit subtler. If our hypothetical investor concerned about lung cancer decides to divest from a tobacco stock, another investor will come in and buy the stock, so the tobacco company isn’t punished. And if the investor underperforms as a result, the big loser is the charity, as there is less money available to distribute to them.

For these reasons, the socially responsible investing movement—which got going in the 1970’s in response to apartheid—never really went mainstream. There will always be investors that want negative exclusions of an industry or two from their portfolios, but advisors advocating that such an approach is a bad idea have outnumbered their investors. And advisors’ jobs were made easier because SRI strategies tended to underperform their benchmarks.

This said, SRI gave way to ESG in 2013 or so, and the easiest way to explain the difference is that SRI was about negative exclusions (tobacco, weapons, coal, etc.), whereas ESG looks at the economy as a whole and excludes companies from each sector that are poor stewards of the environment, badly governed, and detached from social justice issues. Because ESG is less about exclusion and more about inclusion of well-run companies, underperformance is no longer a major issue. Indeed, it is now possible to outperform conventional investment approaches, including index funds through ESG investing. As a result, assets are starting to flow into ESG strategies, as well as other values-based investment strategies, and portfolio management firms are rushing to bring new ESG product into the marketplace.  

Don’t get too hung up on the math as I believe there is some double counting going on here, but according to US SIF 2016 annual report, of the $40 trillion of investment assets under professional management in the U.S., $8.72 trillion of these assets have incorporated ESG/SRI/values-based themes. Responsible investing is growing at 33% per year in the U.S. To be clear, this isn’t all retail money. Far from it as the number includes assets from public pensions, endowments, and faith-based organizations. In a recent report from McKinsey & Company called, ‘From why to why not: Sustainable investing as the new normal,’ the authors state “More than one-quarter of assets under management globally are now being invested according to the premise that environmental, social, and governance (ESG) factors can materially affect a company’s performance and market value.” [2] [3]

One way big institutional investors protect their investments is by working with corporations to ensure that management teams get focused on ESG factors that represent material risk. These factors will vary by industry and some are common across all industries, such as pension fund status, management and board diversity, and executive compensation. We’d all agree that water usage isn’t a big thing, for instance, for a bank. But it is a big thing in a beverage company or a utility.  Not only do they use a lot of water, their businesses depend on water. Investors want them to mitigate this risk by being thoughtful stewards of water as an asset.

This emerging ecosystem has built-in feedback mechanisms. Investors push for progress and if they don’t get it they vote their shares against the board and management. Public companies increasingly disclose annual corporate social responsibility reports, which then allow investors to compare and contrast multiple companies in the same industry groups in order to decide which are best managing ESG risks. This process applies to both equity and corporate bonds. The data is increasingly transparent, and all stakeholders in the ecosystem have access to it. Millennials are already stakeholders as well in that they are signaling the social behaviors they expect in return for their consumer loyalty.

There is one broken link in the ecosystem, however, and that is the financial advisor community. According to Cerulli Associates, as of the beginning of 2017, there were 310,504 financial advisors in the U.S., half of which plan to retire in the next ten years. In general, these advisors formed the opinion many years ago that SRI = underperformance, and many haven’t grasped the shift underway in which investors are increasingly looking to align capital with values and now have the tools to do so without sacrificing performance. Financial advisors need to get caught up, as most don’t understand the difference between SRI and ESG, let alone more nuanced values sets, and are dismissive of the effort. But clients of all generations are starting to understand and ask for more sustainable investment options, and this is before Millennials enter the investment picture and change everything. [4]

What Today’s Investors Are Looking For

Big themes for today’s investors are low carbon strategies, as well as avoiding lightning rod issues such as AR15 manufacturers. For clients worried about the effects of climate change on their children and grandchildren, chances are they are trying to make changes in their lives to do their part. This might include swapping their SUV for an electric or hybrid vehicle, or installing solar panels on their roof. They might have made the decision, maybe prompted by their Millennial or Gen Z kids, to stop buying throwaway plastic water bottles. If so, they also might be reusing grocery bags and filling them with more fruits and vegetables. You get the idea.

Even after doing all of this, let’s say their family carbon footprint is roughly 100 metric tons per year, which is actually twice the national average for a family of three.

Now let’s say this same family has $1M invested in an S&P 500 index fund. It turns out that in this new age of data transparency we know a lot about every company in the S&P 500. We know the combined market cap is $21 trillion. We also know that the Scope 1 and 2 carbon emissions of the S&P 500 as a whole are 4,300 million tons per year.

To bring this math together, when someone invests $1M in an S&P 500 index fund, they own an additional 227 metric tons of carbon, each and every year. As today’s investors begin to understand they have choices including lower carbon investment strategies, we will see a shift in this direction. But what about the Millennial investors just around the corner? Is there any reason to believe they won’t demand low carbon investment options?

The better question might be: what are the chances today’s advisors will hold onto tomorrow’s clients?

Millennials As Investors of the Future — And Their Impact on Financial Advisors

Sixty-six percent of children fire their parents' financial adviser after they inherit their parents' wealth, according to an InvestmentNews survey completed last year. [5]

With that data as a benchmark, my answer to the earlier question would be somewhere between slim and none. I say this because the advisor community as a whole has struggled to understand and embrace this broad-based, multigenerational movement toward sustainability and impact creation. Or maybe they don’t believe in climate risk. Or they are nearing retirement and can’t be bothered. For an increasing number of Americans, and for most Millennials and Gen Z-ers, this is a fight for their lives and for those of their children’s.

Unlike their grandfathers who fought WWII with guns and bullets, Millennials are armed with technology, social media, and the desire to self-educate. They understand how all the pieces come together. They have built-in bullshit detectors. They realize that corporations are critical to both the fight for social justice and a healthy planet. And even without much money they are forcing corporations to change for the better—at least the ones looking to access the bulk of an 80-million-member consumer marketplace.

Does anyone actually think that Millennials will own investment funds that hold companies they detest? There are plenty of Baby Boomers who detest Fox News, and probably just as many who feel the same way about CNN. But how many will go through the effort to figure out which index or mutual fund owns the parent company, sell the fund, and then research alternatives? And how many of today’s advisors will show them the path? Very few, but no matter, as Millennials can find that path themselves quite easily.

The financial services winners in the largest generational wealth transfer ever will be the brave few that get out in front of this process. Just because clients haven’t asked about sustainability doesn’t mean they don’t care about it. There are good products in the marketplace already and advisors need to educate themselves, so they are no longer the sand in the machine, but rather the lubricant needed to demand quality ESG products on their investment platforms, and then get these products in front of families. And by the way, not all of this need be equity products. There are a wide number of private investment products available in everything from biodegradable plastics to solar energy deployments. The good news is that Millennials will pay more for solutions that provide a public benefit, but it will be hard to fool them if the approach isn’t authentic.  

I’ll end where we started. We already have the “greatest” generation. Millennials will be known as the “impact” generation and will accomplish at least as much as their predecessors dealing with modern-day problems at least as thorny. For financial services firms and advisors that authentically embrace the ways in which Millennials look at the world and show the willingness to invest in products and services that meet their needs, it will be both prosperous and transformative.


[1] Dimson, Elroy, et al. “Credit Suisse Global Investment Returns Yearbook 2015.” Credit Suisse, 1 Feb. 2015.

[2] Vorhees, Meg, and Farzana Hoque. “2016 Annual Report: US SIF and US SIF Foundation.”US SIF.

[3] Bernow, Sara, et al. “From 'Why' to 'Why Not': Sustainable Investing as the New Normal.”,

[4] “Number of U.S. Financial Advisers Fell for Fifth Straight Year -Report.” Reuters, Thomson Reuters, 11 Feb. 2015,

[5] Skinner, Liz. “The Great Wealth Transfer Is Coming, Putting Investors at Risk.”, 13 July 2015,


This is the final installment of “Investing in the Impact Generation,” a three-part series where CEO Bill Davis discussed how the investment dollars of the Millennial generation will continue to be given to businesses and brands that serve important roles in making a difference in society. Investment advisors should embrace how Millennials look at the world and help them invest in solutions that meet their visions.

This chapter is part of a larger piece of work titled “Millennials Are Not Aliens: But They Are 80 Million People Who Are Changing the Way We Buy, Sell, Vacation, Invest, and Just About Everything Else” by Gui Costin. You can purchase the book at Barnes and Noble or on Amazon.