A generation gap in ESG investing in Singapore

THE proportion of Generation Z (Gen Z) investors holding sustainability investments is double that of investors from the Gen X and baby-boomers age group, a survey by asset management company Amundi and The Business Times (BT) has found.

The Business Times - Amundi ESG Investing Report, the findings of which were released on Thursday (Jun 23), found that 82 per cent of Gen Z investors (those aged between 21 and 24 years old) had made environmental, social and governance (ESG) investments, compared to 41 per cent of investors aged 45 years and above.

Three sustainability profiles were developed for the survey to classify the respondents: Those who were “engaged” were deemed to have strong interest or commitment to environmental, sustainability and social causes; those who were “responsive” were interested, and those who were “neutral” held little interest.

Gen Z investors made up the highest proportion of “engaged” investors at 93 per cent. Among Gen X and baby-boomer investors, only 69 per cent were classified as “engaged”.

Gen-Z investors (56 per cent) were also more likely to consider ESG issues to be important to their investment portfolios, relative to Gen X and baby-boomers (26 per cent); a higher proportion of Gen Z investors would have asked their financial advisors about sustainable investments (67 per cent), compared to Gen X and baby boomers (36 per cent).

Similarly, more Gen Z investors (52 per cent) and young millennials aged between 25 and 34 (57 per cent) were found to be holding responsible, sustainable and solidarity-based investments; the figure among Gen X and baby boomers was 35 per cent.

This picture of a generation gap in ESG investing emerged from interviews with 1,046 respondents who were investors or had the intention to invest. They were polled between April and May this year. Among the respondents, 95 per cent were investors. Of this lot, 56 per cent had already made ESG investments, said the report.

Speaking to BT, Amundi’s senior sustainability officer Sylvia Chen said younger investors are paying more attention to sustainable investing as a result of the social inequalities exacerbated by the Covid-19 pandemic, and because they are willingness to speak up and make their voices heard. They are thus making a global impact.

“I think that speed of voice, the common actions they want to take, has been spreading really a lot faster. So it’s not limited to a small group of people, but they really have a global impact,” she said. “They have really deemed themselves as the future of tomorrow, that they do have a say and can act on the world they want to live in. So they’re really vocal about it,” she said.

Besides their greater interest in ESG investing, the report also found younger investors to be more concerned about the “social” aspect of ESG.

While global warming was a cause that many respondents across the age groups could get behind, about 56 per cent of Gen Z respondents cited global poverty as an issue they were concerned about. This was significantly higher than in other age groups. About 40 per cent of respondents among the older millennials (those aged 35 to 44) and 35 per cent of Gen X and baby boomers named poverty as an issue of concern to them.

Similarly, 48 per cent of Gen Z respondents and 44 per cent of young millennials felt that inequalities and discrimination were important causes, compared with 39 per cent of older millennials and 33 per cent of Gen X and baby boomers.

Baby boomers, on their part, emerged more interested in water and natural resources management; about 60 per cent of respondents in this age group citing this as important.

But while financial markets have made significant progress in coming up with metrics for measuring environmental risks, the tools are not as developed for social risks.

Albert Tse, chief executive officer of South Asia at Amundi, said that the initial focus on the “E” of ESG came from it being “lower-hanging fruit” when governments come together to talk about ESG, and that global warming has been a concern for more than a decade.

But social pillars are gradually becoming the new “E”, said Chen.

Social taxonomy is still a work in progress, but she said Amundi is developing some strategies to look at the transition scores for the social aspect, such as how workers in communities built around fossil fuel-focused industries are affected when their economy is transitioning into one that is low-carbon.

There are also social bonds, which fund social causes from the proceeds raised.

However, with energy prices skyrocketing, in part due to the ongoing Ukraine war, and signs of a global recession coming, interest in ESG investing seems to be waning. Greenwashing allegations at Goldman Sachs and Deutsche Bank have also tainted this push for “do-good” investing.

Recent data from Bloomberg Intelligence and Morningstar showed that investors are pulling back from ESG equity funds. On the contrary, energy stocks have been rising in tandem with the rise in oil prices, seemingly indicating that ESG investing is only something markets get into during good times.

Based on Amundi’s data, however, Tse noted that institutional and retail investors in Europe are not chasing after non-ESG compliant energy investments.

“What has happened, rather, is totally not related to ESG. They reduce risk. So they redeem equities, they redeem high-risk bonds and hold cash and hold government bonds,” he said.

Ultimately, people are asking more questions and seeking greater granularity beyond just the surface of ESG investing, said Chen, which is what the survey has also found.

“I think people are definitely more aware, they are more interested in it, but what actions can be taken? So we want to definitely develop the products that can serve their actions and complete their purpose as well,” she said.