With $30 trillion in future spending power, millennials are reshaping the investing and fintech spaces to better align with their ethical values.
Over the next few decades, baby boomers and Gen X will pass on $30T in wealth to the millennial generation.
This transfer will precipitate a massive shift in how companies think about and facilitate investing — moving away from some traditional asset classes, and towards ethics-first “impact investing.”
More than any other generation, millennials are interested in the idea that their investments will have a positive global impact when it comes to issues like sustainability and climate change.
In a Morgan Stanley survey, 86% of millennials expressed interest in the idea of sustainable investing; 61% reported making at least one sustainable investing decision within the past year; and 75% expressed a belief that their investments could make an impact to reverse climate change.
The trend towards ethical impact investing began several years ago, but the topic has never been as popular as it is today.
Since 2014, news mentions of impact investing and ESG (environmental, social, and governance) investing have increased tenfold.
In 2018, funds with ESG-based strategies gained recognition for their ability to generate active returns on their investments.
Millennials are not the only force contributing to the popularity of ESG and impact investing. Around the world, tech companies looking to head off concerns about the ethics of their investments are tapping into the space — and market volatility is making ESG a more and more attractive option for investors.
As the fintech space adapts to millennials and their ethical preferences, the first shift will take place among startups that work with financial services firms.
Startups like Sigma Ratings (scoring and reporting for risk events) and TruValue Labs (an AI database for equity risk) are among this first layer of companies helping firms establish their “green data” credibility.
As fintech startups like these gain ground, they’ll work to appeal to end-users and retail investors through impact-first banks (like Aspiration and NewDay), automated investment managers with ESG and other ethical thematic investing options (Motif and OpenInvest), and lending apps that focus on community development financial institutions (such as CDFIs).
One challenge around establishing “green” investment criteria is that it is an inherently subjective process: there is no centralized gold standard for what makes a sustainable investment asset.
But a shift is happening. Fintech companies should be aware of how millennials’ preferences will shape their future investment decisions, and begin preparing for a reality in which millennials are the dominant spenders in society.
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