Millennials are too often dismissed as 20-something, debt-ridden, gig-economy workers busy eating avocados while complaining they will never be able to afford a house. But the first wave of millennials was born in 1982. They are fast approaching 40 and have careers, mortgages and families.
For most clients, financial planners have to answer the question, ‘will my family be OK?’ A good financial plan and a bit of discipline will help most families reach their goals. But over the last year, more people are asking themselves a fundamental question: ‘Will the planet my children inherit be OK?’
As an individual, changing your lifestyle to make a meaningful reduction to your carbon footprint is hard. Buying a bamboo toothbrush is easy, but giving up flying is not. Our millennial clients are using their pensions and investments to increase the positive impact they have on the world.
Case study: George & Amy
George and Amy are typical for the millennial clients we work with. Both in their late 30s, they have to juggle two young children, George’s design business, Amy’s career in corporate law, and a beagle puppy. They came to us for help sorting out their scattered ISAs, pensions, bank accounts and needed ideas on investing an inheritance from a grandparent.
Their goals were to make sure they could help their children through education and get them on the property ladder and to make sure they could both slow down once their children completed education.
Amy wanted to avoid the companies responsible for the worst pollution. This meant avoiding fossil-fuel companies. She was particularly concerned about the risk involved in investing in fossil fuel from a performance perspective.
With peak oil (the theoretical point at which we will have maximised our ability to extract oil) expected in the late 2020s, she thought renewable energy offered better opportunities. George took a similar approach, but also wanted to actively invest in companies that were providing the solutions to some of the world’s problems.
Amy had an ISA with an online robo-adviser. She had selected their sustainable option, but was disappointed to learn that one of the top holdings was BP. The provider had taken an approach to the portfolio that meant some of the underling companies were included on the basis they were the ‘least worst’ or had made an effort to reduce their operational impact. The recent news that BP has spent over $50 million annually to lobby against climate policies had increased their determination to avoid these companies.
At EQ Investors, our Positive Impact Portfolios use a different approach – we look first at the product and services provided by a company to determine whether it has a positive benefit for the world. The most controversial sectors, including fossil fuels, are removed at the outset. Our portfolios aim to:
- avoid harm by excluding fossil fuels;
- benefit stakeholders by including companies that have lowered their operational carbon footprint; and
- contribute to solutions by investing in companies that mitigate climate change.
Amy and George’s ISA funds were likely to be used in the next 10 years, so we agreed a slightly more cautious approach would be appropriate. This portfolio held funds such as the Allianz Green Bond fund, which finances business opportunities in areas such as energy efficiency, pollution prevention and water management. We also used the Threadneedle UK Social Bond fund which targets key social themes in the UK such as employment, education and social housing. The Rathbone Ethical Bond gave additional diversification to the proposition.
George also realised he had not made any pension contributions over the past five years. We used his carry-forward allowance to fund a pension investing on an adventurous basis. This included some thematic funds such as Impax Environmental Markets and Polar Capital Biotechnology, alongside some generalist impact funds such as the WHEB Sustainability fund. WHEB selects investments based on themes such as resource efficiency, sustainable transport, education and healthcare.
Amy had significant pension fund through her employer’s Aviva scheme. We helped her identify some of the sustainable funds from their range as the costs were very low.
My annual planning meetings with George and Amy now cover all the usual planning questions, but we can also review the impact of their investments via the EQ impact calculator and our recently published annual impact report.
The New Money pension manual
We’ve sponsored a new guide by New Money which aims to show every single saver and investor that they can affect positive change through their financial decisions. Download your copy below.