Millennials may be forgiven for not knowing Marshall McLuhan. But for insight as to why millennials invest the way they do, look no further than his extensive Wikipedia page. In fact, visiting any Wiki page would provide insight into McLuhan’s famous phrase, “the medium is the message,” meaning society is shaped more by the means of communication than by the content of communication. Through this lens, Wikipedia shapes society through its millions of hypertext “[edit]” buttons, all providing ubiquitous access to global collaboration.
McLuhan founded a school of thought, media ecology, which seeks to understand culture through technological change. He foresaw the birth of the internet and the decline of print, projecting that increased connectivity would usher in social responsibility that we see today in millennial investors. From the media ecology point of view, millennials do not approach investing differently because of the content they were raised on; their different approach reflects the uniquely global, integrated and collaborative techno-environment in which they were raised.
Growing interest in impact
Research showing millennial alignment with responsible investing is of no small importance: in 2015 Morgan Stanley noted that over the coming decades $30 trillion will be inherited by North American millennials who are itching to transform the world; a year later the financial services giant released research indicating wealthy American millennials “in particular are enthusiastic about [sustainable, responsible and impact investing] by wide margins.”
Canada is witnessing the same trend. Royal Bank of Canada recently published a study showing, among wealthy investors, millennials had the most appetite for impact investing, defined as the investment strategy that intentionally seeks to create measurable environmental and social benefits beyond financial return. An Ipsos-Reid poll in April found two-thirds of millennials weighed environmental, social and governance factors when investing compared to just 40 per cent of baby boomers.
Young investors who are less well-off are also part of this resilient trend. Assaf Weisz, managing director of Purpose Capital, a North American impact investment and advisory firm, provides evidence from a Toronto community bond issuance that millennials of modest means are interested in impact investing when minimum investment amounts are within reach. To him, "millennial support for responsible investing is not hype, but rather a coherent expression of their values."
Make change 2.0
In a certain light, the worldview of millennials is a reboot of the worldview of the beatniks McLuhan taught back in the ’60s. According to Weisz, the new paradigm "still seeks to address big inequities, but by working from the inside of the system instead of protesting against it. A ’60s protester is today’s social entrepreneur.” Unlike the hippies, digital natives have been interconnected since birth; they are at home with Web 2.0, the form of the internet that allows change makers to collaborate.
For Ryan Coelho, a millennial consultant for the private sector, technology is disrupting the very meaning of work. When workweeks were planned to the minute and weekends rarely heard the boss calling the home landline, work-life balance was a simple equation. Coelho suggests that as flextime and remote working replace fixed work schedules, and as mobile devices and social media transform workers into full-time brand ambassadors, "the concepts of work and life are becoming increasingly integrated.”
Coelho adds, “It doesn’t make sense for millennials to pursue profit during the week and purpose during the weekend." The same logic holds for investing, says Weisz. “The dichotomy of private wealth versus charity has given way to a complex, multivariate form of systems thinking. Millennials want to know how the whole is impacted by its parts.”
The market is beginning to use language that better resonates with the largest generation of North Americans. Goldman Sachs offers impact investment products that produce “innovative commercial solutions that address social and civic challenges.” RBC has the Generator Fund, “a pool of capital [that invests] in for-profit businesses tackling social or environmental challenges.” David Borcsok, the manager of the fund and a self-described optimistic millennial, believes that “companies that combine impact and profit are the types of companies that really speak to millennials. There doesn’t have to be a trade-off between impact and financial return: It’s a competitive advantage.”
Universal owners of the Global Village
If you define responsibility as the ownership of consequences, the connection between digital natives and responsible investing is clear. Digital natives were born into a “Global Village,” a term McLuhan used to describe the global awareness made possible through advanced communications technology. Through the same technology, long-term institutional investors have become globally diversified. These “universal owners” have stakes in the entire market, however small a slice.
To take this a bit further, an investor who invests only in the handicraft of a single villager will only care about the profit produced by that villager, not the harm; a second investor who invests in the handicraft of all villagers will also want to know who is poisoning the well. The second investor is the universal owner, and the poison in the well is a negative externality that can devastate the entire market.
A report by UN PRI and UNEP FI urges universal owners such as large pension funds to “reduce externalities and minimize their overall exposure to these costs” on the market. Weisz considers the millennial mindset to run in parallel with universal ownership. “The relevant economic context for prior generations was national,” he notes, “now it’s global. Prior generations couldn’t see the negative social and environmental impacts of their investments – negative externalities were invisible.”
There are no invisible externalities in the Global Village. Millennials have seen a global financial contagion made possible through integrated banking, self-radicalized extremists through a viral online presence and an Ebola epidemic through international travel. In a world without borders it’s little wonder millennials want to see all investing consequences – including social and environmental – to be tallied together in an integrated report.
Born to do the right thing
Research from MIT Sloan Management Review and Boston Consulting Group suggests companies that outperform on sustainability issues material to their industrial sector also tend to financially outperform. Environmental, social and governance metrics are going mainstream, even entering debt capital markets. The market for harm reduction is growing.
Although they lead the carbon divestment movement, screening out polluters isn’t enough for millennials. It has never been easier for them to start up their own social enterprise to tackle challenges. Reflecting true millennial aspiration, Google’s “Don’t be evil” motto was upgraded to “Do the right thing.” Perhaps this shift isn’t surprising given that millennials will take a pay cut for a purposeful job, or accept lower returns to invest in purposeful companies. Call it blended value or shared value: they believe this approach will pay off.
Unlike previous generations, when millennials first researched the term “investment,” what they read was likely surrounded by little hypertext “[edit]” buttons.
The message in those little brackets is that when it comes to investing, millennials – skeptical of finance and born to make a difference – are looking to make some big changes.
