Whether you’ve heard of it or not, ESG (Environmental, Social and Governance) investing is already big business. Bank of America claims it has doubled in the past few decades1 and the US$1.3tn Government Pension Investment Fund of Japan intends to more than triple its portfolio allocation to ESG investments from the current 3%.
ESG investing is a form of ethical or socially responsible investing. Based on an assessment of environmental, social and governance factors, the ESG process measures the sustainability and ethical impact of a company or product.
This was once a niche but is now growing rapidly. According to the 2006 Cone Millennial Cause Study, the millennial generation is more likely to trust a company or purchase its products when it’s considered socially or environmentally responsible.
You may not care what millennials think but the finance industry does. Standing to inherit $59 trillion by 2060 in the US alone, millennials will demand tailored ESG investment products. Naturally, the industry is keen to provide them.
This shift is already underway. In Australia, most superannuation funds offer ethical investment options. Phillip Vernon, Australian Ethical Investment managing director, believes that up to 10% of the Australian investing public, or 1.5 million people, let their ethical convictions drive their investment behaviours2. If it isn’t already, ESG investing is about to go mainstream.
The impact on the commercial property sector is likely to be substantial. If the millennial generation’s ethical beliefs determine their investments, why wouldn’t it also affect the places they choose to work, shop and play?