Finding the greenest generation: LGIM’s ESG research

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Emma Douglas

25 June 2020

Which age group cares the most about ESG? We asked 1000 savers from three generations to reveal the themes that matter -- and those that don’t!

If someone had told me, late in 2018, that over the next two years we would see forest fires devastate Australian wildlife; witness sightings in the US of a ‘murder hornet’ with the potential to disrupt food supplies; and, tragically, experience the spread of a global pandemic, which would infect two million and counting, I would never have believed them.

While not one of these issues arises from a single cause, all result from our movement to a globally interconnected world. Alongside many benefits, we are sharply confronted with the environmental, social and governance (ESG) impacts that global capitalism – and its corollaries: trade and travel – has on the earth we inhabit.

Few disagree that it is time to do things differently.

But with so much to achieve in a record time, how should we decide what’s important now?

We asked people in workplace pensions across three generations (Baby Boomers, Generation X, and Millennials) what they thought of key environmental, social and governance (ESG) issues in relation to their pension, in a bid to understand if generation and also gender identity influenced their interests[1].

Here’s what we found:

  1. Baby boomers are more likely to prioritise investment diversification over exclusion of ‘bad actors’

LGIM and other providers define responsible or ESG investing as issues which are concerned with financial materiality, and can help us both identify risks and unearth potential opportunities. However, some Boomer respondents saw ESG investing and ‘ethical’ or values-based investing as the same thing. This implied a separation of ESG investing with financial returns, which then needed to be balanced.

When asked about how they would like to allocate their money, Baby Boomers were more likely than any other generation to want to keep their investments diversified – even if that meant staying invested in fossil fuels.

But older generations were not averse to ESG considerations, favouring issues where they may have real-life experience or see a financial impact, such poor pay practices or governance failures. As might be expected though, Millennials were the most likely to want their investments to reflect climate change concerns.

“Would you want your pension to significantly reduce its exposure to the fossil fuel industry?”

[1] 1. Quantitative research was conducted with the help of Watermelon Research on 29 October 2019. Qualitative research was undertaken on 27 September 2019 with the help of Strictly Financial Ltd.

As one of the Millennials we interviewed said: “For me, environment is more important. It’s what we’re handing on to our children, grandchildren and future generations.”

  1. Different attitudes exist between genders as well as generations

Environmental concerns struck a chord with women, especially Millennials, even when balanced against financial performance. Female respondents’ convictions were reinforced after having reviewed several company case studies on Persimmon, Shell and G4S. 40% of women subsequently said that they would prefer to avoid the fossil fuel sector altogether, compared to just a third of men.

When we looked at governance factors, we found nearly a 10% gender gap between attitudes to engagement versus exclusions, with more women preferring to exclude.

“Those who would invest less, or not at all, if they knew their pension was invested in companies that have attracted criticism for their governance and pay practices?”

There are many theories about why women across different ages may hold stronger views on ESG issues than men. For instance, women who have had a longer work history or have left the workforce may have been directly affected by social and governance factors such as lower comparative pay or gaps in pension contributions as a result of raising children.

  1. Nearly 50% prefer a policy of engagement (before exclusion) when dealing with ESG offenders

Within the investment industry, the debate rages on about exclusion lists versus engagement: negotiating a better ESG policy through a combination of dialogue, voting and divestment, for example. Therefore, our research asked participants to think about how we reflect ESG concerns in investments.

We asked participants to look at some examples of the most controversial UK companies: G4S, Royal Dutch Shell and Persimmon. Nearly half – 49% (47% of Millennials, 50% of Gen X and 49% of Baby Boomers) – preferred a policy of engagement as a first step before divesting when dealing with ESG offenders.

“After having seen these case studies I would prefer pension providers to engage to a point and then divest from companies that aren’t performing well in terms of ESG” (% agreeing)

Overall findings

Understanding generational and gender divides may help us make sense of an increasingly complex world, where we are forced to make era-defining choices in just a few years.

Something that came out of this research is that it’s really important to look beyond labels. People who were nonplussed by the term ‘ESG’, came alive when we discussed the underlying themes in terms they connected with: ‘climate change’, ‘human exploitation’, and ‘fair pay’. These are everyday realities, and move ‘ESG’ from a world of pension and investment theory to the things that we each read and talk about with our friends and family.

Key Risks

The value of an investment and any income taken from it is not guaranteed and can go down as well as up, you may not get back the amount you originally invested. PI43662020

[1] 1. Quantitative research was conducted with the help of Watermelon Research on 29 October 2019. Qualitative research was undertaken on 27 September 2019 with the help of Strictly Financial Ltd.

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