Recently, consumer analysts and strategists have observed how consumer companies are aggressively targeting their product developments, marketing, and sales initiatives at the new generation, the millennials. Generation Y (20–35 years of age) and Z (below 20 years of age) are increasingly shaping future consumption as well as investment and business trends.
An early mover, our “millennials’ values” supertrend, has successfully captured these developments since its inception. Given the importance millennials attribute to environmental, social and governance (ESG) criteria, this supertrend goes hand-in-glove with a broader move toward sustainable investing observed across all segments and regions.
Much like previous generations, Millennials have distinct characteristics that shape their preferences, concerns, and priorities. They are digital, global, environmentally friendly and social, to name but a few. Brands that surf the millennials wave have outpaced their respective markets in 2017, and we expect this trend to continue. Another distinct feature of the millennials generation is that, as a result of global demographics, most of them come from the emerging markets (EM). China accounts for a particularly large share of the world’s millennials. Chinese millennials are leading the way in a rapid shift to online consumption and the development of eSports, which are rapidly gaining popularity. Any solution aiming to capture what we subsume under the “millennials’ values” supertrend has to have sufficient exposure to EM consumer companies geared to EM millennials or companies that are well positioned to cater to that consumer cohort.
Strong environmental consciousness
Millennials are also highly conscious of the environment. In our view, it is thanks to them that electric cars, clean energy and environmental, social and corporate governance (ESG) investments are becoming more and more mainstream. While ESG-leading companies are already a sub-theme of our “millennials’ values” supertrend, we are strengthening this focus by applying an ESG overlay to the entire stock selection for this supertrend. This means that we only retain companies with a top score in the areas we believe are of relevance to our supertrend.
Sustainable business and investments
Sustainability is a core value for millennials, who are becoming more and more demanding in this regard, requiring companies to show how they make a positive contribution to society before buying their products. This comes as little surprise, as evidence of climate change is growing, and pollution and environmental health hazards are becoming increasingly apparent in both developed and emerging markets. From an investment standpoint, applying ESG criteria to stock selection has been shown to improve risk management without lowering returns. Academic literature and case studies published on the subject have shown that companies with higher sustainability scores, on average, deliver a better operating performance, are less risky, have a lower cost of debt and equity, and are better stock market investments. Further, companies whose ESG scores are improving tend to outperform those with static ESG scores. Sustainability should therefore be a continuous process for a corporate organization. We believe there is a strong business incentive for companies to implement sustainable management practices with regard to ESG. Once these practices are deeply rooted in an organization’s culture and values, they can provide a competitive advantage in the long run.
In turn, not focusing on sustainable factors could pose reputational, financial, and litigation risks, which could make companies more vulnerable. What is more, any bad press related to ESG factors could meaningfully impact demand from the millennials cohort. So ESG not only improves risk-adjusted investment performance, but is also becoming a prerequisite for a company’s success. This is why we now integrate ESG standards across our stock selection in this supertrend.
The millennial generation has yet to reach its full potential as investors. But if they shape asset management and investment in the same way they are shaping consumption, we are at the beginning of a true revolution. Millennials’ values are more than just another reason to invest sustainably. They are the reason sustainable investing is here to stay.