Millennials and Gen Z Are Fed Up With ESG Investing

Pressure on companies for responsible retirement plans.

Most investors only invest through their workplace retirement accounts, which they do not choose or control. We’ve seen an increase in pressure on large institutions as well as state pension systems to divest from harmful industries, most notably the campaign pushing Harvard to divest from fossil fuels, as well as increased pressure on companies to broaden their retirement fund options to include socially responsible funds.

We can expect this pressure against states, institutions, and companies to increase as the climate crisis becomes more urgent, and we can expect more specific demands as investors increasingly realize that ESG alone is not good enough. Though experts disagree about whether divestment efforts actually make a difference, investors will still push to control where their own dollars are invested, even if only to help themselves sleep at night.

More activist investors.

Many investors are concluding that the best way to force progress is to invest in the corporations whose practices they hope to change and exert pressure from the inside. Last year, small activist investors forced three new climate-focused directors onto Exxon’s board, and climate activists succeeded in getting Chevron’s shareholders to back a climate proposal in defiance of the executives’ recommendations.

But it’s not just mom-and-pop investors pushing corporations to do better. Bloomberg’s Georgina McKay and David Stringer reported last week on a billionaire-led campaign in Australia to force one of the country’s largest polluters to shift its corporate strategy. We’re also seeing increased pressure from investors on the large investment firms who, through their proxy votes, control a huge portion of virtually every stock and generally refuse to use their votes to promote social or environmental initiatives even when claiming to support climate goals.

Investors are feeling increasingly emboldened to take their frustrations directly to corporations and investment firms through shareholder activism, and we’re certain to see more guidance online to help would-be activist investors get involved.

More interest in philanthropy.

Efforts to redistribute wealth are also certain to increase — including movements driving wealthy individuals to spend down their assets during their lifetime and those like “effective altruism” urging high earners to donate more money — all aimed toward giving more capital to those who currently have the least, and decreasing the power of the wealthiest few. Some researchers argue that donating is more effective than impact investing for driving change, and we can expect to see more investors using their investment earnings to fund philanthropic projects and simply opting to invest less in favor of greater giving.

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Tanja Hester is the author of “Wallet Activism” and “Work Optional,” and host of the podcast “Wallet Activism.”