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Are we doing enough to explain sustainable investing to the next generation?

Three elementary school-aged girls engaged in a hands-on educational activity involving a small wind turbine model, suggesting they are learning about renewable energy or environmental topics in a structured classroom setting.
Published 28 Nov 2024

By Paul Moody

In the realm of finance and investment, terms like ESG (Environmental, Social, and Governance), sustainable investing, impact investing, transition finance, responsible investing, and net zero have become increasingly prevalent and deeply politicized. While each of these concepts aims to promote positive change, the plethora of terminology often leads to confusion and debate about their value, significance and effectiveness, particularly among new investors.

In many cases these terms are used interchangeably, particularly by politicians and the media, adding further confusion, fueling negativity and frustrating those looking to improve levels of financial literacy amongst the next generation of investors. 

Sustainable investing has emerged as a key focus for investors seeking to align their financial goals with ESG considerations. However, as we look to the future, it's crucial to ask: Is the investment industry doing enough to explain sustainable investment to the next generation of investors, particularly Generation Z? And what are the potential dangers if we fail to engage them on this topic?

Generation Z, typically defined as individuals born between the mid-1990s and early 2010s, represents the future of investing. As they come of age and enter the workforce, they will become increasingly influential in shaping investment trends and driving capital allocation decisions. Unlike previous generations, Gen Z investors are known for their strong social and environmental consciousness, placing a higher value on sustainability and ethical investing.

However, despite their interest in sustainability, many Gen Z individuals lack the financial literacy and investment knowledge needed to navigate the complex world of sustainable investing, something which is further complicated by the language we use to describe it. This presents a significant challenge for the investment industry, which I believe must find innovative ways to engage and educate this generation about the importance of sustainable investment practices.

To effectively communicate sustainable investing to Generation Z in a way that brings greater clarity and understanding we should consider adopting a multi-faceted approach that leverages technology, education, and outreach initiatives.

Given Gen Z's digital-native nature, we should be active contributors on digital platforms and social media channels to reach and engage with this audience on their terms. 

Collaborating with schools, colleges, and universities to integrate sustainable investing into the curriculum can help instill the importance of responsible investing practices from an early age. Similarly, providing mentorship and networking opportunities for Gen Z individuals interested in sustainable investing can help them learn from experienced professionals and build valuable connections in the industry. 

If the investment industry fails to engage with Generation Z on the topic of sustainable investing, it could have far-reaching consequences.

Generation Z represents a growing segment of the investor population, and their interest in sustainable investing is only expected to increase in the future. Failing to engage with this demographic will undoubtedly result in missed opportunities for growth and innovation.

I also worry that without proper education and awareness about sustainable investing, Gen Z investors may continue to allocate their capital to traditional investment vehicles that prioritize financial returns over environmental and social impact. This could lead to a lack of diversity in investment portfolios and a missed opportunity to invest in companies that are driving positive change.

By neglecting to engage with Generation Z on sustainable investing, the investment industry risks perpetuating harmful practices and contributing to negative social and environmental impacts. Without sustainable investment practices, companies may prioritize short-term profits over long-term sustainability, leading to environmental degradation, social inequality, and economic instability.

I believe the language surrounding sustainable investing can serve as a catalyst for raising awareness, mobilizing resources, and encouraging collaboration. Rather than viewing the sometimes-confusing terminology as a barrier to progress, we should encourage the next generation to view it as a tool to inspire positive change and create a more sustainable and equitable world for all.

Paul Moody is Managing Director, Global Partnerships & Client Solutions at CFA Institute

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