Sustainable Investing? Here’s What Millennials Need To Know In The U.S.
It’s estimated that millennials will inherit an estimated $30 trillion of wealth from baby boomers. However millennials have grown conscious about where this wealth should be invested. According to a 2019 Morgan Stanley report, a staggering 95% of millennials are interested in sustainable investing.
Climate change is among one of the top three concerns for institutional investors. However only half of individual investors in the U.S. claim to be involved in at least one sustainable investing activity, leaving a big market opportunity for investment providers.
According to The Forum for Sustainable and Responsible Investment (USSIF), sustainability, responsibility and impact investing (SRI) has reached $12 trillion in the U.S. – up by 38% since 2016. Investment providers have followed this trend, offering more investment opportunities to increasingly conscious investors. From 2017 to 2018, sustainable investing mutual funds and exchange-traded funds (ETFs) in the U.S. claimed to have increased by 50% from 235 to 351 funds.
According to Bloomberg, many sustainability-branded exchange-traded funds repackage the same publicly traded companies that investors were already trading in . This type of strategy is known as ‘greenwashing,’ where loose and unregulated environment, social and governance (ESG) standards are exploited to re-brand existing traditional investments as sustainable investments.
Stash, a fintech software trading platform lists a Combat Carbon exchange-traded fund with its top four holdings including Apple, Microsoft, Amazon, and Facebook. Although the fund mentions that the companies included do “great business with relatively small carbon footprints,” investing in these companies will not likely reduce carbon emissions.
Although 95% of millennial investors are interested in sustainable investing, only two-thirds have adopted sustainable investing in 2019. There are clear barriers which include:
- Lack of belief that sustainable investments will lead to strong financial returns
- Lack of sustainable investment product choices beyond public equity
- Lack of transparency, and availability of impact measurement tracking of investments
Raise Green, a sustainable financial technology platform startup, was founded in March 2018 by millennial entrepreneurs Franz Hochstrasser and Matthew Moroney. They created a platform for direct investments into community projects with social and environmental impact, starting with community-scale solar power in the U.S.. This will give investors a choice to include individual community solar projects or other types of climate solutions in their sustainable investing portfolio.
“Community-scale solar and other climate solutions have historically been difficult to finance because large banks and lenders are either only interested in utility scale projects, or because these projects don’t meet their risk return profiles,” mentions Moroney. By creating a new asset class of green crowdfunded equity, accepting small investments from individuals, Raise Green is able to finance these projects.
The motivation for Raise Green came from a lack of meaningful options for individual action on large societal challenges, like air pollution, income inequality and climate change. Until 2016, only accredited investors could place private equity investments – which reserved the risk and return to the wealthy or the friends and families of founders – but that year the U.S. Securities and Exchange Commission (SEC) created a regulation opening up private equity investing to anyone through crowdfunding, which enables Raise Green’s business model to work.
“Most reasonable investors with a conscience who are paying attention recognize that extractive capitalism and even most of the current offerings for ESG or SRI are not actually having the intended effect of creating a more healthy, just and sustainable world. Allocating capital into climate projects that wouldn’t otherwise exist creates real impact.” says Hochstrasser.
To date, the founders of Raise Green have run two successful proof-of-concept projects under the company New Haven Community Solar, raising close to $100,000 from 130+ crowd-investors that financed two solar arrays which now sell discounted electricity to a housing and homeless services non-profit in New Haven, Connecticut.
These are the first fully-equity crowdfunded solar projects in the country. To support more projects like these, Raise Green are offering up the project’s legal documents as templates, including small-scale tax equity, as free to anyone who wants to replicate this model to raise capital through Raise Green to deploy a project in their community.
Investors generally want sustainable investment pipeline, but few are willing to work on the plumbing that enable investments to flow . As millennials inherit significant wealth over the coming decades, there needs to be more authentic market-makers, like Raise Green, who are not reclassifying traditional assets by ‘greenwashing,’ but are pioneering the development of new, truly sustainable investments. Millennials who want to practice sustainable investing, need to critique where their investments are made , divest and reinvest into an asset portfolio reflective of a real sustainable future.