Draws lessons from an academic study
Gen-Z and millennials show increased concern for ESG factors
Says Botswana may show similar trends
Acknowledges shortcomings of the study
A fund manager at Botswana Insurance Fund Management (Bifm) has emphasised the significance of providing investment solutions and products that align with investors’ objectives to address the pension gap through Environmental, Social, and Governance (ESG) investing.
Thato Ungwang, the Portfolio Manager for Local Equities, highlighted lessons from an academic study conducted by David Larcker, a professor at the Stanford Graduate Business School. The study concluded that Generation Z (Gen-Z) and millennials showed increased concern for ESG factors. Speaking at the Botswana Pension Society Conference, Ungwang advised that investment products could be tailored to meet the expectations of this demographic, which may reflect a similar trend in Botswana’s context.
The conference was held under the theme ‘Bridging the Pension Gap: Solutions for Ensuring Adequate Retirement Savings for All’, aimed at addressing the pressing challenge of under-saving by focusing on strategies to enhance voluntary contributions and optimise fund performance.
With over 6 years of experience in the investment management industry, Ungwang said “It’s important for us to ensure that we are meeting our investors where they are and we are addressing their need for ESG investing”. This includes enhancing and improving on “our ESG investment offering to make sure there is a proper alignment with the underlying investors”.
Survey Results
The study surveyed 2,475 active investors. Millennials and Gen-Z fall within the age range of 18 to 43 years, whereas Gen-X investors range from 44 to 69 years old. Baby boomers, on the other hand, are aged 60 years and above.
From the results, it’s evident that significant differences exist across all age groups in their perceptions of ESG. When investors were queried about their concerns regarding environmental, social, and governance issues, millennials and Gen-Z consistently expressed high levels of concern.
However, as one moves up in age, investor concern for ESG diminishes. Additionally, investors were questioned about the importance of their managers engaging in active ownership.
The results consistently mirrored previous findings, with Millennials and Gen-Z exhibiting notably higher levels of concern or perceived importance regarding active ownership. Furthermore, the survey delved deeper to ascertain whether respondents were willing to sacrifice investment returns to achieve ESG objectives.
Approximately 85% of millennials expressed willingness to do so for environmental concerns, while 80% indicated the same for social issues and governance.
Ungwang remarked that these findings suggest a notable disparity in ESG investing sentiments between Gen-Z and millennials compared to other age groups. However, a primary critic arises from the study’s lack of coverage of other regions, particularly Africa.
Ungwang noted that while the analysis somewhat captured African strategies, there was a notable absence of a specific examination of ESG investing in Africa. He attributed this gap to the scarcity of data concerning the various strategies employed within the African context.
“African investors look to invest in developed markets. These are the markets seen to be less risky. Because of that lack of data, the study focused on developing markets.”
Similar trend could emerge within the local context
In essence, Ungwang highlighted that these results might not be directly applicable to “our market” in Botswana. Nevertheless, despite potential differences, it’s plausible that a similar trend could emerge within the local context.
Ungwang explained the importance of this issue within the context of Botswana, particularly due to the distribution of its population. Botswana exhibits a bottom-heavy age distribution, with a significant majority of its populace belonging to the Gen-Z or millennial demographics. Ungwang highlighted that approximately 60% of Batswana fall into these age brackets.
“This gives us an indication that a large majority of Batswana may share the same sentiments that we have seen in the study. Majority of Batswana may think that ESG investing is very important. They might think active ownership is also important.”
He underscored the critical importance of aligning investment strategies with the objectives of these investors, who represent a substantial portion of Botswana’s economy.
“So it becomes important for us to think of ESG as a potential tool that we can use to bridge to investment gap that we are seeing.”
A crucial aspect to consider in light of the population distribution is the high rate of unemployment, particularly affecting a significant portion of the youth demographic. Observers contend that it’s essential to take this into account to accurately gauge the proportion of Gen-Z and millennials who are actively employed. This consideration is vital because if a substantial number of them are unemployed, it may present challenges in advocating for ESG investment within the country. Another key issue may be the knowledge of the different demographics on ESG investing.
Shortcomings
Ungwang acknowledged that like any academic study, there are inherent shortcomings to consider. Firstly, the results may primarily reflect the diverse risk tolerances among different investors, rather than representing fundamental views across various age groups.
Secondly, results may reflect wealth amongst age groups. The older generation will hold more wealth than younger generations. Results may also reflect differences in expected returns and may not hold across different regions.
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