Personal values are playing a more prominent role when it comes to making important life choices and financial decisions, according to Charles Schwab’s 2022 Modern Wealth Survey.
Nearly three-quarters of survey respondents said their personal values guide how they make life decisions more than they did two years ago, particularly among millennials (roughly defined as those between the ages of 28-40) and Generation Z (18-27).1 The results provide important clues about how changing consumer preferences could shape the future of financial markets.
The signals are perhaps most clear in the environmental, social, and governance (ESG) investing space, which has seen explosive growth among investors concerned about climate change and hot-button social issues like economic inequality, work reform, and corporate behavior.
By the end of Q4 2021, retail investors had allocated more than $142 billion into global sustainable funds, which now account for more than $2.74 trillion worldwide.2 In the U.S., sustainable funds grew by more than $4 billion per quarter in 2019 (this figure had not exceeded $2 billion in any previous year).3 Large institutional investors, like BlackRock, have also publicly committed to expanding their sustainable offerings.4
Similarly, Westmount’s ESG portfolio offers clients access to a mix of sustainability-focused stocks, bonds, and thematic alternatives focusing on clean water, economic development, and renewable energy.
However, ESG fund flows alone don’t tell the whole story. Consumer buying behavior, particularly among millennials and Gen Z, is also changing. According to Deloitte’s 2022 Gen Z and Millennial Survey, 37% of respondents said they prefer brands that have ethical practices or values, a seven-point increase from 2020.5 In a separate study, 34% of respondents reported that they had stopped purchasing certain brands or products due to ethical or sustainability-related concerns.6
People want to see real change, not just ‘feel-good- marketing gimmicks. From how they invest to the products they buy, consumers have made it clear that ethics, sustainability, and transparency are more important than ever.
As Consumer Preferences Change, Companies Struggle To Adapt
Companies, too, are taking notice, though to date many have struggled to take meaningful action. Deloitte’s 2022 CxO Sustainability Report found that company leaders reported receiving a “moderate-to-large degree of pressure” from stakeholders (including regulators, board members, employees, and shareholders) to take direct action on climate change. Addressing workplace reform, closing the gender wage gap, and reining in corporate malfeasance have also been cited as important areas of focus.7
Still, a significant gap exists between companies’ sustainable ambitions and actual impact. The Deloitte CxO study also found that, on average, companies have been hesitant to adopt harder-to-implement actions like imposing sustainability criteria for suppliers and business partners, developing new eco-friendly products and services, or incorporating climate considerations into their lobbying or political activities, even as they recognize such actions could prove beneficial.8
Using Business as a Force for Good
To help bridge the gap, influential public-sector entities like B Labs have emerged as important links between sustainability-minded consumers and similarly aligned companies across nearly every sector.
Formed in 2006, B Labs administers the coveted B Corporation certification program, which recognizes companies that demonstrate strong, verifiable performance across a wide range of criteria.
With a combined revenue of roughly $67 billion, Certified B Corporations (“B Corps” for short) have a large global footprint. There are more than 5,000 B Corps operating in over 70 countries across 150 industries and disciplines.9 Westmount, which became certified earlier this year, is one of only a handful of California-based registered investment advisory firms to attain this distinction.
Candidates for B Corp certification must undergo a rigorous evaluation process that examines their overall impact on employees, customers/clients, suppliers, communities, and the environment. Once certified, they must maintain a minimum assessment score every three years, in addition to satisfying other operational and legal requirements.
At Westmount, the decision to apply for B Corp status was the result of an employee-driven initiative seeking to codify values that the firm has been practicing since its founding more than 30 years ago. Westmount performed strongest in the areas of Customer Stewardship and Employees in its initial evaluation, which aligns with its vision of being the “go-to” investment advisory firm for both clients and industry talent.
“Our firm has been a fierce advocate for client interests since Day 1,” says Westmount Senior Advisor Denis Massey, who also spearheaded the firm’s certification efforts. “We view our newly attained B Corp status as a formal extension of that promise, particularly as the sustainability movement continues to gain momentum among investors and the general public.”
This newsletter was prepared by Westmount Asset Management, LLC (“Westmount”). Westmount is registered as an investment advisor with the U.S. Securities and Exchange Commission. The information contained in this newsletter was prepared using sources that Westmount believes are reliable, but Westmount does not guarantee its accuracy. The information reflects subjective judgments, assumptions and Westmount’s opinion on the date made and may change without notice. Westmount undertakes no obligation to update this information. It is for information purposes only and should not be used or construed as investment, legal or tax advice, nor as an offer to sell or a solicitation of an offer to buy any security. No part of this newsletter may be copied in any form, by any means, or redistributed, published, circulated or commercially exploited in any manner without Westmount’s prior written consent. If you have any comments or questions about this report, please contact us at firstname.lastname@example.org.