Ever heard of ESG? No, it’s not a food additive – it stands for Environmental, Social and Governance, and it’s the criteria by which younger investors are increasingly choosing where to put their money. It’s an umbrella term for the various values a company embodies as it goes about its business: does it use child labour? Does it make money from arms or gambling? How are they doing on the gender pay gap? And what are they doing to reduce carbon emissions?

This increase in interest in company ethics is all due to millennials, and as financial service providers know very well, they are about to hold all the cards in the global investment game. As baby boomers hand over their assets to their children, the millennial generation is set to be worth more than a staggering $30 trillion. And this is a generation of switched-on activists who, according to recent reports, are even willing to earn a bit less money if they can sleep soundly at night knowing they aren’t contributing to the poisoning of the planet or the exploitation of vulnerable workers. Interest in ethical investment for the under 40s runs at an all time high of 95% according to recent reports (here from MSCI), so it’s something none of us can afford to ignore.

So how does it work? How can you make your money do the right thing? And can you still make a decent profit? Let’s see…

• Put your savings in a sustainable ETF (exchange traded fund). Big investment firms are getting ready for an estimated boom in ethical investment funds to the tune of $400 billion by 2028 (good report from Bruegel here), and are making it easy for you get on board by preparing funds that have been fully checked for ESG. And obviously they’re going to want to make money, so always check the fees before you invest.

• Negative screening. This is a controversial one. Whether you work with a fund manager or make investment decisions yourself, you can always decide to have nothing to do with businesses you don’t like. Hate guns? Take your money out of the arms trade. Don’t like fossil fuels? Ditch those BP shares. This might make you feel empowered at first, but consider this: removing all public input into these problematic businesses means we no longer have a say in how they operate. After all, they’ll get their money from somewhere else, and won’t be taken to task by their board members or shareholders.

• Use the gender lens. An increasing number of investors are looking at a company’s treatment of women as a barometer of their ethical value. This not only means asking how many female board members and senior managers they have, but how they deal with maternity leave and family friendly working conditions. There’s another layer to it too, which is to look at how a company’s business is helping or hindering women and girls in the developing world (especially in the manufacturing industries) and whether their advertising and general image is sexist or not. There’s evidence that firms not let solely by men are more successful, so investing like this is by no means just mission-led.

At the end of the day (and the financial year), investing is about earning money. There’s an argument that you might as well forget investing in “good” companies and just earn as much as possible on the general market, then donate some or all of your profits to charity, like Bill Gates. But while the jury’s still out about how much good ethical investing can actually do – after all, it’s incredibly difficult to empirically evaluate what “good” is, and how various positive and negative commercial acts relate to each other and whether they can ever cancel each other out – there’s no doubt the new generation of investors under the age of 40 want to do business this way. A massive 89% of this age group expect their financial service providers to do proper ESG research and more than half of all millennials have put their money where their mouths are and stopped investing in a company that smells fishy. 

In the next few years you’ll see many more new financial products coming out that cater to this switched-on demographic, so keep your eye out for one that suits you. Before long, your investment portfolio could be working for you and for others, and that’s a truly empowering and quite radical concept.