ESG investments may work well on paper, but lack of reliable data can prove a major issue for families transferring wealth between generations.
The world’s wealth is about to change hands. By 2050, an estimated $68tn of assets will transfer from baby boomers to millennials and Gen Z — a phenomenon dubbed ‘The Great Wealth Transfer’. Naturally, this presents a once-in-a-generation opportunity for wealth managers.
However, the strategies that appeal to baby boomers will not necessarily resonate with their heirs.
Millennials and Gen Z are more likely to demand transparency, social responsibility and alignment with ethical practices. They view wealth not just as a tool for personal security but also to effect positive change in the world. This shift in mindset requires wealth managers to rethink their approaches and place environmental, social and governance (ESG) considerations at the forefront of their strategies. And they need to do it soon, as the great wealth transfer is already in motion.
Data barriers
Millennials and Gen Z investors have made their priorities clear: they want their money to align with their values. According to the UK’s Association of Investment Companies' annual tracker, 48 per cent of young people consider ESG factors essential in their investment decisions. They prioritise sustainability, ethical business practices and inclusivity.
That said, this number has fallen from 66 per cent in 2021 to 48 per cent in 2024. While some interpret this decline as waning interest, the reality is more complex.
A significant contributing factor is the lack of reliable ESG data. In a recent poll by BNP Paribas, more than 70 per cent of 420 investors cited ‘inconsistent and incomplete’ ESG data as the biggest barrier to ESG investing. The transparency gap has led to scepticism and, in some cases, disengagement.
For wealth managers, addressing this issue is not just about compliance; it’s about restoring trust and building meaningful client relationships.
Contentious landscape
For millennials and Gen Z, transparency is non-negotiable. They are digital natives accustomed to having information at their fingertips and are quick to scrutinise vague or misleading claims. When it comes to ESG, transparency is the foundation of trust. Investors want clear, consistent, and measurable data to validate that their portfolios genuinely reflect their values.
However, achieving this level of transparency is easier said than done. The ESG landscape is rife with challenges and standardisation remains an issue, with no universal framework for ESG reporting. Companies’ willingness to disclose ESG data has also waned, particularly as the concept has faced increasing political backlash in recent years. For example, ESG has become a polarising topic in the US, with some viewing it as a threat to free market principles.
For wealth managers, navigating this contentious landscape requires a delicate balance. On the one hand, they must reassure clients that their portfolios meet ESG standards. On the other, they must remain informed about political and regulatory risks that could impact ESG reporting and performance.
Improving transparency
Financial advisers in Europe, looking to better support ESG expectations of Gen Z and millennial clients, can take several steps to overcome the challenges.
Recognising that millennials and Gen Z are not a monolith is essential. Financial advisers should offer personalised investment options that align with individual client values, whether focusing on renewable energy, diversity and inclusion, or ethical supply chains.
ESG transparency is crucial for building trust and loyalty with this new generation of clients. Wealth managers can position themselves as trusted partners by addressing the ‘transparency gap’ with innovative technologies, advocating for better data, and aligning their solutions and investments to the ESG-centred values of millennials and Gen Z.
Advisers must also stay updated with the latest ESG regulations and ensure compliance. For example, the European Banking Authority has set guidelines for institutions to adopt forward-looking approaches and incorporate scenario analysis as part of their management framework to test financial and business model resilience to ESG factors.
In addition, advisers must be able to support their clients' educational demands. This includes being informed on a broad range of financial topics and empowering clients to co-create their financial plans.
Using technology is also crucial. Leveraging AI-powered recommendations can help client-facing professionals surface the most relevant, up-to-date, and approved content based on the stage of the deal they’re working on. This ensures maximum engagement and satisfaction.
Dominant force
As millennials and Gen Z are set to become the dominant force in the investment landscape, their expectations will shape the future of financial services. ESG transparency is not just a trend but a fundamental requirement for building trust and loyalty with this new generation of clients — and trust remains the currency of success for wealth managers.
By addressing the transparency gap with innovative technologies, advocating for better data, and aligning their solutions and investments to the ESG-centred values of millennials and Gen Z, wealth managers can position themselves as trusted partners in this new era. Although challenges remain — from political backlash to data inaccuracies and economic volatility — those who focus on authenticity and accountability will be better set up for success.
But the message is clear: the next generation of investors has begun to inherit Europe’s wealth, and they are watching, demanding actions over pretty words and promises.
Wealth managers who rise to the challenge of ESG transparency will safeguard their clients’ trust and secure their relevance in a rapidly changing Europe.
Gemma Livermore, head of financial services international marketing at Seismic
