Wealth Distribution and its Environmental Impact on Future Generations
Updated: Mar 6
Remember what we were taught in Economics class: that various factors influence the distribution of wealth – capital gains benefit, private pension assets, inheritance, and the difference in tax between income and wealth.
While much attention has been focused on these factors, there is one aspect that remained unexplored in recent years, its relationship with environmental sustainability.
We all hear major concerns circulating about the harmful effects of income and wealth inequality for environmental sustainability. How? Or why? Let’s review them together:
What is wealth distribution?
A comparison of wealth among various members of a community is known as wealth distribution. Rather than focusing on a community's revenue, this indicator looks at how ownership is distributed economically within it.
Formula: Wealth or net worth is equal to assets minus liabilities.
The various types of wealth
· Any privately owned property in the country or elsewhere is considered to be a form of property wealth.
· The value of a household's material possessions, such as art, antiques, vehicles, and personalized license plates, is known as physical wealth.
· By deducting the value of any financial liabilities from the value of financial assets, you’ll have your financial wealth.
· The value of private pension plans from which people can draw income now or in the future is referred to as private pension wealth.
Wealth vs. Income
Wealth refers to the possessions a person has accumulated throughout their life. While income is money received regularly in return for goods or services rendered or investments made.
No, you are not reading a Microeconomics analysis, we are simply laying out the foundation to help you know the basic context of where we are heading.
A New era after the pandemic: Sustainably-Minded Customers
There are so many valuable and horrifying things the world discovered during the health crisis. It opened a lot of doors of opportunities, realizations, and even inconvenient truths in our society.
You may disagree with us, but people now are meticulous and observant when it comes to what they purchase or consume. People now are "voting with their dollars."
What makes us think that way?
One’s lifestyle and purchasing decisions are influenced by values, attitudes, and preferences that are based on sustainability.
What is a sustainability mindset?
The Principles for Responsible Management Education (PRME) defined it as a way of thinking and being that comes from an introspective focus on the higher self and personal values. It serves as a lens through which we evaluate information and make judgments.
There are various studies made to back this current purchasing behaviour.
According to a Nielsen poll, 81% of respondents from around the world strongly agree that businesses should contribute to environmental improvement.
There is a desire for corporate responsibility that transcends generational and gender boundaries. The most helpful generations are millennials, Gen Z, and Gen X; however, their more senior colleagues are not far behind.
49% said they are willing to spend more than average for goods that meet high standards for quality and safety, which customers frequently link with strong sustainability principles.
41 % of consumers are more likely to part with their money for organic products.
38% will opt for products created with sustainable materials
30% will go for companies that live up to social responsibility claims.
46% or nearly half of respondents claim they would be prepared to forego a brand name to purchase eco-friendly goods.
In April 2020, a McKinsey study on sustainability in fashion among European consumers found that the pandemic increased consumers' awareness of and concerns about sustainability. According to the study:
67% of consumers consider the use of sustainable materials to be a significant purchasing factor
63% think the same about a brand's promotion of sustainability.
If these numbers don’t tell you something, well we will leave it for you to ponder.
The Four Personas of Sustainability-minded Consumers
Kerry Digest paper, "Sustainability in Motion 2021," revealed the four consumer categories, often known as sustainability archetypes or personas:
Inactive people think that industry and the government are in charge of sustainability. They see sustainability as mostly extrinsic, including the conservation of natural resources, recycling, and the wellbeing of animals and communities.
Every demographic group has inactive people; for them, cost and a lack of intention are the main obstacles to behaving in a more environmentally friendly way.
These are Gen Xers and Baby Boomers who place a high priority on sustainability but are disappointed by the paucity of tools, goods, and strategies.
Their concepts of sustainability frequently center on issues like environmental preservation, animal welfare, reducing food waste, and other similar issues. Price is a major deterrent for this group from acting more sustainably.
The nation's youth, including Millennials and Gen Z, typically fall into the sustainability Follower category.
Their understanding of sustainability, though, is in the process of changing from one that is primarily focused on the environment to one that sees sustainability as something that can have a more direct impact on an individual.
When followers are short on time and resources, they are more likely to switch to brands that are more environmentally friendly and support those with motivating missions and visions.
This is the leading and most experienced group in terms of sustainability acknowledged and accepted the effects that sustainability has on the environment, society, and each individual.
They are most likely to give up convenience, brand loyalty, and affordability to support sustainability. Frontrunners set the bar for sustainability for their family, friends, co-workers, and the larger community. They are aspirational. This market segment influences the sector to implement reforms that meet their expectations for sustainability.
Another thing that contributes and is now gaining corporate attention is the ESG (Environmental, Social, and Governance)
What is environmental, social, and governance (ESG)?
The phrase "environmental, social, and governance" (ESG) refers to a company's corporate financial interests, which primarily center on ethical and sustainable outcomes.
This is a tool used by capital markets to assess businesses and forecast their financial success.
While corporate governance, sustainability, and ethics are all seen as non-financial performance measures, they serve to establish accountability and frameworks for controlling an organization's impact.
The heavy its definition the bigger the role it should deliver. ESG aims to make a difference for both your company and the wider society.
Companies or start-ups that adapt to it see achieving long-term successes while preserving the environment and cultures.
Factors why ESG is accelerating
1. Global challenges - climate change, bigger regulatory pressures, social and demographic shifts and major concerns on privacy and data security.
2. The Increase of millennial investors worldwide
3. The rise of artificial intelligence (AI) and alternative data extraction techniques.
Up to you
We all have things we believe in and adhere to in life. With the changing times, our views and take on how we allocate our resources impact our society’s growth, sustainability, and environment.
Major shifts happened in our lifestyle when the pandemic tested us. It reminded the world how vast the gap between the rich and the poor is. Richer nations have bounced back, while those who grasp for air continue to suffer because there’s no access to vaccines and programs to support businesses during the recession.
More so, it widens and continues to threaten economic progress and reverse efforts to alleviate global poverty.
As we slowly embrace the new era, how we spend for services and consume goods in the market will affect every business industry we know. It will impact their strategic decision-making, a new course of action, and reporting on progress and results.
How we can help using Sopiad
And this is why we are proud with as Connectors to represent Sopiad, which assist wealthmanagers in the ESG transformation.
Millennials and Gen-Z are not only looking for purpose, meaning and impact with their investments, they will also benefit in the next decade from the largest generational wealth transfer in modern history. The Wealth and asset management industry needs to be prepared for it and rethink their entire operating model and value proposition. Comforting retail investors financial well-being will not be enough, they will also have to ensure the alignment with their personal values.
Easier to be said than done, connecting the dots between sustainable products and investors sustainable preferences is a challenge for the whole industry, despite the regulatory incentives to do so. Fortunately this situation is also seen by many actors as an opportunity to evolve to more customer centricity. Technological solutions exist to support a scalable hyper-personalization of the wealth management.