Ethical investors are increasingly skeptical of ESG investing, questioning whether it actually serves environmental or social justice goals. At the same time, the demand for ethical investing will only increase as progressive Millennials and Generation Z accumulate more financial assets, often by inheriting that money from their conservative parents.

If the long-awaited SEC rules on ESG don’t meet them, a prospect that looks increasingly likely as financial services industry groups push back on proposed disclosure rules, we should expect to see an appetite ever growing for alternative investment approaches. Even if the SEC’s final rules are tough, ESG can never completely starve industries like fossil fuels. As companies and funds dump their coal mines to boost their ESG scores, for example, those mines are simply bought up by private equity firms, resulting in money moving but no fundamental change. Consider: more than a third of all assets under management are now in socially responsible or ESG funds, and yet global emissions continue to rise.

As Gen Z and Millennials have more money to invest, I expect to see five trends gaining momentum as alternatives to traditional ESG investing:

Greater availability of non-market investments. As more and more investors conclude that publicly traded companies can never be socially responsible, we will see a growth in funds focused on “transformative investing”, an approach that seeks to build a fairer economy that works for all, often referred to as the “solidarity economy”. Expect to see a proliferation of non-market funds that lend to businesses at the community level, especially in disinvested and marginalized communities of color, and offer returns on those loans to investors, albeit at a rate below that of market-based funds, perhaps modeled after current funds like the Ujima Capital Fund in Boston and the national fund network Seed Commons.

More direct indexing options. Although direct indexing was created to allow investors to maximize their profits, it has enormous potential as an ethical investing tool, allowing individuals to buy a broad index and then subtract stocks from companies that do not meet their own values-based standards. Most major investment firms have recently started offering direct indexing to individual clients, and we should expect this offering to become available to a wider range of investors.

Pressure on companies for responsible pension schemes. Most investors only invest through their workplace retirement accounts, which they neither choose nor control. We have seen increased pressure on major institutions as well as state pension systems to divest from harmful industries, including the campaign pushing Harvard to divest from fossil fuels, as well as increased pressure on companies to expand their retirement fund options to include socially responsible funds. We can expect this pressure against states, institutions and corporations to increase as the climate crisis becomes more urgent, and we can expect more specific demands as investors increasingly realize that the ‘ESG alone is not enough. While experts disagree on whether divestment efforts actually make a difference, investors will still struggle to control where their own dollars are invested, if only to help themselves sleep at night.

More activist investors. Many investors conclude that the best way to force progress is to invest in the companies whose practices they hope to change and to exert pressure from within. Activist retail investors forced three new climate-focused directors to join Exxon’s board last year, and climate activists successfully convinced Chevron shareholders to back a climate proposal in defiance of leadership recommendations. But it’s not just family investors who are pushing companies to do better. BloombergGeorgina McKay and David Stringer reported last week on a campaign by a billionaire in Australia to force one of the country’s biggest polluters to change its corporate strategy. We are also seeing increased pressure from investors on large investment firms who, through their proxy votes, control a large portion of virtually all stocks and generally refuse to use their votes to promote initiatives. social or environmental, even when they claim to support climate objectives. Investors increasingly feel encouraged to channel their frustrations directly to companies and investment firms through shareholder activism, and we’re sure to see more guidance online to help would-be activist investors get involved.

More interest in philanthropy. Efforts to redistribute wealth are also certain to increase – including movements pushing wealthy individuals to spend their assets over their lifetime and those like “effective altruism” inducing high earners to donate more money – all aimed at giving more capital to those who currently have the least, and diminishing the power of the wealthiest few. Some researchers argue that giving is more effective than impact investing in driving change, and we can expect to see more investors use their investment earnings to fund philanthropic projects and simply choose to invest less. for larger donations.

Tanja Hester is the author of Activism Portfolio and optional work, and host of the Wallet Activism podcast.