How to make sure your ESG strategy appeals to younger generations
Whether publicly traded companies have verified their sustainability plans or have been accused of “greenwashing,” interest in ESG issues has increased over the past year, which has seen a record $649 billion poured into ESG funds globally in 2021 .
As investors continue to invest their money in companies that say they make a difference, a notable trend is that most of these investors tend to be of younger generations. New research shows that 54 percent of Gen Z and Millennials own ESG investing, compared to just 42 percent of Boomers and 25 percent of Gen X.
From tackling climate change to increasing corporate diversity to calling for fairer corporate policies, companies need to understand what matters to younger generation investors in order not only to build an effective ESG strategy, but also to grow the company’s financial portfolio.
What ESG standards are important to younger generations?
While ESG concerns are undeniable, the recent acceleration in widespread coverage of ESG principles and practices has resulted in a shift of power, money and jobs from Baby Boomers to Millennials and Gen Z, who embrace passive investing , COVID, social injustice issues, the “Great Resignation” and talent shortages have all contributed.
While there’s no one right way to go about your company’s ESG strategy, helping to combat climate change, particularly the threat of global warming, seems to be the most worrying issue for today’s Gen Z and younger millennial investors. However, social and economic equity across the organization appears to be equally important as these individuals consume more related news articles, blogs and videos via social media.
Aside from investing in ESG funds, Millennials and Gen Z people are bringing this interest to the workforce, which means companies that focus on attracting and retaining younger talent who can grow within the company are doing so at a have to make priority. Gen Z talent currently accounts for 46 percent of the full-time workforce in the US, where governance factors such as flexible vs. one-size-fits-all health plans, including mental health care and charitable support, or volunteering days off and donation matching are of particular concern. Additionally, mentoring and employer engagement are also key to retaining this younger generation of workers.
As a result of reporting on ESG principles and practices that are dear to younger generations, investors as well as employees and customers will benefit from continuing to shape an environmentally and socially responsible world. However, a lack of ESG transparency remains, affecting how younger generations view certain companies.
The current lack of ESG transparency
Because a company’s ESG practices are evaluated on a scale by proxy advisors such as Institutional Shareholder Services (ISS) or Glass, Lewis & Co., younger generation investors rely on these ESG scores to determine which of the company’s efforts are performing best match younger talent When looking for employment, companies also tend to look for companies with ESG scores that are 25 percent above average.
Unfortunately, ISS, Glass Lewis, and other proxy advisors who rate companies’ ESG practices are the primary culprits when it comes to the lack of transparency in the ESG rating systems created to analyze a publicly traded company’s ESG efforts . Investors, employees and customers do not have the same transparency as to which specific factors led to ratings. In my opinion, these proxy advisors continue to mislead well-intentioned young investors of “doing good” ESG funds with conflicting incentive rating structures.
Given the power of these ESG ratings, public companies and shareholders need direct access to how these ratings are calculated. However, proxy advisors claim this information is proprietary and refuse to disclose it. What began as a PR and marketing effort for companies to show employees and customers that they are responsible players now functions as corporate creditworthiness, with those who refuse to play the game denied access to investor capital.
How can companies appeal to Gen Z and Millennial investors?
When a company’s ESG rating by proxy advisors does not appear transparent as to what ESG practices were included in initial reporting and does not seem to appeal to younger generation investors, the best approach for company boards to consider is a digital approach The company should continue to use all social media channels and other popular smartphone tools to reach this demographic.
An example of digital interaction with Millennial and Gen Z investors can be the virtualization of Annual General Meetings (AGMs); better known as the most important shareholder meeting of the year. According to packaging software company Lumi, average AGM attendance increased by 70 percent in 2021 compared to 2020, proving to be beneficial for Gen Z investors and shareholders at large by improving the quality of attendance.
Additionally, companies can think beyond virtual AGMs and continue to invest in investor relations, whether by inviting directors to engage with younger shareholders on a regular basis or simply helping to maintain a loyal younger shareholder base and value perception. While younger investors may rely more on social media and influencers to judge whether an investment is worthwhile, companies can still have the power to take back control and tell their company’s story with a more positive lens.
Creating more authenticity, particularly around ESG issues, will ultimately help deflect proxy advisor judgments of what is true and what is false. When a younger investor feels they are being greenwashed, younger investors will switch off and find their own information from other sources.
While attracting the next generation of investors is no easy task, companies must find innovative ways to attract the attention of younger investors. Think digital, communicate ESG successes and engage younger investors all year round are just a few ways to ensure companies nurture loyalty from this new generation.