Businesses of all sizes are integrating environmental, social and governance (ESG) practices into their long-term growth strategies. A focus on ESG can help public and private companies understand the impact they have on key stakeholders, their communities and broader society. A strong ESG program can also contribute to the growth of a company by attracting investors, customers and employees who want to work with a company that shares their values.
Companies with ESG strategies follow these three principles:
Avoid environmental risks and capitalize on environmental opportunities that generate shareholder value.
Generate trust and loyalty with a company’s workforce, customers and society.
Ensure that board members and executives act in the best interests of shareholders.
Consumers are driving the growth of ESG, as they increasingly look to align themselves with companies they believe are transparent in their business practices and serve a greater social purpose. The millennial generation (1981—1996) is leading the charge in company accountability. Before joining a company as an employee or investing in its stock, millennials first consider a company’s ESG record.
But it is Gen Z (born after 1996) that exhibits the strongest ESG preferences. Compared to 87% of millennials, 94% of Gen Z respondents believe companies should address ESG issues.1 And given similar price and quality, 92% of Gen Z consumers would switch to a brand that supports ESG issues versus one that does not.1
Corporate transparency is entering the mainstream as almost 85% of the companies in the S&P 500 Index® published sustainability or corporate responsibility reports in 2017.2 Consumers also are paying attention to ESG disclosures on product labels and company websites to determine a company’s trustworthiness and integrity.
Sustainable business practices are also attracting capital investments and driving merger activity from companies that want to align themselves with the ESG movement. At the same time, activists are deploying social media campaigns, shareholder resolutions and other tools to compel companies to adopt ESG-friendly policies.
For more information about the increasing impact of ESG on businesses, download our report, ESG: Impact on Companies Doing Business in America and Why They Must Care.
1 2017 Cone Gen Z CSR Study: How to Speak Z.
2 Flash Report: 85% of S&P 500 Index Companies Publish Sustainability Reports in 2017, March 2018.
Impact investing and/or Environmental Social Governance (ESG) investing has certain risks based on the fact that ESG criteria excludes securities of certain issuers for nonfinancial reasons and therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.