I posted a piece on LinkedIn called “ESG Is Under Attack. You Should Be Happy About That.” Some of what I wanted to write wouldn’t fit on LinkedIn, so here’s more detail about how environmental, social, and governance issues matter to investors, employees, and customers.
Take investors, for example. For a long time, investors either didn’t care about social and environmental performance or actively discounted companies that took action. In fact, research has shown that for years investors penalized a company for being environmentally and socially active. But that’s no longer true. For example, finance firm Lazard studied 16,000 equities over a period of four years and discovered that investors drove down the P/E ratio of firms with higher GHG emissions.
When it comes to employees, even more has changed. First, big companies’ employees are increasingly concentrated in metropolitan areas and, second, they’re increasingly looking to recruit from the Gen Z and Millennial generations. Since both residents of metropolitan areas and younger people are more likely to be concerned about social environmental issues, that means companies who want to recruit them have to be also.
Customer expectations and preferences haven’t stood still either. NYU’s Stern School of Business studied tens of thousands of products over a six-year period and found that those marketed with sustainability claims grew faster than those without. McKinsey and Nielsen IQ conducted a different study covering 600,000 products representing over $400 billion in annual sales—and found the same thing. And my own company, Valutus, has collected over half a million data points on four continents showing the causal connection between environmental and social attributes and customer preference.