CONTRIBUTED ARTICLE
By Terry Branstad
Whether publicly traded retail companies have verified sustainability plans or have been accused of “greenwashing,” environmental, social and governance (ESG) standards have trended upward over the past year, in which a record $649 billion was poured into ESG-focused funds in 202[1] worldwide, according to a June 23 article in Forbes.
As investors put their money into retailers making a difference, one misconception for these companies jumping on the ESG bandwagon is that most of these investors are more likely to belong to younger generations. New research shows 54 percent of Gen Z and millennials holding ESG investments, compared to 42 percent of boomers and 25 percent of Gen Xers, CNBC reported.
From combatting climate change to expanding the company’s diversity, or calling for more corporate equitable policies, retailers need to understand what younger generational investors care about to build an effective ESG strategy and increase the company’s financial portfolio.
What ESG Standards Do Younger Generations Care About?
While ESG has been around a long time, the recent acceleration of widespread reporting on the principles and practices has created the shift of power, money and jobs from baby boomers to millennials and Gen Z, in which passive investing, COVID-19, social injustice issues, the “Great Resignation” and talent shortages have been contributing factors, a July 12 article in CFO reported.
Despite there being no exact right way to go about your company’s ESG strategy, contributing to fighting climate change, specifically the threat of global warming, seems to be the most concerning for today’s Gen Z and younger millennial investors, according to a July 12 article in The Straits Times. However, social and economic equity throughout the entire corporation also seems as significant because these individuals consume more related news articles, blogs, and videos through social media.
Even if it’s not investing into ESG funds, Millennial and Gen Z individuals have started to shift retailers’ workforce in terms of attracting and retaining younger talent that can grow within the company. According to a December piece in the Impactive, Gen Z talent makes up 46 percent of the full-time workforce in the United States, where governance factors, such as flexible vs. one-size-fits-all health care plans, including mental health care, and charitable support – like having days off for volunteering and donation matching – are of particular concern. Moreover, mentorship and employer engagement are also key to retaining this younger generation of workers.
As a result of reporting ESG principles and practices that younger generations care about, investors, employees and customers will benefit in continuing to mold an environmentally and socially conscious world. Nevertheless, a lack of ESG transparency remains, affecting how younger generations view the specific retailer.
The Current Lack of ESG Transparency
With a retailer’s ESG practices scored on a rating scale by proxy advisors, such as Institutional Shareholder Services (ISS), younger generational investors rely on these ESG scores to determine what company’s efforts align most. Younger talent looking for employment also gravitate toward retailers with ESG scores 25 percent higher than average, that same Impactive article stated.
Unfortunately, ISS and other proxy advisors scoring retailers’ ESG practices, are the main culprits when it comes to the lack of transparency in the ESG rating systems created to analyze a public retailer’s ESG efforts. Investors, employees, and customers do not have the same transparency into what specific factors lead to this rating. These proxy advisors continue to mislead well-intentioned young investors of ESG funds that are “doing good” through conflicted incentive rating structures.
Given the power of these ESG ratings, publicly traded retailers and retail shareholders may want to have direct access to how the ratings are calculated. However, proxy advisors call that information proprietary and refuse to disclose it. What began as a public relations and marketing effort for corporations to show employees and customers they are responsible actors now functions as a corporate credit score where those who refuse to play the game are denied access to investor capital.
How Can Retailers Engage Gen Z & Millennial Investors?
If a retailer’s ESG rating by proxy advisors, like ISS, does not appear transparent as to what ESG practices were listed in the initial reporting and does not seem to engage younger generational investors, the best approach for corporate boards to think about is a digital one, in which companies should further utilize all channels of social media and other popular smartphone tools to engage this demographic.
An example of interacting digitally with millennial and Gen Z investors can be through virtualizing annual general meetings (AGMs); better known as the most important shareholder meeting of the year. According to retail packaging software company, Lumi, it received a 70 percent increase in the average number of attendees attending AGMs in 2021 compared to 2020, which proves beneficial for Gen Z investors and shareholders as a whole in increasing quality of participation, according to a June 29 article in IFA Magazine
Moreover, retailers can think beyond the virtual AGMs and invest in investor relations, whether its inviting directors to make regular contact with younger shareholders or to help maintain a loyal younger shareholder base and value perception. Although younger investors may rely more on social media and influencers to judge whether an investment is worthwhile, retailers still can have the power to take back control and tell the retailer’s story using a more positive lens.
Generating more authenticity in the company – especially when it comes to ESG issues – will help to fend off proxy advisor ratings from what is true and what is false. If younger investors feel they’re being greenwashed, younger investors will switch off and find their own information from other sources.
Even though engaging the next generation of investors is no easy task, retailers must find innovative ways to capture the attention of younger investors. Thinking digitally, communicating any ESG triumphs and engaging younger investors year round are some ways to ensure retailers encourage loyalty in this new generation.
About The Author: Terry Branstad is the National Chairman of The Corporate Citizenship Project, former U.S. Ambassador to China (2017-2020), and the longest serving governor in the history of the United States (1983-1999/2011-2017). In addition to his role as president of Des Moines University Medical School, his public service includes election to the office of Lt. Governor and three-terms in the Iowa House of Representatives. For more information, visit https://corporatecitizenshipproject.com/
CONTRIBUTED ARTICLE
