Businesses of all sizes are integrating environmental, social and governance (ESG) practices into their growth strategies. ESG: Impact on Companies Doing Business in America and Why They Must Care is the first article in an ongoing series about how to succeed in a new age of transparency.
When managed as part of a long-term growth strategy, ESG can help public and private companies understand how they impact their key stakeholders and communities, while also strengthening their business performance. Companies with ESG strategies follow these three principles:
- Environmental - Avoid risks and capitalize on opportunities that generate shareholder value
- Social - Generate trust and loyalty with a company’s workforce, customers and society
- Corporate governance - Ensure that board members and executives act in the best interests of shareholders
Leading the charge in company accountability is the millennial generation. Millennials favor companies that are transparent in their business practices and serve a greater social purpose. Before joining as an employee or investing in its stock, millennials first consider a company’s ESG record.
Not far behind is the 13 to 25-year old cohort known as Gen Z, which exhibits stronger ESG preferences than other groups. Compared to 87% of millennials, 94% of Gen Z respondents believe companies should address ESG issues. 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
INVESTING IN INTANGIBLE ASSETS
Today, a company’s valuation is not just based on tangible assets. Stakeholders, such as investors, employees and executives, are striving to align business strategies with the communities they serve. They believe that companies have a greater chance of long-term success when they address issues, such as product safety, gender diversity, income equality and environmental sustainability.
A recent U.S. Trust study2 found that half of high net worth investors consider a company’s social and environmental impact an important part of their investment decisions—an increase from 45 percent in 2013. Furthermore, six in 10 of these investors feel their investing choices can positively influence society.
CRITICAL ESG TRENDS
Institutional investors are adopting ESG as part of their financial analysis. More than one-quarter of assets under management around the world use ESG criteria to measure company performance and market value.3
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 2017.4 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 seeking value from ESG companies. At the same time, social and investor activists are deploying social media campaigns, shareholder resolutions and other tools to modify company policies.
WHY WE ADOPTED ESG
Guided by a common purpose to help make financial lives better, Bank of America is focused on responsible growth and environmental, social and governance leadership. ESG is embedded across our eight lines of business and reflects how we help fuel the global economy, build trust and credibility, and represent a company that people want to work for, invest in and do business with.
¹ 2017 Cone Gen Z CSR Study: How to Speak Z
² The 2016 U.S. Trust Study of High Net Worth Philanthropy, 2016
³ From “why” to “why not”: Sustainable investing as the new normal, October 2017
⁴ Flash Report: 85% of S&P 500 Index Companies Publish Sustainability Reports in 2017, March 2018