Whether publicly traded technology companies have verified sustainability plans in place 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 worldwide in 2021.
As investors continue to put their money into technology companies making a difference, one misconception for these companies jumping on the ESG bandwagon today is that a majority of these investors are more likely to belong to younger generations. New research shows 54% of Gen Z and millennials holding ESG investments, compared to only 42% of boomers and 25% of Gen Xers.
From combatting climate change to expanding the company’s diversity or calling for more corporate equitable policies, technology companies need to understand now 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 there is no denying that ESG has been around for a long time, the recent acceleration of widespread reporting on ESG 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, social injustice issues, the “Great Resignation” and talent shortages have all been contributing factors.
Despite not being the 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. However, social and economic equity throughout the corporation also seems just as significant because these individuals consume more related news articles, blogs, and videos through social media.
Even if it’s not investing in ESG funds, Millennial and Gen Z individuals have also started to shift technology companies’ workforce to attract and retain younger talent that can grow within the company. Gen Z talent currently makes up 46% of the full-time workforce in the U.S, where governance factors, such as flexible vs. one-size-fits-all healthcare plans, including mental healthcare, 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 all benefit in continuing to mold an environmentally and socially conscious world. Nevertheless, a lack of ESG transparency remains, impacting how younger generations view the specific technology company.
The Current Lack of ESG Transparency
With a technology company’s ESG practices being 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, whereas younger talent looking for employment also gravitate toward technology companies with ESG scores 25% higher than average.
Unfortunately, ISS and other proxy advisors scoring technology companies’ ESG practices are the main culprits of the lack of transparency in the ESG rating systems created to analyze a public technology company’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 technology companies and technology shareholders must have direct access to how these 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 Tech Companies Engage Gen Z & Millennial Investors?
If a technology company’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.
One example of digitally interacting with millennial and Gen Z investors is virtualizing annual general meetings (AGMs), better known as the most important shareholder meeting of the year. According to a packaging software company, Lumi, they received a 70% increase in the average number of attendees attending AGMs in 2021 compared to 2020, which proves beneficial for Gen Z investors but also shareholders as a whole in increasing the quality of participation.
Moreover, technology companies can also think beyond the virtual AGMs and continue to invest in investor relations, whether it’s inviting directors to make regular contact with younger shareholders or just helping 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, technology companies can still have the power to take back control and tell the technology company’s story using a more positive lens.
Just generating more authenticity in the company, especially when it comes to ESG issues, will ultimately help fend off proxy advisor ratings from what is true and what is false. If younger investors feel they’re being greenwashed, they will switch off and find their information from other sources.
Even though engaging the next generation of investors is no easy task, technology companies must find innovative ways to capture the attention of younger investors. Thinking digitally, communicating any ESG triumphs, and engaging younger investors all year round are just ways to ensure technology companies 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/