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January 09, 2019

Greed is no longer good: Investors prefer sustainable businesses

Written by Ian Koenig
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 In the 1987 movie Wall Street, fictional corporate raider Gordon Gekko spoke for a generation of real-life investors when he uttered, “Greed is good.” But those days are long gone. Today’s investors are measuring businesses not just by their ROI but how committed they are to sustainability/environmental & social governance (ESG). According to the recently published Edelman Trust Barometer Special Report: Institutional Investors, nearly nine out of 10 global institutional investors say their firm has changed its voting and/or engagement policy to be more attentive to ESG risks. And According to the Forum for Sustainable and Responsible Investment, $8.7 trillion, or one out of every five dollars under professional management in the United States, is invested according to socially responsible investing strategies.

As a result, corporate brands are not only embracing sustainability/ESG to attract investors, they’re also becoming more aware of how important it is to communicate more clearly to investors their commitment to sustainability/ESG. The Conference Board reports that businesses are weaving sustainability/ESG more so into their investor relations activities, whether issuing reports or addressing sustainability/ESG in their earnings calls.

Here are some of the reasons why sustainability/ESG has become a must-do corporate communications strategy for investors:

Millennials Become More Powerful

Millennials are the largest demographic in the United States, and they bring a new set of values to investing. Morgan Stanley reports that millennials are 2X as likely as the overall investor population to invest in companies targeting social or environmental goals. As a whole, nine out of 10 millennials are interested in sustainable investing. And the number of millennials who say they are “very interested” in sustainable investing has grown by 10 percentage points since Morgan Stanley last studied investor sentiment (in 2015). As investment advisor Phil Town wrote in Entrepreneur, “These young people are also more likely to look for companies that align with their values, which often lean toward companies that give back to the larger world. With so much information at their disposal, millennials are naturally savvy to what is taking place in the world, which equips them to potentially make better and more informed investing choices.”

Investor Sentiment Reflects Consumer Sentiment

But millennial investor sentiment does not explain everything. Morgan Stanley also notes that 75 percent of investors (including all age cohorts) are interested in sustainable investing, up from 71 percent in 2015. This interest reflects consumer sentiment more broadly. As I blogged recently, consumers are increasingly evaluating businesses based on their commitment to sustainability/ESG. Businesses that do good in addition to selling good products are in favor. As I noted in my previous post, 93 percent of global consumers want to see more of the brands they use support worthy social and/or environmental issues, according to the Sustainable Lifestyles Frontier Group.

This general consumer preference bleeds over into investing sentiment. Whether people are buying a product or investing into a stock, they want to be aligned with corporate brands that create a stronger sense of connection beyond what a fleeting transaction can provide. Sustainability/ESG is a huge way for businesses like Procter & Gamble to create that connection to multiple audiences.

Morgan Stanley agrees, stating, “Consciousness around sustainability has leapt from the consumer space to the investment space. According to the latest survey, investor attention to sustainability factors is now growing faster than consumer attention.” Investors do not act in a vacuum. The same person who buys Patagonia clothing because the company gives back to the planet is looking for sustainable businesses to invest in, too.

Increased Accountability

A third major factor is that better tools exists to hold businesses accountable for both their financial performance and their commitment to sustainability/ESG. You can easily evaluate different investment funds around ROI and ESG with tools such as the publicly available MSCI ESG Research ETF Overview, the Socially Responsible ETF data base, or the Morningstar Sustainability Rating. This kind of complete, transparent information is just a Google search away for anyone. Layer on data that is available through private mechanisms such as 401(k)s, and you have a far more empowered and informed investor. As a result, corporate brands are held accountable in a more systematic, transparent way – accountable for both their track record with sustainability/ESG and their ability to deliver financial results.

What You Should Do

Sustainability/ESG needs to be a theme that permeates your story everywhere you tell it – to investors, employees, consumers, and all your audiences. That’s because investors look across every touch point to learn and then validate what they know about your sustainability/ESG strategy. If they hear you talk a good game during an investor call but nowhere else in your corporate outreach, you will lose credibility.

At Investis Digital, we regularly analyze and score corporate brands on how well they’re leveraging their ESG/CSR story digitally.  We combine strategic insight with original ideas to create a sustainability narrative that’s relevant and compelling for each of the audiences your work affects -- a story that goes beyond policies and performance, unlocking awareness, affinity, and action across every stakeholder group. As a next step, we suggest assessing your corporate brand to better understand gaps and opportunities around leveraging your story to drive business impact. Contact us to learn more.

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