Investors are demanding greater transparency — and so is the next generation

Delivering on ESG commitments can help businesses attract needed talent, secure competitive capital and help our communities build back better.

Authored by:
Alison Jackson, EY Canada Tax Partner and Managing Partner, Calgary

The pandemic has been pivotal for business and how consumers think about business. Sudden stops to travel and manufacturing highlighted the impact of our growing footprint on the environment. Capacity challenges in healthcare and safety equipment triggered questions about gaps in our societal framework. And supply chain disruption revealed the need for more agile governance and operations approaches in many public and private businesses.

While environmental, social and governance (ESG) factors are increasingly weighted with greater importance by investors, the events of 2020 have only highlighted the expectation that organizations will balance what’s good for business with what’s good for stakeholders. Business success now is about more than the bottom line — and those that link action with ambition will increasingly capture the attention of both investors and consumers.

Thirty-eight percent of Canadian consumers say sustainability has become more important in their shopping decisions since the start of the pandemic. While 98% of global institutional investors have made it clear that they’re moving to a more disciplined approach to evaluating companies’ non-financial performance when making investment decisions. And with our next generation calling on the corporate world to step up and put purpose over profit, these trends are here to stay.

This year, I had the opportunity to host Eva Ren, a student at McGill University, at EY as part of the Plan Canada #GirlsBelongHere initiative. Eva spoke with several of our senior leaders across the country on topics such as diversity and inclusion, sustainability and long-term value creation. While the objective of the #GirlsBelongHere initiative is to give girls the chance to explore career possibilities, it was an equally important opportunity for EY to hear directly from the next generation of leaders on priority topics — including corporate responsibility.

When asked why it’s important for Canadian businesses to address ESG measures, Eva responded, “It’s the moral thing to do, but it also makes business sense. By capitalizing on each respective ESG dimension, companies can realize massive resource and cost savings in their operations and supply chains (environment), attract top talent while boosting employee productivity and retention (social), and ensure ethical decision-making, which ultimately minimizes reputational and legal risk (governance).”

Eva’s perspective is a testament to how the next generation is watching, and preparing to make investment, purchasing and workforce decisions that align with the values of an evolving world. 

As businesses juggle priorities with strained capital, they must remember that ESG needs a seat at the table. Delivering on thoughtful commitments will be vital to attract the needed skills, secure capital and build long-term value for the next generation to thrive beyond COVID-19.

Attracting needed skills and talent. Generation Z is about to enter the workforce and their arrival will come with new expectations and demands of businesses. Research suggests that 6 in 10 millennials are willing to take a pay cut to work for a socially responsible company. And perhaps not surprising, research has shown that a positive social impact correlates with higher job satisfaction. Committing to purposeful values is one thing. Putting action behind them will be critical to not only attracting needed skills and talent but retaining top talent in a highly competitive market.

Securing competitive capital. As millennial and Gen Z investors become an increasingly important segment of the investment market, their interest in values-based investing will enhance pressure for ESG-type transparency. Addressing the evolving wants and needs of these stakeholders will be critical to secure the capital needed to make long-term, growth-oriented investments and supporting new programs and initiatives that will evidence an organization’s commitment to its stated values. Organizations like the Montreal Social Value Fund, which Eva has co-founded, and other Social Value Funds across the country are run by post-secondary students who make impact-first investments that prioritize the social and environmental efforts of Canadian businesses. And they’re one of many initiatives that work directly with organizations who are committed to driving sustainability efforts.

Building long-term value. Millennials and Gen Z have been exposed to challenging economic periods at different times in their maturity. They experienced the global recession, with its lasting impact, and we are all living now in a time of great social change. Our next generations are relying on businesses to create an environment where companies’ goals are aligned with society’s goals, to create long-term value not just for their shareholders, but for employees, communities and the planet.

With the COVID-19 pandemic making more companies recognize the need to expand their focus, the ESG conversation is common, but action must follow. In a competitive business environment, having strong ESG and sustainability programs will help businesses be competitive, attract needed talent and capital, help our communities rebuild faster and hopefully meet the expectations our next generations are setting for all of us.