By Stuart R. Levine

Published In, Forbes 

There is growing intergenerational convergence around the environmental, social, and governance (ESG) issues affecting organizations. Millennials, born 1980 to 1995, recently became the largest segment of the U.S. labor market at 34%, and greatest share of the U.S. population (24%). Gen Z, born after 1996, is growing both in numbers (21% of U.S. population) and consumer market importance. By contrast, key senior management decision-makers and corporate board members tend to be from those groups born before 1980 – Baby Boomers, born 1946 to 1964 (22% of U.S.), and Gen Z, born 1965 to 1980 (21%).

All four generational groups can align around ESG as businesses come to know this younger, environmentally and socially aware group of employees and consumers, and work to address their needs. ESG factors are an important senior management responsibility, and also part of board fiduciary duty. The NACD advises that boards consider ESG in oversight of strategy and risk. Long-term strategy should create value in socially and environmentally responsible ways. Considerations include: sustainability, climate change and other environmental factors, diversity and inclusion, employment practices and relations, and board independence.

ESG considerations are very important to Millennials. Deloitte’s “2016 Millennial Survey” describes how most Millennials volunteer, campaign, donate, or actively engage in social, environmental, or political affairs. Millennials put their personal values ahead of organizational goals, with 70% feeling that their organizations share their personal values; 56% would shun organizations whose values conflict. Furthermore, they see business’s potential to do good.

Millennials (87%) believe that success should be measured by more than just financial performance which requires a foundation of long-term sustainability, not just short-term profit maximization. Having businesses tackle ESG seems a higher priority for Millennials than for previous generations. PR firm Weber Shandwick found that 47% of Millennials believe that CEOs should speak on issues that are important to society, versus 28% of Boomers and Gen Z.

Moreover, Millennials said they would be more loyal to their organizations if they did. Given Millennials’ criticality for labor markets, in addition to significant consumer market power, businesses must take note.   Organizations with a higher sense of purpose, inclusiveness, and open communication, also have better recruitment options and lower turnover.

IBM’s 2017 global study, “Gen Z brand relationships: Authenticity matters,” finds that these “digital natives” have influence well beyond their experience and direct buying power, which will only grow in time. Although only 16% of Gen Z make furniture purchases, 76% of them influence family spending on furniture. 26% are direct food/beverage buyers, 77% are influencers for clothing, 55% are buyers and 60% influence others.

Gen Z cares about authenticity. They are not easily swayed by marketing pitches, and have the digital acumen to discern between real and false claims. For Gen Z, brands must show trustworthiness. If brands break their promises, then Gen Z will switch to a competitor. Companies must provide quality products and services and be clear about what they stand for. Gen Z chooses brands that are honest, true to a set of moral values and principles, that will not betray you, that reflect important values they care about, and brands that give back to consumers.

Millennials and Gen Z are already having an impact on the boardroom as boards come to understand these demographic groups and their values. It’s not surprising to find a direct link between ESG and shareholder value. A recent comprehensive Deutsche Bank report summarized the research findings correlating high marks for ESG with lower cost of capital and better corporate financial performance. These companies had better accounting, market, and risk related measures. Even the value of non-equity financial assets, like bonds and real estate, are positively correlated with ESG scores.

The “Governance” in ESG, must be given special attention, as the downside of damage due to a lack of preparedness and oversight, is dramatic. Messaging must be decided in advance, and be well considered. Wharton Executive Education found in surveying 1200 executives, 60% reported being blindsided by three or more unforeseen high‐impact events within a five-year period; 97% of these had organizations that lacked preparedness. Problems included key ESG related issues of company-caused environmental disaster and dangerous product failures.

The convergence of ESG interests across demographics make communication of an organization’s environmental progress, social activities, and linkage to strategy especially important. Briefing all stakeholders, which include the community, investors, employees, and customers, about a company’s ESG status and vision, can be equally important to long-term value creation, especially when Millennials and Gen Z are voting with their careers and dollars. These younger generations are watching, listening, and commenting in social media’s public forums, on the progress that Boomer and Gen Z management are making on ESG.