Guest Author: David Cary, Advantary Partner and ESG Advisor

The largest trend ever to impact on American society first became noticed in the 60’s as the Hippies.  Once they had bills to pay, they realized capitalism was pretty useful, so they morphed into Yuppies, and eventually settled in as Baby Boomers. That generation topped out in 1999 at 79 million people.

Millennials (AKA Gen Y) are currently at 73 million and still growing, thanks to migration. Right behind them, Gen Z currently has 69 million and they too are still growing.

For a relative comparison, the US population has grown 50% since 1980, yet the gens Y and Z will top out nearly 90% larger than their Boomer parents and grandparents. Thus, these two generations, sharing similar values, will have a larger impact on society than the Boomers ever could, but here’s the kicker: that younger generation is set to inherit something in the range of FIFTY TRILLION DOLLARS! The Boomers were not that well-capitalized, with just enough for pot and Jimi Hendrix tickets.

Your company is already being impacted by this trend. Gens Y and Z are the largest population in the workforce. They are your employees and your customers, and if you want your company to survive for the next forty years, you must pay attention to them. To summarize what they want from you, they want your company to be a responsible corporate citizen. How does your company impact on the Environment and Society, and what is your company’s corporate Governance to ensure responsibility? The terms “ESG” and “CSR” (corporate social responsibility) have become controversial, so if they bother you, replace them with “reputational risk.”

Whether government regulations or market demand drive it, more than ninety percent of companies in the S&P 500 have ESG reports and they are requiring vendors in their supply chains to comply and report. For example, if you have a small event-planning company, and one of your customers is a large pharmaceutical company, they may require you to report on your ESG compliance. This can quickly become a resource burden on your company, but there is an upside. When your mission is properly aligned with a cause, and better yet, if a cause is integrated into your business model, you have access to a wider variety of capital, and thus, a larger quantity of capital to assemble in a wider variety of ways.

Pushback on ESG tends to come from a concern that it is at the sacrifice of profits, however, consider the following example of results:

1. If it is an investment in retaining employees or customers that you may lose otherwise, is that not just a cost of doing business? Does your company offer employee benefits and paid vacation? Does your company offer free returns? Free shipping? A tech support call center? Like the above, ESG falls in the employee & customer retention category.
2. Second, assume your company produces bottled water, and that I have a nonprofit foundation with the mission of cleaning lakes and rivers. You could donate to my nonprofit, which would be a drag on earnings. There may be some benefit from a marketing angle when sponsoring my nonprofit although that is hard to measure. Instead, I could work with your R&D department to develop a new technology that makes my team’s job more efficient and effective in cleaning lakes and rivers. Thus, it makes your company’s efforts in obtaining clean water more efficient. Then we joint venture to license the technology to other nonprofits globally, and others in the clean water space. Now, we BOTH have a new revenue source, AND you get the positive press to boot. We call this an ESG asset – not because of the revenue -- but because of the added value in goodwill, which you can highlight when selling your company. It’s a win-win-win.

   

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David Cary has more than thirty-five years of accounting, finance, wealth management and capital markets experience, with thirty of it in financial services at one of the largest investment banks in the world. His role was assisting entrepreneurial families and C-level executives with wealth management and estate planning; building and exiting businesses; responsible management of philanthropic efforts; and creative strategies for blending the above for greater impact. As part of a private wealth team, David interacted with investment banking and corporate finance, providing him a rare view of capital and its evolution. David is expanding Advantary’s ESG and Latin America practices. He has an undergraduate degree in accounting and an MBA in finance. https://www.advantary.co/team/david-cary

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