Investing With Purpose: How Gen Z Is Redefining ESG & Corporate Responsibility

Author: Monica Milanowski , National Climate Fellow

In an era where information is power, transparency has become the currency of trust. Young consumers, employees, and investors are no longer satisfied with vague promises of sustainability, increasingly demanding clear, honest information about corporate practices. ESG refers to the environmental, social, and governance factors that are measurable to determine a company’s sustainability and impact on people, the planet, and the economy. Third-party frameworks commonly combine these factors to assess firms’ sustainability performance shaping frameworks that are commonly used  for assessing firms’ sustainability performance. ESG is becoming a critical consideration for where young people invest their time, money, and energy. 

For youth who will bear the brunt of today's environmental harm, complacency is unacceptable. Gen Z currently accounts for 26 percent of the global population, so we will be the catalyst pushing companies and investment product issuers to take serious steps towards implementing ESG policies. As more of us grow into adults, we represent a larger share of each company’s investors, employees, and customers–and we are looking for companies with responsible business practices instead of strict quarterly performance.

Values-driven investing allows young adults to express their priorities and what matters to them. According to a survey by U.S. Bank, nearly two-thirds of Gen Z investors want to allocate their portfolios to support causes they care about, and over four-fifths would be willing to underperform the S&P 500’s 10-year average return (or average amount of money one could expect to make from investing in the S&P 500 index over 10 years) if it meant supporting ESG-aligned companies. Among these individuals, U.S. Bank found that Black and Hispanic investors were most likely to feel motivated to use investing to support causes important to them.

Youth are displaying their dedication to corporate sustainability and climate action in other ways as well. 64 percent of Gen Z consumers are willing to pay more for environmentally sustainable products, 46 percent are changing or planning to change jobs or industries due to climate concerns, and 72 percent note that environmental policies are important to them when considering a potential employer. These trends indicate that environmental sustainability is a top priority for the newest generation of professionals. As a result, companies that align their policies with ESG practices will likely gain a competitive advantage.

However, only 27 percent of businesses who pledged to The Ellen MacArthur Foundation’s global commitment to stop plastic packaging waste are on track to meet their half-stage targets. This low rate signals to Gen Z investors that businesses may not take their commitments seriously. Young people demand immediate and meaningful action, not just empty rhetoric.

While the surge of interest in sustainable investing offers some hope for the future, it has also led to greenwashing by companies, which generates skepticism among consumers and investors regarding the authenticity of ESG claims. Young investors aren’t choosing imperfect options because they are lazy or don’t know better; risk to the environment is a relatively new, but serious, concern for investors, and financial institutions are playing catch-up in setting appropriate standards for ESG investing.

To combat the challenges associated with finding reliable information on ESG-oriented funds and companies, one Securities and Exchange Commission (SEC) proposal suggests that any fund labeled "socially responsible," "sustainable," or "green" must invest 80 percent of its assets in ways that align with that strategy. 

Transparency in the ESG realm will ultimately create a win-win for all stakeholders in the investing ecosystem. By clearly communicating sustainability efforts and ethical practices–and sticking to them–companies can secure long-term, sustainable growth instead of relying on potentially precarious short-term gains. Embracing ESG principles is no longer optional; it is imperative for the future of business. Economic sustainability can only be achieved through a commitment to social and environmental sustainability. Ignoring these principles undermines long-term viability. The future of business relies on creating value, not just for shareholders, but for all stakeholders–employees, customers, communities, and the planet.

ESG is here to stay. Truly sustainable commitments and transparency matter to Gen Z, and we at Change the Chamber have committed to educate others on the economy's critical role in the climate crisis by urging all youth to hold companies and funds accountable for their business practices. 

It is not merely a question of moral values, but one of economic value. Improved transparency and reliable reporting will ensure economic viability for businesses, investors, and financial institutions in the long run, and several practices can aid in making this a reality. 

Companies can adopt standardized reporting frameworks and conduct third-party audits to ensure the reliability of reported data. Youth can continue demanding for clear and transparent information, and should be included in shareholder and policymaking discussions. Advocating for stronger SEC climate disclosure and other ESG-oriented policies will help ensure an economically prosperous and green future.