ESG data-driven technology is helping companies better understand how consumers are interacting with money
Purchase, investment, and donation preferences are becoming increasingly dependent on whether or not an organization’s values are aligned with their clientele: ‘Does your company offer fully-funded paternity leave?’, and ‘How many employees drive electric vehicles?’, are all questions your target audiences are demanding answers to.
In this article we will discuss:
- How younger consumers’ spending patterns are changing
- ESG datasets influencing purchase, and investment preferences
- Technology embracing people’s desire for control over how their values are implemented
How younger consumers’ spending patterns are changing
Based on a report published by Pictet Wealth Management:
- Millennials make up a group of people that consist of some 80 million American consumers (baby boomers are 76 million by comparison)
- Millenials are currently entering their prime spending years with an annual discretionary spending growth of ~4%, and are already starting to outspend boomers in certain areas
- Millenials are very price-sensitive while simultaneously holding businesses accountable to their personal value systems
- In terms of retail, 84% of smartphone owners ages 18-34 use their devices to help them make in-store purchase decisions
- The number of cars purchased by millennials in the US in recent years has declined by over 30% (using shared solutions like ZipCar instead), indicating this segment’s desire to integrate into the sharing economy, as opposed to the boomer’s ‘ownership-driven economy’
- Pictet is seeing a clear millennial, Gen X, and Gen-Z trend of investors who are committed to Environmental, Social and Governance (ESG) investment practices. This includes pledges to not invest in tobacco/weapons/alcohol companies, as well as entities that are heavy on pollution. These groups are however increasingly looking to invest in companies with diverse hiring policies, high renewable energy usage as well as strong female representation in key corporate positions.
ESG datasets influencing purchase, and investment preferences
A recent joint Vanson Bourne – Bright Data ESG survey showed that ‘80% of those in senior management positions admitted to using ESG as part of making key business strategy decisions’. This section will focus on alternative data sets that can be utilized by executives in order to better understand their younger consumer bases’ motivations.
Customizing clients’ investments in ESG
In order to quiet their conscience, investors were once happy to put their money into ESG-oriented investment funds. But according to the SEC Chair, Gensler, many of those funds are not living up to promises, and investors are not able to create values-customized investment portfolios. Here are some of the alternative data points that investment houses, and technology may want to consider making accessible to their clientele:
Greenhouse gas emissions (GGE)
Many companies have made commitments to reduce greenhouse gas emissions, but in practice have done very little, and are fighting SEC-led attempts to impose climate-risk disclosures in the context of financial reports, and filings.
This means many investment houses now prefer checking these ‘environmental commitments’ in practice using alt data including:
The quantity of fossil fuel being burnt for electricity, heat, and transportation by a given company, as these are the biggest sources of GGE. So for example one could collect:
- Satellite imagery of coal delivery, and smoke emission density/time in order to determine if plants are effectively decreasing or increasing usage.
- Collect publicly available web data on the types of cars being bought or leased for company employees to determine if the vast majority of their fleet is comprised of electric/hybrid or diesel/gasoline combustion vehicles.
Human capital disclosures
In addition to the environment, investors are also concerned with how corporations treat their employees. Young people want to be sure they are investing in companies that create positive, diverse, and flexible working environments. Here are some alternative data points that can be collected to ensure investor-values-alignment:
- Workforce turnover meaning how often are employees fired or independently decide to leave the company, as well as Compensation, and benefits are both metrics indicative of employee wellbeing. This data can be collected from sites like ‘Glassdoor’ that allow previous employees to publicly review a company that they have worked for,
- Skills, and development training can be collected from social media, company websites, and search engines enabling portfolio managers to determine how much a publicly traded entity invests in their work force’s professional development.
- Workforce demographics, and diversity are very often important to investors who themselves come from ethnically diverse backgrounds, are female or belong to a minority sexual orientation , and would like to ensure fair representation for their ‘kinsman’. These datasets can be collected from business social platforms such as ‘LinkedIn’.
- Health, and safety, are important as many people do not want to make a profit off of the modern equivalent of ‘blood diamonds’. They want to ensure that factory workers’ limbs, hearing, and general wellbeing are cared for. One can monitor the web for news stories or even publicly available legal documents of class action suits filed by a worker’s union, for example.
This data is not only playing a key role in investor decisions but also as far as consumer decisions are concerned. Millennials are very health conscious, and are known to carefully read labels, and buy from companies with charitable programs, and environmentally-friendly production methods, as described in the Pictet survey cited above.
Technology embracing people’s desire for control over how their values are implemented
Corporations looking to market their goods, and services to younger consumers, as well as investment houses looking for ‘new capital investments’ are realizing that it’s no longer about slapping the word ‘ESG-friendly’ onto a label or investment portfolio. Consumers want more information, control, and personalization when deciding where to spend their money. For example, most millennials may say that ‘employment equality’ is important to them when choosing if they want to invest in / buy from a company or not. But how they define that can differ greatly:
- Minimizing gender pay gap inequality may be important for some
- While ensuring fully-paid-for paternity leave may be crucial to others
Identifying this need, OpenInvest, an investment technology start-up, recently purchased by JPMorgan, has created a way for investors to maintain a tailored, values-driven portfolio.
JPMorgan has taken this step, as part of a series of investments, and concrete moves towards becoming a leader in the ‘sustainable investment movement’. ESG funds have attracted upwards of $2 trillion, and JPM wants a controlling stake, and an increased market share.
OpenInvest’s unique approach allows both retail investors alongside large-stakes asset managers to manage their portfolios in line with investor values. Instead of just ‘dumping’ funds blindly into ESG ETFs, clients use 35+ sources that feed data into algorithms, easing, and enlightening the decision-making process.
The bottom line
Younger investors, and consumers want more granular control over what Environmental, Social and Governance business practices their money is funding. This hyper-individualism is being translated to other fields such as philanthropy, where people are no longer content with ‘blanket disclosures’. Giving people the ESG datasets that enable them to make informed decisions is therefore increasingly becoming a key business differentiator for entities that want to remain relevant, and experience meaningful growth, and popularity among the millennial investors, and consumers they so eagerly court.