Young Analysts Don't Put Their Money on Sustainability

There’s bad news from Wall Street about the future of sustainable business practices: Despite recent governance scandals and growing concern among institutional investors that most current mainstream financial research fails to take account of potentially material environmental, social, and governance (ESG) issues and is inadequate for the needs of long-term investors, many young analysts appear:

Unconvinced of the materiality of most ESG issues to business;

Unable to consider them because of inadequate information, training or tools;

Unwilling to depart from business as usual because of conflicts with remuneration, career advancement or culture.

Those are the sobering findings of a new study from the World Business Council on Sustainable Development and the United Nations Finance Initiative. Their study set out to determine “just how deep the disconnect between high-level promises and real performance is and what keeps young financial analysts from translating rhetoric into reality.” They determined that “young financial analysts are extremely skeptical about the relevance of ESG issues to their work.

Based on the results of interviews with young financial analysts and an expert roundtable meeting held in New York in March, the authors make suggestions for both senior management in the financial services sector and others attempting to reach a young analyst audience.

"Our work suggests that this anticipated 'generational change' is not happening," state members of the World Business Council on Sustainable Development's Young Managers Team, a group of 25- to 32-year-old corporate managers, who authored a report on the survey findings entitled Generation Lost. "Young analysts appear unconvinced over the materiality of most environmental, social, and governance issues to business; unable to consider them because of inadequate information, training, or tools; and unwilling to depart from business as usual because of conflicts with remuneration, career advancement, or culture."

According to the study:

Our work suggests that this anticipated ‘generational change’ is not happening. Young analysts appear unconvinced over the materiality of most environmental, social, and governance issues to business; unable to consider them because of inadequate information, training, or tools; and unwilling to depart from business as usual because of conflicts with remuneration, career advancement, or culture. Based on the perspectives gained during this study, the WBCSD YMT and UNEP FI suggest that:

1. Sustainability advocates could group environmental, social, and governance issues as intangibles along with reputation, strategic vision, brand equity, and other subjectively-valued, but undeniably material, intangibles. The term non-financial is best avoided, as are moral arguments. To overcome the widespread cynicism over materiality, it will be important to put forth credible, specific examples.

2. Financial institution executives could consider communicating internally their commitment to incorporate environmental, social, and governance issues, and clearly linking analysts’ career progress and remuneration to analysis of environmental, social, and governance issues. It will be important to invest in education and the development of quantitative and qualitative tools for such analysis.

The study can be downloaded from GreenBiz.com.