ESG: the subject of the moment for investors

Despite being discussed for years, the term became a trend after several movements that discussed sustainability. One of the actions was the letter to shareholders, investors and partners written by Laurence Fink, CEO of Black Rock, one of the largest investment management companies in the world. The businessman had been talking about sustainability since 2016, but it was not until the end of 2019 that he fully focused on the subject.

The influential businessman argued that climate change directly affects the economy and recognizes that companies aligned with ESG criteria obtain better financial results. For this reason, Black Rock decided to recommend shares of these companies in the portfolios they offer to their customers.

In addition, other movements have brought the matter into focus, such as the Paris Agreement in 2015, which discussed the problem of climate change and the responsibility of countries to reduce carbon emissions. Sustainability and global warming were also discussed at the World Economic Forum Annual Meeting in Davos. The commitment of several companies to the 17 Sustainable Development Goals (SDGs) of the United Nations Global Compact (UN) and the number of signatories to the sustainability code of the Principles for Responsible Investment (PRI) cannot be left unmentioned. The PRI represents the commitment of the world’s major institutional investors to invest in sustainable business.

There has also been, since 2005, the Corporate Sustainability Index (ISE) of the Brazilian stock exchange (B3), which supports investors when deciding where to invest the money, in addition to resolutions such as the National Monetary Council (CMN), created in 2014, which determines that financial institutions authorized by the Central Bank must adopt a Social and Environmental Responsibility Policy (PRSA), influencing companies to adopt ESG practices as a new reality in the business world.

The world has watched these movements and discussions closely and ESG has become the center of attention for investors. Corporations are increasingly concerned, not only with sustainability, but also with the exposure of socio-environmental risks that directly impact on business and stock stability, leading investors to adopt the concept of “responsible investments” as a decisive factor in the allocation of resources After all, ESG practices directly impact the image of the company and, consequently, there is an increase or decrease in the value of the shares.

However, many people still do not know what it means to be a company that follows the ESG pillars. Therefore, it is worth explaining the theme in detail.

What is ESG

Environmental, Social and Corporate Governance (ESG) can be translated into Portuguese as Environment, Social and Corporate Governance (ASG). These are the three pillars of sustainability that determine some specific attitudes to care for the environment, carry out social actions and ensure organization and compliance within companies. But how about citing actions involving each of the three pillars?

Environmental

This pillar determines sustainable practices within companies, which promote waste and effluent management, circular economy, use of renewable energy, reduction of greenhouse gas emissions (CO2, methane gas), energy efficiency and environmental preservation. Companies must carry out a series of actions and programs aimed at sustainability in order to be aligned with this first pillar.

To achieve this rate, companies need to reduce carbon emissions in order to avoid global warming, in addition to adopting eco-efficiency programs and even developing products aimed at the environmental sector. Companies must also do all waste management, including logistics and reverse electronics manufacturing.

Totally sustainable companies, which take care of the environment promoting the circular economy and managing greenhouse gases, are highly sought after by investors. The environmental theme is on the rise in the business world and directly impacts the image of companies. Therefore, being sustainable is a relevant factor for shareholders when choosing where to invest the money.

Social

The social pillar determines social actions that contribute to the good relationship and work environment for company employees, inclusion and diversity, human rights, data protection and practices to help communities or people in need.

A company aligned with this social criterion is one that recognizes its employees, develops people, offers improvements in the quality of life with good working relationships, promotes donations and assistance to the most needy and encourages voluntary work within communities.

The social part of companies is increasingly seen by society as a whole. It is one of the most important requirements to have a good image on the market. Crises can generate huge losses for companies that are not concerned with this aspect, capable of generating major financial impacts and falling stocks.

Corporate Governance

Corporate governance is nothing more than compliance rules, a code of conduct for companies and all forms of management, which must excel in transparency and compliance with current legislation. Some actions that can be mentioned are: defining, ensuring, promoting and inducing good practices within the company, with total ethics and transparency in governance, ensuring efficient risk management, adopting practices to protect the rights of shareholders, having a totally independent board and the commitment to generate value for investors.

Corporate governance is of the utmost importance for the smooth running of the company. When a company is disorganized, does not have a code of conduct and does not comply with the law, it can have problems inside and outside the organization, which directly impacts the value of the shares and the financial of the organization.

The importance of being ESG

Practicing the three pillars of sustainability is an arduous task for companies, but it brings positive results in the business world, competitive advantages, improved reputation, greater profitability and improved valuation over time. ESG, of course, is a way of encouraging companies to take better care of the environment, preserve forests, reduce the use of natural resources and the generation of waste, in addition to promoting the circular economy to prevent materials from being disposed of in landfills. With these sustainability criteria, corporations are now more concerned with the environment and help contain climate change.

In addition to the environmental aspect, organizations start to carry out social actions to ensure better working conditions and an environment of recognition and diversity within the company. Within the social pillar, companies increasingly seek to help communities and people in need. In the area of ​​corporate governance, companies seek compliance and transparency to ensure fair processes that comply with the legislation.

Therefore, being aligned with the ESG pillars means taking care of the planet and ensuring that the market sees the company in a positive way to attract investments and move the economy. Ambipar is a leading multinational in environmental management and helps companies to take actions to meet sustainability indexes.  

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