Guia do Investidor - 14/12/2023

By Writing Team
Posted in December 14, 2023

Investors need to be well-versed in ESG funds and evaluate reputable organizations to prevent money from falling into greenwashing practices.

The ESG agenda has been gaining increasing prominence, strengthening the image of corporations and executives leading the implementation of good practices in the country and around the world. However, investing in ESG stocks and organizations that truly implement sustainability can be a challenging and difficult task. This is because many companies end up practicing so-called ‘greenwashing,’ where they promote a false image of sustainability and claim to be what they are not.

“This ‘green makeup’ can confuse the public, but investors need to be careful, both for potential environmental consequences and the loss of relevant investments and partnerships to the business, as well as to comply with the law, ensuring legal, accounting, and financial risks,” says Claudinei Elias, founder and CEO of Bravo GRC (a technology company and specialized consultancy in the implementation of Governance, Corporate Risk Management, and ESG solutions), who recently took on the position of Partner and Global CEO of Ambipar ESG.

Thinking about how to assist investors in making the most accurate decisions possible, the expert provides five tips for those who want to invest in good practices in 2024.

1 – Companies with ESG perspectives tend to protect and generate more value in the long run.

The first tip for ESG investments is: start. Companies that integrate an ESG strategy into their decision-making are more aware of the risks around them, consequently reducing the impact of negative risks and taking greater advantage of opportunities. These companies reduce their reputational risk and demonstrate greater reliability in their operations.

2 – Understand the various types of investments within the ESG universe

There are several ways to invest in “ESG,” including the option to invest in a single company that meets ESG requirements. ETFs contain various companies from different segments, reducing sectoral risk but maintaining the value of sustainability. It is also worth noting that the ESG universe includes impact funds, mainly focused on social and climate development.

3 – Define your criteria, priorities, and risk appetite

One important thing in the investment world is for the investor to make decisions for themselves, after all, no one knows better than you where to invest your money. That said, it is important to know that the world of ESG is quite complex, encompassing various indicators and proposals. The investor can choose a specific one to focus on, such as renewable energy companies that are helping with the Brazilian matrix transition. Another example is determining your risk appetite; some companies that are very innovative in sustainability also carry a higher investment risk.

4 – Check for the possibility of greenwashing, socialwashing, and pinkwashing

Greenwashing is a problem that has been plaguing the market regarding the ESG theme, mainly because those who practice it affect the market in two ways: discrediting companies that truly incorporate ESG strategy into decision-making, and investors/people who have placed trust in a company that practices greenwashing and harms the market in general. Of course, it is very difficult to identify greenwashing within companies, but often quick research on news websites can contain valuable information about the true reputation of the company regarding its employees, customers, suppliers, etc.

5 – Learn how to integrate ESG into your portfolio

Like any good investor, you should know how to integrate ESG stocks into your portfolio, that is, know how to compose the diversification of your assets. It is not recommended that ESG-biased investments be the entirety of your investment but rather part of a better strategy, ensuring that your portfolio mitigates risks from various fronts. For example, a portfolio with fixed income (mitigating market risks), ESG energy companies (mitigating transition risks), and dollarized assets (mitigating Brazil risks).