Giulia Keese Montanhesi
Lawyer at Marcos Martins Advogados
The pandemic, as well as the social and climatic events and environmental disasters of recent years, have been major catalysts for the new paradigms of corporate responsibility that we are experiencing today.
The logic of shareholder capitalism, considered traditional capitalism, whose sole objective is to make a profit for shareholders, has broken down, giving way to stakeholder capitalism, which strives to satisfy all the publics that relate to organizations, i.e. shareholders, employees, suppliers, consumers and the community in which it operates.
Faced with this change in the world, society and business, investors are increasingly looking for opportunities to make “responsible investments”, in other words, to allocate resources to sustainable businesses from a corporate, social and environmental perspective.
Investors have come to see value in companies that are concerned about the social and environmental impact of their operations and have an active and positive attitude towards this scenario. This is because companies that have consolidated good environmental, social and corporate governance practices demonstrate to the consumer a high level of organization and maturity and this respect and admiration translates to the investor as an investment with lower reputational risk and very profitable in the long term.
The acronym ESG comes from the English term Environmental, Social and Governance and is already global in scope. In Portuguese, it translates as Environmental, Social and Governance. Organizations with good ESG performance indicators are showing great competitive advantage in the market by building an image as aninnovative, well-managed, responsible and engagedbusiness.
ESG investment and green bonds in Brazil are becoming more and more common, and several specific funds in this segment have recently become part of the brokerage catalog.
Following this trend, on June 5, 2020, the Federal Government published Decree No. 10,387, which provides incentives for financing infrastructure projects with environmental and social benefits. The decree amended other regulations on the matter and was an important legal measure to encourage the issuance ofgreen bonds or projects with a social impact on the capital market .
The fact is that the covid-19 pandemic has put a special focus on ESG factors and responsible investment from a public and private perspective. Good environmental, social and corporate governance practices have taken center stage in the process of evaluating a given investment and, for this reason too, companies have started to look at their management in terms of these three factors.
The current context indicates that these indicators are here to stay, both for investment purposes and for the purposes of business management and adapting the business culture that exists in our country. For companies that don’t yet fit into these parameters, the global economic scenario is warning them to start revisiting their corporate guidelines, because it seems that this is not a passing trend.
How can ESG factors be incorporated into business?
First of all, it’s important to clarify that it’s no simple task to measure the degree of compliance of each company and what practices are required in each segment of activity to meet ESG objectives and criteria. The methodologies are diverse and the study of this science is still developing.
The criteria are changing and companies and their managers need to make a continuous effort, but there are concrete actions and specific policies to incorporate these three pillars into business management.
- Environmental factors: sustainability in the production chain and internal policies for the use of natural resources, greenhouse gas emissions (CO2, methane gas), energy efficiency, pollution, waste management, effluents and biodiversity;
- Social factors: labor policies and relations, inclusion and diversity, employee engagement, attracting and retaining talent, employee welfare, worker health and safety, workforce training, human rights, relations with local communities and social responsibility, privacy and protection of personal data;
- Governance factors: Compliance policies , ethics and conduct, independence of the board of directors, management remuneration policy, accountability of directors and shareholders, diversity and plurality in the composition of boards and committees, structure of audit and fiscal committees, ethics and transparency, among others.
Companies that adopt these practices and cultivate these values are increasingly present in the market and on the agenda of investors concerned about ESG criteria, while companies that lack the ability to adapt will quickly lose competitiveness in the market and make way for other players.
