Understand the concept, pillars and objectives of the practice

In recent years, three letters have gained prominence in the world of business and investments: ESG. Increasingly present in corporate discourses, financial decisions and strategy of large companies, the term has become one of the pillars of business sustainability and an essential criterion for investors seeking more than financial return. But after all, what does ex -and why it has become so relevant?

Far beyond a passing trend, ESG reflects a transformation in the way companies are evaluated and managed. The pressure for transparency, social responsibility and sustainable practices grows at a rapid pace, driven by consumers, shareholders and regulators. Ignoring this reality can pose a significant risk to business that want to stay competitive. Before understanding how this acronym impacts the market, it is essential to know its meaning and the pillars that support it.

What is ESG?

ESG is the acronym for Environmental, Social and Governance (environmental, social and governance), and refers to a set of practices that evaluate the commitment of a particular entity – companies, financial institutions or even the government – regarding the sustainability of their actions.

The term was first used in 2004, in a report published by the UN called Who Cares Wins – In the literal translation, “who cares, wins.” The document would have arisen from a provocation by the former general secretary of the entity, Kofi Anan, when he spoke to various CEOs of financial institutions about the need to adopt sustainability practices in the financial market.

There are even professions directly associated with ESG, such as environmental engineers and sustainability and social impact analysts. And even more traditional professions are being impacted by these demands, according to Paula Batich, coordinator of Senac’s ESNAC Graduate.

“Finance professionals, HR management, marketing and logistics, for example, are some of the areas where these ex -experts have become especially relevant,” Paula said in an interview with Estadão.

ESG Pillars

Each letter of the acronym represents one of the three pillars or dimensions of ex. There are organizations that focus on one or the other specifically, and others that develop the three aspects together.

See how each of them works in practice:

Environmental (Environmental Pilar)

This ESG dimension refers to the company’s posture in relation to the care and preservation of natural resources and the environment in general.

Among the good environmental practices, we can highlight:

• Use of renewable energy, such as solar or wind, in place of fossil fuels;
• polluting gas emission control systems;
• Recycling and proper disposal of waste and reuse of materials whenever possible;
• Effective waste control system in order to avoid air, water and soil pollution;
• rational use of raw materials in order to avoid waste and deforestation.

Social (Social Pilar)

Social criteria are associated with the way the company deals with all the people who are somehow part of their ecosystem. This refers to both the internal environment, directly linked to the operation and the external, considering the impacts that the organization has on society.

Some examples of the social pillar:

• respect for labor laws;
• Well -being and safety policies for employees;
• Promotion and defense of diversity in the staff;
• adequate remuneration;
• concern with customer experience;
• actions aimed at families of employees and the community;
• engagement in social and charitable causes;
• Partnerships with NGOs that can help promote social welfare.

Governance (Governance Pillar)

Finally, the last of the ESG criteria concerns the values ​​of the company and all the actions it promotes to ensure the suitability and transparency of its activities.

Among the governance actions, we can highlight:

• clear career plan, which demonstrates to the employee where he can arrive and how much he can earn;
• organized and preferably audited accounting;
• compliance with tax and labor obligations;
• Disclosure of relevant facts whenever necessary, so that the whole society becomes aware of what is happening in the company;
• Creation of channels of complaints about discrimination and harassment.

The governance pillar is directly linked to the social and environmental, as it is the one who oversees the practices of both.

ESG concept itself makes it clear that companies are living structures. Therefore, what they do ends up influencing the lives of people directly and indirectly linked to the operation themselves.

These people are the stakeholders – or “stakeholders” in the literal translation. These include employees, partners, customers, suppliers and all groups who somehow feel the impact of the organization’s policies and actions.

When it comes to ESG, the management of the taking even more importance. When engaged, these groups can be the biggest advocates of a company. When when they feel harmed or do not agree with the organization’s position in front of sensitive themes, they may also be their greatest critics.

Therefore, for a business to be sustainable in the long run, it needs to be aware of the expectations and interests of all parties involved. In addition, the company must always be transparent in communication of actions that can impact stakeholders in some way.

Of the word, the expression “capitalism of stakeholder”, Popularized by Klaus Schwab, founder of the World Economic Forum. This form of capitalism is based on the same precepts as ESG, as it directs companies’ attention to social and environmental issues. In other words, organizations are not only attached to the interests of shareholders, as it is also their role.

Importance of ESG for companies

For all that we have seen so far, you can understand that the ex -precepts cover a wide variety of aspects that influence human relations. Regarding the business universe, we can highlight some important aspects that bring competitive advantages to the business. Follow.

1. Optimization of the production process

Establishing environmental policies can bring significant gains to the activity itself. Garbage recycling, waste management, use of clean energy sources: all this brings cost reduction and is positively reflected in the production process.

2. Improved relationships with stakeholders

In Vision ESG, the company’s results should benefit not only the shareholder, but all parties that are somehow impacted by their activity. If the organization can establish relationships in which everyone gains, this generates mutual trust and is positively reflected in various social spectra.

3. Management strengthening

When the company does not have a good model of corporate governance, it is much more exposed to errors of administrators, conflicts of interest and, depending on corporate structure, family interference in many cases. On the other hand, public and standardized management processes professionalize and strengthen business conduct over the years.

4. Higher risk control

To a greater or lesser extent, every activity is subject to some risk. But there are variables that the company can control to avoid damage to the operation.

For example, organizations that respect labor laws, comply with tax obligations and have efficient environmental care processes are much less subject to any problems with justice – which greatly reduces the risks of losses that may occur due to future fines or legal proceedings.

5. Improvement of the company image

If the organization works well all the previous aspects, it has a good chance of building a strong brand and sustaining it over time. This creates a positive image with society and the market as a whole.

The danger of greenwashing No esg

The ESG agenda has grown worldwide, either by pressure from society or from investors concerned about the future of business. With this, many organizations seek to take advantage of this trend by presenting themselves as sustainable, even without meeting the necessary criteria.

This practice is known as – or “green wash” in the translation. The expression applies to companies that try to deceive the public by creating a false image of sustainability.

In practice, the greenwashing It can occur in various ways. The company may, for example, falsify environmental seals and labels of its products, omit certain harmful components of its labels, or even disclose false actions ex -expert only to be recognized by society.

O greenwashing It is a strong enemy of the ESG, as it shakes market confidence in sustainability precepts. When corporate scandals, labor complaints or environmental disasters occur with such ESG companies, this also affects organizations committed to the cause.