ESG approach gains relevance for business

The growing trend of investors, especially foreigner investors, to assess companies under the environmental, social and governance perspectives (ESG) is proving that it is here to stay. Although the Covid-19 pandemic has contributed to a scenario of collaborative business environments and determined to fulfill the purpose of generating value for all stakeholders, the initiative of organizations to develop ESG actions may have been hampered by the time of crisis. It is necessary for companies to have a good internal structure on the subject so that, that way, they are able to attract investments and obtain financing – which is sometimes conditioned to ESG practices already implemented, generating an impasse that needs to be resolved.

The search for ESG bonds is growing in the financial market. Global data show that, in 2020, the amount collected from this category of bonds was US$ 490 billion. In 2020, US$ 347 billion was also injected into ESG investment funds and, in total, 700 new funds of this type were launched¹. In Brazil, investments in ESG bonds totaled US$ 5.3 billion in 2020, more than double that of 2019, when they reached the US$ 2.2 billion mark. In the first month of 2021, bonds with this theme have already exceeded the volume of 2020, with US$ 5.4 billion invested².

In a scenario where the purpose of an organization and its values have been appreciated by investors, another important factor also stands out: society’s demand. An increasing number of consumers – especially the youngest ones – believe that companies have an important social and environmental role. This concern has been reflected even in decisions to purchase and acquire services.

Brazilian regulatory system

Although the trend is encouraging, the Brazilian scenario still presents some difficulties. In Brazil, there are still few regulatory standards for ESG criteria. In the financial sector, for example, the main regulatory bodies are the National Monetary Council (CMN) and the Securities and Exchange Commission of Brazil (CVM), whose regulations and measures are restricted to the obligation to ensure integrated reporting and the implementation of the Social and Environmental Responsibility Policy (PRSA).

Moreover, with bill No. 289, which amends Law No. 6,404/1976, the annual presentation of the Sustainability Report has become mandatory since 2012; all companies or corporations must present it considering the “environmental, social and corporate governance dimensions”. Thus, the Brazilian regulatory system still has a long way to go to create a favorable environment that intensifies the adoption of ESG criteria.

First steps

Within companies, organizational culture and maturity in the subject can also be understood as difficulties faced by companies. Despite having aroused great interest from entrepreneurs in Brazil, this increased attention to the topic is recent.

Adapting practices and operations to meet environmental, social responsibility and governance criteria requires the engagement not only of the operational body, but of the entire leadership of the organization, as the subject is complex and addresses a new way of doing business. Moreover, since different topics are addressed when talking about ESG, aligning performance in such practices inside and outside the company, with suppliers, customers and other stakeholders, for example, requires a deep and mature look, capable of incorporating sustainability as part of the company’s strategy for generating value – which is not an easy task.

Although there are challenges to the implementation of ESG practices in organizations, it is possible to develop them with corporate strategies and controls focused on sustainability, and they should not, therefore, be neglected. Optimizing the use of natural resources, such as water and energy (environmental pillar), reviewing labor relations policies, such as inclusion and diversity, and increasing employee engagement in the organizational culture (social pillar) and ensuring the independence of the Board and structuring of audit committees (governance pillar), are simple actions that can serve as a starting point for the transition to this new business model.

The increase in maturity resulting from these practices leads to more complex actions – which can be carried out by the companies themselves or by specialized consultancies – such as mapping processes to identify material issues, risks and opportunities relevant to the business, design of strategy, objectives and goals, implementation of indicators and measurement of impact. It is worth noting that the role of governance guarantees the involvement of the other two pillars. Without good governance, it is not possible to develop a sustainable model that is in line with the expectations of the company and stakeholders.

Incorporating the ESG perspective into business should not be seen as distant and unreachable. On the contrary, it must be understood as something to be overcome with clear objectives and achievable metrics in order to improve the management and resilience of companies. Raising funds in the financial market, through investments or lines of credit with better conditions, then becomes a consequence of the positive performance of companies with the implementation of ESG actions.

¹ Época Negócios (in Portuguese)

² Infomoney (in Portuguese)

Anselmo Bonservizzi is the Risk Advisory leader at Deloitte Brazil

Eduardo Galeskas is manager of the Sustainability / ESG practice at Deloitte Brazil