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What is ESG? Environmental + Social + Corporate Governance!

What is ESG? Environmental + Social + Corporate Governance!

ESG (Environmental, Social and Corporate Governance) is a set of good practices implemented by organizations aimed at not only proving their soundness and ensuring sustainable growth, but also to convey their concern for the environment and social well-being. 

Did you know that responsible investing accounts for 35% of the global financial market? With this in mind, we prepared this post to help you better understand what ESG (Environmental, Social and Corporate Governance) is and how it applies to business survival. 

To summarize, this is a new look at sustainability on the part of investors, like a filter when making decisions about whether to include (or not) certain assets in the portfolio. Therefore, understanding “what ESG is” involves observing how this movement is revolutionizing the investment world, with emphasis on the growing pursuit of companies working to build a better future (for everyone). 

After all, what is ESG (Environmental, Social and Corporate Governance)?

To understand what ESG is, you don’t need to be an expert in the financial market, as these principles serve companies and investors, as well as consumers. Basically, there are three key components to consider, addressed below. 

Environmental

The first letter in ESG represents the Environmental. It refers to environmental metrics that help demonstrate the level of organizational commitment to minimize impacts on the environment and the appropriate compensation. For example, industries can opt to use solar energy

Social

The second letter in ESG corresponds to the social scope, which is the commitment to care for the people who make up your stakeholders, without forgetting employees and the surrounding community. 

As example, there’s the business coalition for racial and gender equality, which aims to “further promote diversity and racial and gender equality in the job market”. 

Governance

The last letter in ESG refers to corporate governance, which involves risk management and compliance to prevent fraud and corruption, which can harm investments and organizational reputations. 

To this end, Serasa Experian provides tips on preventing business fraud, including: data theft, forged checks and documents, cloned cards, favoritism and other recommendations to protect operations.   

ESG company: what is it?

The definition of “what ESG is” can vary depending on the characteristics of each company, because not necessarily is it necessary to have a sustainable product. On the other hand, it is possible to adopt sustainable practices, starting with simple attitudes. Furthermore, it is important to take into account the relationship with stakeholders, the governance policy and the adoption of measures to minimize problems that society is facing. 

For such, we highlight some of the advantages of ESG investments: 

More competitiveness in the long term, given the consumer trend to “exclude” “socially irresponsible” organizations. In fact, according to a Nielsen study carried out in 2019, 42% of people interviewed are changing their consumption habits to reduce their impact on the environment. The same study shows that 65% do not buy from companies associated with slave labor; 

An investment deemed socially positive, that is, good for society as a whole, which also adds value to the company image. In other words, conscious consumers tend to choose brands that have purposes they genuinely identify with; 

A solid foundation to invest resources well, in accordance with the strategic plan and a corporate transparency policy. In this case, the focus is to ensure fulfillment of commitments to all stakeholders (investors, shareholders, employees, suppliers and others); 

Talent retention and reduced personnel turnover, given that newer generations hold sustainability as a priority. As a result, some people may be more willing to earn a lower salary if given the opportunity to work sustainably. 

Examples of those who understand what ESG is well

The concept of “what ESG is” in relation to sustainability is consolidated in many countries but is not yet the case in Brazil. However, many companies are betting on this movement since such principles generate engagement and add important arguments to increase the interest of potential investors. 

Companies in Brazil that work with an ESG culture

To make it easier to understand what ESG is, we list three companies that already put these criteria into practice: 

Santander: in terms of governance, the bank’s processes, policies and conduct are based on transparency and shareholder rights, as shares are traded on stock exchanges: BM&FBovespa (São Paulo/Brazil) and NYSE (New York/ United States). Therefore, operations are subject to domestic and international audit and security mechanisms, such as the Sarbanes-Oxley Act. 

Natura: has the challenge of creating positive impacts with its activities, which includes: offsetting carbon emissions (by planting trees and recovering water springs), in addition to researching new uses for materials that would otherwise be discarded, and other projects; 

Itaú: in the 2019 Integrated Annual Report, the bank had a section dedicated to ESG. This additional information includes business indicators and ongoing practices, including: financing in sectors of positive impact, financial citizenship and responsible management. 

ESG Brazil Index

B3 has six sustainability indices. The Exchange advocates that, “in addition to serving as attractive instruments for investors committed to this topic, it encourage companies to incorporate environmental, social and governance aspects into their day-to-day”. The six indices are: 

  • Corporate Sustainability Index (ISE) 
  • Carbon Efficient Index (ICO2) 
  • Special Corporate Governance Stock Index (IGC) 
  • Corporate Governance Trade Index (IGCT) 
  • New Market Corporate Governance Equity Index – (IGC-NM) 
  • Special Tag Along Stock Index (ITAG) 

Lastly, we recommend InfoMoney’s Stock Pickers podcast on the potential of leveraging financial results in companies that value ESG aspects. During the podcast, experts discuss whether businesses are part of global problems or whether they are in line with solutions, citing biotechnology and the energy transition to renewable resources

Serena has the energy that empowers companies and people to grow. Find out how to be a partner and obtain clean and more affordable energy. [hyperlink] 

See also: 

  • What is the difference between sustainability and sustainable development? 

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