The adoption of an ESG agenda in companies brings advantages, such as improved reputation, greater profitability and improved valuation over time.
ESG is the acronym for Environmental, Social and Governance. Environmental, Social and Corporate Governance refers to the three factors that should guide the choice of an investment. If investors used to analyze profit only when investing money in a company, today, social and environmental impacts are also being considered.
This change shows how the market is maturing and valuing responsible initiatives, being complementary aspects when evaluating a business. Keep reading the text and understand better about it!
What is Environmental, Social and Governance?
ESG refers to three analytical criteria that investors use to determine whether a company is worth investing in.
- Environmental or Environmental: this aspect analyzes whether the company minimizes its environmental impacts, such as CO2 emission issues, energy efficiency, conscious use of water, correct disposal of waste.
- Social: the social aspect is related to the care that the company has with its employees. This means that the investor will evaluate the promotion of well-being, job security, respect and encouragement with the community in its surroundings.
- Governance or Governance: This aspect analyzes whether the company adopts the best corporate governance practices, encouraging good practices, diverse advice, transparency in the rendering of accounts, search for ethics and fight against corruption.
That is, these aspects are used by investors when choosing companies to invest taking into account socio-environmental conduct and corporate responsibility. In this sense, organizations have invested more and more in these areas, in order to add new investments and guarantee the expansion of their businesses.
What is the purpose of ESG?
In the 2000s, large institutions began to realize that it was not enough to look for profit if companies were to suffer losses due to environmental accidents, labor processes or the implications of CO2 emissions. Therefore, the purpose of ESG is to show the importance of these aspects within a company and, as a consequence, to generate change for the whole society to build a more just and sustainable world.
As already highlighted, one of the major current problems is the advance of global warming. Thus, many countries have already signed agreements and promoted debates to reduce the use of fossil fuels and expand the use of renewable sources. In other words, companies that are more aligned with these new demands, will be better prepared to face challenges and consolidate themselves in the market.
Petrobras, for example, is committed to adopting these practices and has presented ten sustainability commitments. They must be adopted by 2025, aiming to reduce carbon emissions and the use of water.
Currently, there are about $ 20 trillion in ESG funds and the trend is for these numbers to increase. In early 2020, BlackRock, the world’s largest manager, announced its commitment to reducing global warming. The company said it voted against the board of 53 companies, mainly in the energy sector, due to a lack of action on the environmental issue.
Brazilian companies in the energy sector still have a long way to go, especially those linked to the oil and gas sector. However, it is important to start the changes now, to ensure long-term investments and resources.
Thus, analyzing ESG factors is essential to reduce social inequality, environmental impacts, as well as providing more security on investments. To better understand about alternative energy options in Brazil, read our blog post!