The United Nations (UN) estimates that the global cost to manage environmental damage ranges from R$ 4 trillion to R$ 6 trillion per year. It is not surprising that owners of capital are increasingly intransigent when demanding from companies and countries commitments with the decarbonisation goals established in the Paris Agreement. In the aisle of all this movement, executives are running out of time to learn how to navigate this new economic model. Many – like the 49.2% of entrepreneurs surveyed in a recent Grant Thornton survey – agree that when it comes to measuring sustainability, most companies still don’t know where to start. To help the market, the consultancy KPMG has just announced the creation of an area specialized in ESG. To command it, he brought Nelmara Arbex, as partner and responsible for the new front. “Our objective is to contribute so that the different business sectors are able to plan and implement environmental, social management and governance”, said the executive, who has 20 years of experience in sustainability, she holds a PhD in theoretical physics from the University of Marburg (Germany) and postgraduate in business and sustainability from the University of Cambridge (England).
Isto É Dinheiro – What is causing the ESG (environmental, social and governance) agenda to heat up in the corporate world?
Nelmara Arbex – In view of the clear signs that public officials are having extreme difficulty in finding solutions to environmental and social problems, which are only getting worse, public opinion is migrating its perception that the one who will resolve these issues is business leadership.
In addition to society, pressure from the owners of capital is relevant in the process, isn’t it?
A few years ago, investors started to adopt social and environmental indexes as a criterion for risk analysis. Now, the requirement is moving to another level. The management quality of executives and Board members is now assessed according to their alignment with the ESG principles. The movement of bonuses linked to the agenda will grow.
In general, in Brazil, the environmental pillar has gained more strength in the last two years. Have companies relaxed social concerns?
It depends on how you look. At the beginning, some 20 years ago, the main concern was to include socially responsible decisions in companies. Over time, the environmental issue became more explicit due to obvious issues such as deforestation, fires and international pressure.
One of the fundamental aspects of ESG is the measurement of the impacts of corporations on the planet. In this sense, isn’t the social also more challenging?
Exactly. Measuring some environmental issues was easier for some companies. Generation of waste, replacement of plastic cups … But the social area has always been very present and now Brazil is going through a rediscovery of what the social indicators are. Examples include the number of women running a business; the additional that is paid to the minimum wage required for a category; or the inclusion of non-privileged groups in organizational structures. There will also be an acceleration of the requirements for alignment with social conformities.
Didn’t the fact that environmental issues have goals agreed by world leaders and social criteria not relegate the issue to a supporting role?
You’re right. Environmental goals are already cross-cultural. The social ones will be next, but they are not yet. Nowadays, everyone already believes that the planet needs ecosystems. This does not happen with the diversity or equity aspects of wages. But, we need to remember that the United Nations (UN) has been working for a long time on the need to respect human rights. Europe has already done a very strong job towards integrating more women into the Executive Councils. I think we are entering a new wave in which the social will also be as metrified and charged as the environmental. The BlackRock fund has already signaled that it will charge this to its advances. It will not be long before global goals are set for the subject.
Is it always the pressure of capital that forces the change in mentality?
Nowadays, the entrepreneur is beginning to understand that the continuity of the business depends on compliance with the ESG criteria. The future will require greater resilience for companies to work in more scarce natural resource environments and with more adverse social scenarios. But, in my opinion, the investors’ demand was a reaction to the imposed reality. The environmental and social context has changed. Entrepreneurs who want to ensure the survival of their business need to understand this. The good news is that a new generation of leaders who have grown up in this new reality, is already beginning to come to the helm of companies.
Is the ESG movement also driven by generational reasons?
In addition to investors, this new generation of leaders already knows that in order to have financial results, they will have to manage their companies differently from what was done in the past and even in the present. They already bring new concepts, demand more transparency in the speeches, have a much closer relationship with the threats related to environmental issues and to a social reality that is radically different than a few years ago. An example is the issue of transgender, which today is absolutely normal, but which was not even recognized recently.
Brazil is historically an unequal country. Companies are now required to make this systemic correction. But there is an unbalanced basis. What is the role of the State in this scenario?
The function of the State is to make the wealth – including money, health, education, security, housing – circulate and distributed. In the case of Brazil, we have 62 million people in classes D and E who live on the edge of poverty. Another 120 million live on the threshold. That is, 85% of the population. Of course, the State has to be part of the solution, but it is the responsibility of each citizen and each entrepreneur to take actions to reduce this structural poverty. It is no longer acceptable to blame the other and do nothing to change reality. To change, union is necessary.
When it comes to governance, what are the main challenges in Brazil?
Governance is the backbone of the process. There is no point in doing anything else if the actions are not monitored, measured and awarded. In this journey, the first challenge is to have a governance that is connected to the business context to help the company make strategic decisions aligned with the market. It is not just knowing the legislation, but understanding the risks to the environment and to society of any action taken. Another challenge is to make decisions turn into measurable policies and goals that are implemented and lead to the expected results.
In Brazil, a critical issue is the lack of data, mainly marketing and financial. When they exist, they are kept under lock and key. Society remains the discourse without evidence. Does this era tend to end?
This is a global problem. So much so that a new vocabulary has emerged to classify this lack of security with words like greenwashing and orange washing (terms in English attributed to environmental and social actions, respectively, used by companies for exclusive marketing purposes). With the ESG movement, the demand for greater transparency also grows. Increasingly, the image of a company will be supported by the binomial speak and do. Without this, the reputation will break down.
By Lana Pinheiro, from Isto é Dinheiro. Posted on 01/04/2021