ESG: what are the principles and advantages

In recent years, the concept of ESG has gained increasing prominence in the world of business and investment. Environmental, Social and Governance. In Portuguese, the acronym stands for environment, social and governance. Following the ESG pillars is a demonstration of an organization’s responsibility and commitment to its market, employees, consumers, suppliers and investors. In this article, you’ll learn more about how this concept works and how to apply it to your business.

ESG: What is it?

Created in 2004, in a publication by the UN Global Compact in partnership with the World Bank, the acronym ESG came to mean the relationship between the generation of economic value and concern for environmental, social and governance issues in companies, and measuring the impact that sustainability actions have on their results.

What are the ESG principles?

The acronym refers to three fundamental principles on which companies should base their actions: Environmental, Social and Governance, which can be defined as follows:

Environmental: the environmental principle, as the name suggests, focuses on practices related to the environment. Responsible management of resources, reduction of polluting gas emissions, energy efficiency and preservation of biodiversity are some of the practices that fall under this pillar.

Social: ESG’s social criteria focus on companies’ relations with their employees, customers and the community in general. This includes issues of diversity and inclusion, gender equity, safety and well-being at work, respect for human rights, among other social responsibility practices.

Governance: the principle of governance refers to the company’s relationship with the management and control structure. This pillar focuses on transparency in operations, the quality of leadership, accountability, the independence of the board of directors and business ethics.

Learn more: Customer Centric: Concept, Implementation and More

Why is this concept so important today?

Until 2018, ESG was still a little-discussed topic in Brazil. In recent years, with the significant increase in employees, consumers and, above all, investors aware of the importance of ESG practices, the demand for companies to start adhering to practices that preserve social and environmental relations has also grown.

Nowadays, there is a much greater demand to invest in institutions that are committed to social issues and, as a result, investors are demanding that organizations change their stance on practices related to society, employees and the environment.

A PwC report shows that 77% of institutional investors planned to stop buying products from companies that don’t apply ESG practices by the end of 2022. For investors, companies that follow ESG practices are less prone to instability and more flexible to changes in consumption and production patterns.

In addition to being a very relevant factor for investor relations, organizations that adopt practices committed to caring for socio-environmental and corporate governance issues reflect a good reputation and gain visibility, which also motivates them to follow the path of sustainability.

Here are some of the reasons why the ESG concept is so important today:

Climate change: in recent decades, climate change and adverse environmental impacts have become a global concern, leading governments, investors and consumers to demand a more sustainable stance from companies.

Greater social responsibility: in addition to environmental issues, the demand for practices related to diversity and inclusion, gender equality and the protection of human rights is also growing among consumers and investors.

Reputation and branding: with society’s growing awareness of ESG principles, companies that adopt social and environmental responsibility practices tend to enjoy a positive reputation, improving their brand image.

How did the ESG come about?

The concept of ESG emerged from social and environmental movements that gained momentum throughout the 20th century. However, its principles have become more formalized and relevant in the business world in recent decades, as companies, consumers and investors have become more aware of social and environmental issues.

It was from the 1990s onwards that the social movement gained strength, with a focus on social justice and human rights. At this point, companies began to realize the importance of managing their social practices to avoid controversy and improve their reputation.

In the 2000s, the 2008 global financial crisis played a major role in the development of ESG, highlighting the importance of corporate governance, business ethics and social and environmental responsibility. Financial scandals and a lack of transparency in many financial institutions have led to an increase in demand for transparency and accountability in corporate actions.

Since then, these principles have become more formalized and more relevant among companies, investors and consumers. Companies have started to adopt sustainable and socially responsible practices and, given the increased relevance of this concept, they have started to be evaluated on the basis of ESG criteria.

Currently, the concept of ESG is understood as a critical factor in the world of business and investment, since its practices are highly influential factors in the decisions of consumers and investors.

What does a company need to be ESG?

To be considered an ESG company, it is necessary to adopt practices and policies that are committed to the principles of social and environmental responsibility. Here are some of the actions a company can take to bring its practices into line with the ESG pillars:

Setting social and environmental targets: one of the essential actions for a company to comply with ESG principles is to set clear targets related to the environmental, social and governance pillars. This can include targets for reducing the emission of polluting gases in production processes, targets for diversity in the workplace, improvements in corporate governance relations, among other actions. Setting social and environmental targets will act as a guide for the company, helping it to direct its investments and measure its progress on ESG principles.

Providing sustainability reports: transparency is highly regarded among the ESG pillars. Therefore, the company must provide regular and detailed sustainability reports that disclose its performance in relation to ESG principles. This action shows the company’s commitment to this responsibility, as well as allowing investors and consumers to be aware of its actions.

Implementing a sustainable organizational culture: a sustainable organizational culture is essential for a company to be truly in line with ESG principles. This means that the company’s culture must encourage and reflect the values and commitments related to the principles of social and environmental responsibility. This can be done, for example, by training employees and integrating ESG principles into business strategies.

What are the advantages of being ESG for companies?

Adopting ESG practices can bring a number of advantages to companies. Some of them are:

Positive reputation: one of the most obvious advantages is the improvement of the company’s reputation in the market. Companies that adopt social and environmental responsibility practices are perceived as leaders in ethics and sustainability, which can result in a much more positive brand image.

Greater attractiveness to investors and talent: as a consequence of the improved reputation and positive brand image, the company also becomes much more attractive to potential investors and qualified talent who are aware of ESG principles.

Risk reduction: companies that adopt ESG practices also reduce social and environmental risks. An example of a risk that can be reduced is the financial risk of relying on assets that damage the environment and can be devalued on the market. In addition, risks of ethical scandals are also mitigated, since the company follows the social and governance pillars to the letter.

Innovation: the search for efficiency in sustainable practices can also be an open door to innovation, as companies are constantly looking for strategies to reduce the consumption of environmental resources, developing more sustainable products and services. This culture of innovation can result in competitive advantages, such as the creation of new products that meet growing consumer demands for sustainable solutions.

Learn more: How does Scooto deliver results that the market doesn’t?

How are companies with ESG funds selected?

Selecting companies for investment based on ESG criteria can be done in different ways, which vary according to the investor and the investment strategy. However, there are some universal steps for this selection, which we can highlight:

Defining criteria: To make the selection of sustainable companies, the investor defines the criteria most relevant to his strategy. For example, the strategy may require companies with a low carbon footprint or great diversity on the board of directors. These criteria can vary according to the strategy and defining them is the first step in selecting the best company to invest in.
Valuation of companies: since the investor already has well-defined criteria, companies are valued on the basis of these characteristics. This evaluation can be done through sustainability reports or even third-party ratings.

Portfolio selection: then, based on the evaluation, the investor selects a portfolio of companies that meet the criteria they have established. This means choosing companies that stand out positively and are aligned with the criteria understood to be relevant to your strategy.

Performance monitoring: it is essential to continuously monitor the performance of the selected companies to ensure that the ESG criteria continue to be met. This monitoring can be done by means of reports and also by reviewing ESG metrics, in order to understand the need for adjustments.

What practices should you implement to make your company ESG?

So far, we’ve understood what ESG is and what each of its principles means, and we’ve also understood the numerous advantages a company can gain from adopting social and environmental responsibility practices. Now, you will understand which practices should be implemented to make your company ESG:

Define objectives and metrics: the first step to making your company ESG is to establish objectives and metrics related to the sustainable pillars: environmental, social and governance.

Involve employees in the cause: it is essential to involve your employees in this cause. Encourage participation in the implementation of sustainable practices, offer training and education on the ESG pillars and create a work environment aligned with this cause.

Be transparent: transparency is an essential practice for a company to become ESG. Publish regular sustainability reports so that everyone can see clearly and transparently what objectives have been achieved and what still needs to be achieved.

Expand your practices to the community: it is also important that your company actively participates in the actions of other companies, educational institutions or NGOs that are involved in social and environmental responsibility projects. This is a practice in line with ESG and strengthens the community towards a single goal, which is to collaborate towards a more sustainable world.

Monitor the results and innovate: monitoring the results of these practices is the key to reaching new places through innovation and improving strategies. Therefore, constantly measure your results and encourage innovation in processes and products to achieve even greater efficiency in your strategies.

S of ESG at Scooto: racial and gender equality

Scooto is a signatory of the UN Global Compact in Brazil and joined the Brazilian delegation to the 67th #CSW (Commission on the Status of Women). In addition, in 2023, we made a commitment with the “Race is a Priority” Movement to reach 57% of black leaders.

Before the ESG agenda gained prominence in Brazil, these social pillars were already being worked on. In addition to being a 100% remote company, which contributes to a lower environmental impact, social issues such as racial and gender equality are a focus.

It is part of our social responsibility practices to seek to reduce the gender gap in the job market, promoting employability with the same opportunities and remuneration for people of different colors or races. This is at the root of our organizational culture and these practices are constantly being improved.

In addition to being made up exclusively of women, around 44% of Scooteiras declare themselves to be black or brown (data from 2022) and among them there are women in leadership positions, which contributes to reducing gender and racial inequality in the labor market.

In 2022, Scooto also took an anti-racist stance and started a movement to combat racism by transforming communication, with the Anti-Racist Manifesto.

For Scooto, it is extremely important and responsible to drive the company’s growth in synergy with such relevant global needs. If you want to know more about Scooto’s solutions, talk to a Customer Services specialist now!

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