Those who are connected to the corporate world already noticed some impacts of ESG in business. The acronym, which means Environmental, Social and Governance, is proof that the way of consuming has been changing and companies need to adapt to remain relevant.
Andreia Marques, professor of the MBAs USP/Esalq, defined ESG, showed the differences between the acronym and sustainability and commented on the impacts for companies and shareholders. Enjoy!
Concepts and points of view to understand ESG
To begin, we need to define some concepts that can relate to the impacts of ESG in business. To Andreia, “they are essential to talk about ESG, such as sustainable development, which emerged in 1987, with the Brundtland Report and defines the term as something that ‘satisfies the needs of the present without compromising the ability of future generations to satisfy their own needs’.”
But be careful! Although sustainable development is related to sustainability, it cannot be mistaken with ESG. According to the professor, this confusion of the meanings exists since 2018, mainly due to the indistinct use of the term by people. To her, the terms differ in some specific points:
- The concept of sustainability is much broader than that the one applied in business media (which is corporate sustainability);
- It has the purpose of benefiting all of society;
- It incorporates visions, interests, demands and actions of governments and civil society;
- Its “economic” factor involves the economic development of all society and not only of the company.
- However, ESG is the business case of sustainability;
- It is applied to the business/corporate environment;
- It is seen as criteria and practices for defining risk and pricing of companies;
- It has sustainability as an indirect inspiration (through demanding investors) and sustainable development as “byproduct” reported as the main objective;
- Its practices are defined by metrics or tools for sustainability.
The impacts of ESG in business are not novelty
Still thinking about the impacts of ESG in business, the professor explained that this is not new. “The term ESG was first coined in 2004, in the report Who Cares Wins, in which the great insurers were the mobilizers of ESG. This is why the hurricanes, in the last decade, brought such damage to these organizations, and the frequency with which these natural disasters happened made insurers the first impacted segment and thus had this decision-making.”
Today, years later, social and environmental issues remain present in the business world. It is fundamental for companies to include ESG in their strategic management. Which leads us to the next point.
Why incorporate ESG in the strategic management of a company
Andreia explains more about the impacts of ESG in business and its influence in the value of the company, and the chances of generating losses to companies that do not pay attention to the theme, regardless of their branch of activity.
“All operation generates externalities, which are important to signal the risks and benefits and report them in a transparent way. This is because these risks impact directly on the balance sheets of companies, in their valuation and revenue”, explains the professor.
Thus, it is important that the company shows a profile that has ESG as one of its priorities, especially for shareholders, who will invest and financially nurture the business.
But is it worth investing in ESG?
According to Andreia, it is worth a lot. “Speaking again about the shareholders, they should normally look at companies in four quadrants: tomorrow, today, internal and external. These quadrants, together, deal with sustainability.”
About this perspective, the professor explains what changes in each quadrant and what issues they deal with:
- Tomorrow/external: it deals with the population, with issues about inequality and poverty
- Tomorrow/internal: it deals with revolution, clean technology and brands in general
- Today/external: it concerns civil society, transparency and connectivity
- Today/internal: it invests efforts to control pollution, consumption and waste
Did you like to know more about the impacts of ESG in business? This is just one of the themes you can check in the MBA USP/Esalq in Business Management. Take this opportunity to register and live learning in practice!