What is ESG?

We live in a time when the world demands more responsibility of companies. Society demands ethical attitudes, concrete environmental actions and genuine social engagement. In this scenario, ESG has gone from being a trend to a minimum criterion for those who want to remain relevant.

If before those who were concerned with sustainability and social impact stood out, today being ESG is the new normal and not being so can mean loss of market, reputation and opportunities.

But what is ESG?

ESG is the acronym for Environmental, Social and Governance, or in Portuguese, Environmental, Social and GovernanceThese three pillars define how committed a company is to: protect the environment, contribute to a more just and inclusive society, maintain ethical, transparent and responsible management practices. More than a label, ESG is a strategic compass that guides companies towards longevity, relevance and positive impact.

The ESG works in two ways:

Internally, as a strategic guide to improve processes and align the company with the demands of the 21st century.

Externally, as a criterion increasingly used by consumers, investors and partners to evaluate and choose who to do business with.

The three ESG pillars

Environmental (Environmental) – involves practices that reduce negative impacts on the environment and promote sustainability, such as:

Reduction of pollutant and greenhouse gas emissions;

Proper waste management and efficient use of resources;

Adoption of renewable energy and sustainable packaging.

Social – reflects how the company relates to its employees, communities and society, promoting:

Diversity, equity and inclusion in the workplace;

Health and safety for employees;

Respect for human and labor rights;

Support for relevant social causes and projects.

Governance (Governance) – deals with transparency and responsibility in corporate management, focusing on:

Combating corruption and money laundering;

Clear and reliable accountability;

Fair and ethical remuneration policy;

Commitment to the compliance and institutional integrity.

Brief history of ESG

The concept of ESG first appeared in a 2004 report by United Nations (UN), called Who Cares Wins (Whoever cares wins, in Portuguese). At the time, 20 financial institutions from 9 countries came together to find a way to include environmental, social and governance issues in the capital markets.

Since then, it has gained momentum with milestones such as:

THE UN Agenda 2030, with the 17 SDGs (Sustainable Development Goals);

The Paris Agreement, signed in 2015 to contain the advance of climate crisis;

The World Economic Forum's Global Risks Report (2020), which highlighted environmental risks as the most critical;

The BlackRock Letter (2020), in which the world's largest asset manager made it clear: sustainability is a central decision-making criterion.

Why invest in ESG?

Companies that incorporate ESG reap a number of benefits:

Cost reduction with energy efficiency, reuse and less waste;

Increased revenue through sustainable products and services that meet new consumer demands;

Easy access to the capital, attracting investors and financiers aligned with the purpose;

Improved risk management, avoiding reputational and financial crises;

Strengthened reputation, with more trust from customers, partners and employees;

Talent attraction and retention, especially among new generations who seek purpose at work.

Careful: greenwashing it is not ESG

With the growth of ESG, the misuse of the term has also increased. Some companies pretend to adopt sustainable practices just to promote themselves — the so-called greenwashing.

This practice, in addition to being unethical, compromises the credibility of the entire market and can generate severe consequences: from loss of trust to legal sanctions.

Authenticity, measurement, and transparency are pillars of a true ESG agenda.

How to start an ESG journey?

To implement ESG strategically, the first step is to understand how the themes environmental, social and governance impact and are impacted by your company.

Here is a practical guide:

1 – Look for reliable references

UN SDGs, Global Compact guidelines, benchmarks of companies in your sector and materiality analysis tools are great starting points.

2 – Define strategic themes

Which topics are most relevant to your company and your stakeholders? Align this with the risks and opportunities in your industry.

3 – Make a diagnosis

Identify gaps, risks and opportunities in each strategic theme. This will help build customized and effective solutions.

4 – Create an action plan

Based on the diagnosis, define projects, indicators, goals (short and long term) and necessary resources.

5 – Monitor and adjust

Implement mechanisms to monitor the defined indicators. Use dashboards, reports, and audits to keep the agenda on track.

6 – Communicate with transparency

Show real results. Be clear when disclosing your goals, progress, and challenges. ESG communication is, above all, about accountability.

ESG in Practice: How to Overcome Structural Barriers

Many companies want to take action, but face obstacles: bureaucracy, lack of dedicated staff, lack of legal and accounting structure, and limited time.

Thinking about it, the Sitawi Finanças do Bem created the service Institute-as-a-Service, a complete, safe and efficient solution for structure and execute ESG actions with real impact.

What is Institute-as-a-Service?

Accounting, tax and administrative management;

Hiring partners and suppliers;

Account and payment management;

Support for purchases, events and technical missions;

Robust governance and guaranteed compliance;

Impact reports and accountability;

Independent external audit;

Saving time and resources.

Exclusive tax benefit

In addition, companies taxed by the Real Profit have a strategic opportunity: can allocate up to 2% of operating profit to projects with a positive impact and deduct this amount from Income Tax, in accordance with Law 9,249/95 – as long as the donation is made to an OSCIP, as is the case with Sitawi.

By choosing this destination, the company transforms an amount that would already be paid as tax into a concrete action within its ESG strategy. With autonomy, you choose where, how, and with what impact to apply these resources, financing climate and socio-environmental initiatives aligned with your brand identity. All this with guaranteed traceability, transparency, and impact measurement.

It's a smart way to combine tax efficiency and sustainable development, without increasing the ESG budget.

Success stories

Cielo Social Impact Fundaims to promote the raising and application of financial resources in actions and projects that contribute to environmental conservation and the construction of a more just society. The initiative also provides for action in potential emergency situations and critical events. Thus, the resources will be used as a reserve for emergency response, where a rapid response is required to mitigate negative impacts on customers and Cielo Team members.

Google Black Founders FundThe initiative aims to strengthen Afro-entrepreneurship in Brazil by allocating Google resources to startups led by Black founders, boosting diversity and inclusion in the innovation and entrepreneurship ecosystem.