Although old, the acronym ESG (Environmental, Social and Governance) gained prominence mainly after 2020, that is, with the beginning of the new coronavirus pandemic, and refers to the incorporation of environmental, social and governance practices by both companies and the Government. In other words, ESG in its essence is the way to analyze how much one seeks to minimize environmental damage, generate social benefits, and optimize administrative processes.
Refers to the environment, these are actions related to preservation and solutions for impacts on the environment. Efforts relevant to climate change, greenhouse gas emissions, biodiversity, etc.
Regarding the social aspect, these are measures touching people and society. It may cover reducing inequalities, data protection, promoting human rights, etc.
Within the scope of governance, it refers to the management and administration of the organization, regarding good practices and labor ethics, ombudsman, anti-corruption processes, etc.
What drives ESG investments?
The current decade is proving decisive for science when dealing with climate change, according to Bill Gates in his book "How to Avoid a Climate Disaster?". To avoid a 2 degrees celsius increase in the average temperature of the earth it is necessary to reduce 51 million tons of harmful gases to the world emitted into the atmosphere to a total of zero. Agreements established by the 2021 United Nations Climate Change Conference (COP26) and goals in the Paris Agreement, require actions and solutions to be achieved and demand an urgent transition to a low-carbon economy, therefore, it is expected that ESG practices motivate innovations and solutions adhering to a sustainable future.
The impacts caused by the Pandemic
The pandemic intensified the need and importance of the 2030 Agenda, given that it leveraged and revealed the true reality of inequality. In light of the above, there is a movement that defends the need for coordinated actions between the Public Sector and the Private Sector to achieve the 17 Sustainable Development Goals (SDGs). In parallel, by 2030 financial power will pass to a new generation, in which people have values and principles more related to sustainable development and diversity, this generational transition influences the administrative culture of companies and the public sector directly, as well as new consumption patterns demand a change in behavior.
Regulation with ESG practices
The intensification of regulations also contributes to ESG practices, mainly related to the use of natural resources and gas emissions. The European Commission adopted a package of measures aimed at improving the flow of funds for sustainable activities throughout the European Union, aiming to contain climate change on the continent, in addition to a set of legislation related to ESG practices that came into force in 2021, the United Kingdom is another example that has recently been returning efforts to create parameters to calculate ESG results.
The theme in the Brazilian legislative scenario
In the Brazilian legislative sphere, Senate Bill No. 338/2018 is processing in the National Congress, which provides for the Social Impact Contract as a path for the provision of public services through an agreement of wills in which a public or private entity, for-profit or non-profit, commits to achieving certain goals of social interest. The new Bidding Law, law 14.133 adds to the public contracting process some verticals of the ESG theme, thus sustainable development became a principle of public bidding, criteria such as CO2 reduction, proper destination of residues and final disposal of rejects in an environmentally correct manner, highlighting the National Solid Waste Policy which provides for the prevention and reduction in the generation of waste and institutes the shared responsibility of waste generators, disposing of them correctly. Other criteria: acquisition of products that cause few environmental impacts; optimization of costs from an energy point of view; job creation, local economic development, wealth creation and distribution; stimulating competition through sustainable technological innovations.
Finally, it is worth exemplifying ESG through constructions, as is the case of the Governador Magalhães Pinto Stadium, better known as Mineirão. The stadium has a Solar Photovoltaic plant, and has a generation capacity of 1,800 MWH/year of energy, a volume equivalent to the average consumption of 1,400 homes, the reuse of waste on match days and events is carried out in partnership with the Association of Paper, Cardboard and Reusable Materials Pickers of Belo Horizonte (Asmare), thus generating jobs and preserving nature, in addition to reusing rainwater, replanting trees and using the esplanade for recreational purposes.
ESG and Stakeholders in Institutional and Governmental Relations
The 2021 World Economic Forum highlighted the growing concern of investors with stakeholders, that is, with the interested parties in their businesses. The acronym ESG gains visibility in this context as it highlights institutions that not only aim for financial returns, but also generate value for society and contribute to the environment. In this sense, the number of companies that adhere to commitments to sustainable agendas has multiplied, with the valorization of their employees and improvements in internal processes and practices, with the adoption of corporate governance committees, for example.
However, despite having emerged in a mostly commercial environment, the practices comprised by ESG have usability in the public sector.
Especially through their regulatory agendas, governments can encourage the adoption of ESG practices by companies and institutions. In addition, governments in various spheres already have offices dedicated to attracting investments and promoting the ESG agenda through integration among companies, investors, and the government, using action plans composed of sustainable goals.
The federal government itself is beginning to move towards incorporating the ESG agenda into its actions. The Ministry of Regional Development (MDR), for example, launched the Green Investment Strategy initiative. The initiative, inspired by European examples, seeks to provide local governments with a series of indicators to monitor environmental goals established in contracts for various services, such as infrastructure, sanitation, and water security.
Another initiative linked to the ESG agenda and which should receive increasing attention from the government concerns carbon credits. By definition, a carbon credit is the representation of one ton of carbon that was no longer emitted into the atmosphere, generated, for example, by replacing polluting practices with more sustainable ones. The carbon credit market works based on companies that have high carbon emissions and cannot reduce them. To compensate for such pollution, they acquire credits generated from carbon reduction projects.
Brazil, due to its environmental potential, can be one of the big bets in this market. By nature, the country generates carbon credits in a continuous and broad way, making it possible for them to be acquired by companies that aim to comply with the ESG agenda and neutralize their carbon emissions. Joaquim Leite, Minister of the Environment, estimates that the country can benefit from around US$ 10 billion in carbon credits, approximately one-fifth of all resources generated in such a market.
Government Practices
Governance practices, in turn, have advanced faster in the public sector. Initiatives linked to the implementation of integrity and compliance programs and committees have gained prominence. In Minas Gerais, for example, through State Decree No. 47,185 of 2017, the Minas Gerais Integrity Promotion Plan - PMPI was established. In synergy with the Plan, the State Comptroller General has been developing a series of actions aimed at strengthening governance and integrity practices in the state of Minas Gerais.
In addition, the implementation of new technologies in public administration routines has a fundamental role in the governance of institutions. This is the case with blockchain. The technology, defined by the International Business Machines Corporation (IBM) as a shared and immutable ledger that facilitates the process of recording transactions and tracking assets in a business network, aims to promote greater integrity and security to the transaction process, in addition to having the capacity to reduce bureaucracy and costs, and providing efficiency gains in processes. Showing the trend, in 2021, the federal government formalized the use of blockchain in the Single Foreign Trade Portal (Siscomex) and in the certification of documents.
In this way, it is clear that the modernization of public management through the adoption of ESG practices and a close eye on sustainable agendas, which are in line with the Sustainable Development Goals (SDGs) agenda, reflects on diverse gains for the country, for society, and mainly for the environment. However, the State still takes slow steps toward consolidating the acronym, and it is important to resort to more models and tools that leverage evaluation, elaboration, and implementation. Therefore, Public Management cannot be limited to regulatory frameworks concerning the topic, but seek to apply the acronym in State management and the public sector ecosystem. The acronym ESG is still developing in both Government and companies, although there are still uncertain questions about it, it is certain that sustainable, social practices and more responsive administration are here to stay.
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This article was written in partnership with Equalitas UFMG Jr, Junior Consulting of the Public Management course at the Federal University of Minas Gerais. Learn more about Equalitas by clicking here
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REFERENCES
[1] https://www.sharpepritchard.co.uk/latest-news/esg-and-its-relevance-to-the-public-sector/
[2] https://home.kpmg/au/en/home/insights/2021/08/future-of-local-government-esg-initiatives.html
[4] https://www.insper.edu.br/noticias/esgtechs-criam-solucoes-para-as-novas-demandas-da-sociedade/
[5] https://exame.com/esg/taxonomia-esg/
[6] https://www.investe.sp.gov.br/noticia/esg-no-governo-e-na-gestao-publica/
[7] https://www.istoedinheiro.com.br/esg-chega-as-concessoes-publicas/
