Writen by Paula Oviedo Ferreira e Gabriela Knob, in 08/06/2022
15 minutes of reading
4 waves that prove the ESG is not a novelty
ESG (Environmental, Social and Governance) began to be part of corporate interest in the 1990s as a counterpart to prevailing capitalist hostility.
Those who think ESG is a new concept are mistaken. This acronym, which stands for Environmental, Social and Governance, began to be part of corporate interest in the 1990s as a counterpart to prevailing capitalist hostility. The term, however, was coined only in 2004, in the Global Compact in partnership with the World Bank, and so investors from the most diverse segments began to target these practices.
Soon, companies around the world were encouraged to seek more sustainable directions that generate lower costs, better reputation, greater resilience to vulnerabilities, and, consequently, greater attractiveness to these investors. But what has been the trajectory of the ESG from the 1990s to the present day? Four waves have impacted what we know of this practice today.
First Wave: From inconsequential profit to minimally conscious profit
As previously mentioned, in the early 90’s capitalism was at its most aggressive, aiming for profit above any policy or ideal. This was not only reflected in the relationships between organizations and suppliers, but also with customers: cheap raw materials = low quality and more competitive prices. This meant no responsibility towards competitors, suppliers, employees, or even the end customers.
However, some companies began to realize that it was not advantageous to jeopardize these relationships. Switching suppliers was costly, and even health at work began to be rethought, as sick workers produced less and began to switch jobs more easily. They also realized that customers were more loyal and bought more from quality products, even at a higher price. In other words, pressuring the entire ecosystem to bring more profit margin was actually bringing more losses, and investing in the relationship with stakeholders brought more business benefits to the organizations.
At that moment, it was the first time that large companies realized that forcing a productivism without thinking about the human issues involved, did not bring the advantages they believed in.That is why we say that this moment, where the focus moves from inconsequential profit to minimally conscious profit, was the first impact that social, governance, and even sustainability policies have on organizational activities.But nothing would be the same after the 2010s, with the arrival of Generation Z on the job market.
Second Wave: The entry of digital natives into the market
Generation Z were the first to be digital natives: the internet was not only a tool, but a central element of their daily lives. There are those who believe that this made them a “victimistic and irresponsible” generation, but in fact, they are one of the most informed generations of all. Not only informed, but environmental impact is a concern that came from the cradle. While the Y’s believed they were capable of changing the world and were the first to raise the issue of sustainability, it is the Z’s who have begun to understand practical ways to put pressure on the ecosystem.
The new generation wants to know how much the carbon footprint of a piece of clothing or the delivery they order is, if the people who produced it had healthy working conditions, the origin of raw materials, animal cruelty, etc. However, the new generation is still very new to the world of work, they are not participating in the leadership of companies or have high purchasing power, for example. Still, they have already put a lot of pressure on organizations with boycotts, strikes, social media exposure, and image crises. The need for traceability and transparency throughout their production chain, from the supplier to the chosen influencer in marketing, is growing, and that is where ESG policies come in. Ensuring that the company is within these practices is hard work, which needs budgeting and specific planning.
Two cases have become famous:
+++ Unilever –Neutral Carbon: owner of 400 brands such as Dove, Knorr, Omo, Rexona, Kibon, Magnum and Axe – Unilever targeted the damage that the packaging brought to the planet – in addition to excessive carbon dioxide emissions and incorrect disposal of industrial waste.
The company began by putting on the packaging of its products the carbon footprint left behind, bringing this as a differential. They also committed to completely zero carbon emissions by 2039, from the source to the point of sale.
+++ Amaro – Negative Carbon: “We are doing everything to change the future of retail and the planet,” is what Amaro, lifestyle brand of fashion, beauty, wellness and home, says. Going beyond Carbon Neutral, which has appeared a lot in recent years, in 2021 the brand became 100% carbon negative. This means 30 thousand tons of CO2 being offset by the end of the year, which is equivalent to a preserved forest area the size of 18 Maracanã stadiums.
It is interesting to understand that, from the positioning of large companies, many of them leaders in their segments, there is a market movement that follows this flow. The competition is forced to rethink its own strategies not only by consumer pressure, but also by pressure from other market players.
It is important to note: Z people care not only where they buy their products and services, but also where they will work. Gradually they have chosen companies that are anti-racist, gender equitable, and environmentally friendly.And even if they work in companies that don’t agree with their values, they may have lower productivity, higher turnover, etc. The pressure is not only to please this generation as consumers, but as talents to be captured in the organizations.
Third Wave: Beyond Sustainability, Social Movements Enter the Scene
After Generation Z entered the market, major milestones occurred. According to the World Resources Institute (WRI), in 2020, the world lost 4.2 million hectares of primary tropical forests; According to the UN, 1 million species of animals and plants are threatened with extinction; And yet, according to IQAir, in 2020, four out of five countries in the world recorded more pollution than recommended. These are just some of the thousands of indicators that show the worrying global scenario.
Companies, Governments and Institutions in general, which were not concerned with this issue, are being forced to look at environmental issues, even if initially superficially. According to professor and specialist in ESG investments, Fábio Alperowitch, in 2/3 of the world’s GDP, carbon is already regulated; companies will increasingly have to pay for pollution and investors tend to pressure companies more and more to focus on this agenda.
For many decades, environmental issues were highlighted by experts as a matter of concern, but neglected by everyone as a community. For this reason, society today needs to act much more actively to try to mitigate the mistakes of the past.
From this, and also added to this context of sustainability, other important movements that have made society concerned are endorsed. Topics such as gender equity, social inequality, racial equity and a series of other issues emerge as important agendas in society and tend to evolve more and more in the coming years. The “Me Too”, “Black Lives Matter” and “Pride LGBTQIA+” movements opened up issues and issues long ignored by the community. What was previously seen and normalized began to be widely debated, demanding that organizations take a stand. In other words, environmental concern combined with the relevance of social issues translates into a society of people — who, in turn, are also customers — more active, questioning and attentive to company movements. And, again, ESG is reinforced as an expected agenda in company practices.
These three waves provide an overview of how environmental, social and governance practices have consolidated – and continue – in our society. These movements happen gradually and their debate has gained relevance in recent years. But there is also another, even more recent phenomenon that has impacted the view of many consumers on these practices: the pandemic.
Fourth Wave (Extra): The pandemic
In Brazil, historically, there is not much to science. Lack of investments in research, of information in false information are some examples that form this scenario. From the context of a pandemic, however, it is placed in information and data of a scientific nature. That is, the population has been in contact with data on the number of information, research on the prevention of the behavior of the virus, in part, it is more susceptible to these types of information, etc.
In addition, the pandemic has also brought companies into greater reflection around their role as consumers, as shown in PwC’s Global Consumer Insights Pulse Survey. Especially at the beginning of this scenario, many companies needed to change their approach to communicating with their customers, relating to their employees and addressing their stakeholders.The product came to be in the background and its values and care for society began to be charged with greater vehemence. Some companies began to invest more in social movements, others changed their internal policies with employees, but in any case, everyone was impacted.
+++ Natura, for example, created Natura Saúde, a health care solution for its consultants;
+++ Magazine Luiza donated more than 20 million reais to projects to combat the spread of covid-19;
+++ Nubank created a fund to support its clients in medical and psychological care remotely.
And many other companies took advantage of this moment to position themselves before the community. Of course, with this, other topics related to corporate intentionality are also brought up for discussion, and issues such as greenwashing and pink money are on the agenda (but that is a subject for a future article).
Covid-19 amplified pain and brought new guidelines: poverty, hunger, unemployment. And not only that, but also brought organizations as responsible for helping society in the face of an overloaded State. Who previously had no idea what ESG was, was caught by the pandemic trying to quickly adapt to the new requirements. However, the maturity of the Brazilian market regarding the processes is still very low, which also makes knowledge holders responsible for democratizing it, bringing an important pillar: transparency.
The relationship between ESG and technology is primarily connected through this pillar. From the measurement of data and information, it is possible to use innovative solutions to access information that help in decision making. The speed at which ESG actions no longer allow a report that only portrays the past: it is necessary to work on the idea of bringing data in real time. According to Diário de Comércio, the adoption of artificial intelligence, machine learning, deep learning and the cloud allows not only access to the company’s own data but also the averages of ESG initiatives adopted by other market players. In the pandemic, this relationship and comparison between players was quite beneficial for whom the ESG is intended: society as a whole. This highlights the strong potential relationship that is expected for the development of this market on Brazilian soil.
ESG is not new, on the contrary, it has been running through the history of organizations for more than 3 decades. With the environmental milestones that are taking place, it is impossible to ignore the need to strategically position itself in this area before the market and consumers. And there has never been so much talk about positioning: “not positioning yourself, it is already positioning yourself”. Companies are no longer being (and cannot be) so neutral. Today, there is a great deal of concern, but the peak of purchasing power and leadership that Generation Z represents has not yet been reached.
In this way, technological innovations have emerged to help companies of all segments and sizes to think about and adapt their production chain to ESG policies, as well as to use data and information more assertively for this purpose. Thus, the partnership between technology and organizations needs to aim not only to slow down the impacts on the planet but also to bring organizations to the present and future of consumption.
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