This is the first in a series of interviews that we will be doing over the months, to bring you a variety of subjects through the eyes of experts in their fields. This is the time to understand more about a subject with those who can speak first hand. So enjoy! It is an ongoing construction for our readers.
The first guest is Nelma Zero, a long-time partner of our team. She will tell a little about what ESG is. But first, about her:
Post-graduate in Environment and Sustainability from Fundação Getúlio Vargas. Bachelor’s degree in Social Communication with a focus on Advertising and Publicity from the Pontifical Catholic University of São Paulo. Mentor and environmental activist at the Climate Reality Project – Al Gore. B Corps Multiplier. He has worked for 15 years in the communication area, having worked in advertising and direct marketing agencies as customer service/planning and in several marketing departments over the years. Since 2012, he has been working with companies and consultancies in the area of marketing and strategic planning, for small and medium-sized clients and in the construction of business plans and market strategy for projects, products and articulation of new businesses. In 2017 she started working in the sustainability and impact business market, as executive director of the impact business Acting in the World and since 2019 she has been working as a consultant for positive impact strategies in different projects in the Private Social Investment and Sustainability market. Today by its own company Zero&Co, which always works in a network with other companies in the market.
What does ESG mean?
ESG stands for Environmental, Social and Governance, which are the criteria used by the financial market to evaluate companies’ actions and activities with regard to social and environmental sustainability.
Sustainability comes from the concept established by the UN in 1987 in the Brundtland report of sustainable development, which states that: “Sustainability is meeting the needs of the present without compromising the ability of future generations to meet their own needs.”
To make sustainable development possible, not only governments around the world have been encouraged to adopt management models that take this into account, but also companies in their business models. British sociologist and writer John Elkington was the first to talk about sustainability in the business world and to consider it as part of a triple bottom line, adding economic and social aspects to environmental discussions.
Since then, the concepts and their applications in the business model, in the strategies, and in the day to day of the companies have been advancing every day. But for sustainability to add value to business, and for this to be verified by investors, consumers, and public authorities, it was necessary that the companies’ sustainability strategies and actions could be measured in numbers and monitored over time with periodic analyses that indicate the results and are the basis for setting new goals.
With this, the ESG concept was created, which refers to to good business practices that are concerned with environmental and social criteria and excellent governance parameters. This term first appeared in a 2004 publication by the UN Global Compact in partnership with the World Bank, entitled ”Who Cares Wins” which coined the term ESG, it arose from a challenge by then UN Secretary-General Kofi Annan to 50 CEOs of large financial organizations
“what do exist are market standards (GRI, SAASB, S&P, etc) that can be used to prepare the sustainability report which is the main tool that a company can use to report its performance in the environmental, social and economic spheres to all the main stakeholders in its activities, such as shareholders, customers, partners and employees.”
How is it implemented?
Is there a guide, are there guidelines?
Are they fixed rules?
Because ESG is a set of practices that are in everyday life at companies, its most comprehensive form of implementation begins with a sustainability strategy and impact globally, then with the mapping of the current company data and information in relation to these practices today and finally with a plan of goals and actions to achieve the goals over time. One of the most important parts of the action plan is the determination of which indicators in each environmental, social, and governance area will be implemented and/or improved, monitored, and reported on at the end of each year, over time.
For the design of the sustainability strategy and impact that will be behind the ESG the company can start from the SDGs – UN (17 UN Sustainable Development Goals) that have an agenda of goals and results that one wants to achieve by 2030 for the planet as a whole. Understand how the company, its operation and business model can contribute to them, thus establishing the indicators that will be implemented/improved and monitored in each area and what needs to be done for this.
There are no fixed rules for an implementation of ESG practices within the companies’ business models, what exist are market standards (GRI, SAASB, S&P, etc) that can be used to elaborate the sustainability report that is the main tool that a company can use to report its performance in the environmental, social and economic spheres to all the main stakeholders in its activities, such as shareholders, customers, partners and employees.
The standards that will be chosen to report on the company’s sustainability activities and impact can be used as the basis of a sustainability management model for companies, which includes measuring, monitoring, and indicators that guide the development of business practices.
Can any business area implement ESG? From a company that develops toys for dogs, to a construction company?
Yes, as ESG are good business practices related to the impact of the business (whatever it may be) in relation to environmental, social and governance factors, any company in any market can work on the development of its sustainability and impact strategy and from there on the development, implementation, improvement, monitoring and reporting of its indicators.
In this process the important thing is not where the company comes from, or what market it is in, but where it wants to go, since Today more and more the financial market values and puts money in companies that are working on their ESG factors and contributing to society and the planet. Consumers in turn have come to understand their role as a collection and decision-making asset in relation to business practices when it comes to deciding their purchases. And employees and suppliers, even more so those with a younger workforce, have also been looking for workplaces that are aligned with these practices.
In my understanding, for the development and implementation of ESG practices within a company the most important thing is to design the basis, a strategy aligned with the current moment and with the company’s strategic planning and that in its construction counts on all the company’s decision-makers, so that everyone is committed to the implementation over time.
“In this process the important thing is not where they come from, or what market the company is in, but where it wants to go, since today more and more the financial market values and puts money in companies that are working their ESG factors and contributing to society and the planet.”
A company that has ESG as a pillar. What can you expect from it in practice?
What we can expect and check if it is in fact being done (!) is if the company is committed – practicing and monitoring – to developing, investing in zeroing or at least mitigating its negative impacts and investing in its positive impacts on the environment, society, and in a transparent and organized way that can serve as a reference for others in its own market and beyond.
Today and increasingly in the coming years, sustainability and ESG practices will become the standard and no longer a trend to be adopted or not, because good practices are also good for company finances. The more information (data) the company has about all its impacts and the more it invests to zero, mitigate, and transform, the more it demonstrates that it is aware of the risks of its operations and investing to reduce them, which consequently increases the company’s added value to the market and its investors, and cheapens the money it can access to grow.
This cultural transition, is it quick? Or is it something long-term?
If you are referring to a cultural transition from a world where companies mostly are and/or are already born by ESG best practices. These practices have been fostered and worked on for more than 30 years, and only in the last few years has it gained more relevance, specifically with the pandemic and the Ukraine War it has gained an urgency. With the commitments made at international conferences, between governments, companies, and the financial market to unlock investments, it is estimated that this transition will take another decade to stabilize.
If you are referring to an internal cultural transition of companies as a focus on implementing ESG practices, the speed will depend on a few factors combined:
A strategy built by the decision makers, validated by the board or owners, and with resources and people to implement. Internal and/or external professionals (consultancies) that can support the different moments and actions that have to be taken. And investors committed to funding the transition of business culture with impact and responsible investments.
How do you check whether it is working or not? Is there an audit? Who controls it?
The way is to monitor the indicators, targets, processes, and implementation plans for the actions that have been defined each year. The standards I mentioned earlier are used to determine the monitoring path for the indicators, depending on the company’s strategic choice of ESG practices. The monitoring can be done by the company’s sustainability analysts with or without the support of technological tools/data platforms that do the compilations and analysis by BI.
Audits can be done to certify that what is being reported year after year in sustainability and impact reports is actually being performed by the company. Usually these audits are done at the time of investment contributions, creation of company ESG Bonds, going public, or at other times when the company will be evaluated externally for some important transaction.
“In developing the ESG indicators that will be implemented, tracked, improved and monitored over time in companies, we relate the targets of the indicators to the UN SDGs to understand the contribution of companies in relation to the goals and with the times determined in Agenda 2030.”
How do ESG practices communicate with the UN SDGs? Is there a relationship?
The ESG is to UN SDGs as entrance exams are to the scores that make candidates pass the exams.
The relationship between them is that the SDGs were created by the UN as goals, targets that we must as people, as part of societies belonging to the same planet, achieve in order to preserve life on the planet and bring the world’s population and economic growth onto a course that includes preserving and regenerating what has been destroyed, making the future possible for all the lives that are here.
The UN SDGs began to be formatted in the 2000s, with the launch of the 08 Millennium Development Goals and in 2015 they gained another body with the launch of the 17 Sustainable Development Goals. In the following years an implementation agenda was drawn up with targets to be reached from 2020 to 2030 and with the understanding that reaching these targets needs to be the responsibility of people, companies, and governments worldwide.
The ESG are the practices to be adopted by companies so that they can contribute to the UN SDGs with regard to the impacts that each one in its market, environment, and performance causes to the planet, to people, and to society.
In developing the ESG indicators that will be implemented, tracked, improved, and monitored over time in the companies, we relate the goals of the indicators to the UN SDGs to understand the contribution of the companies in relation to the goals and with the times determined in the 2030 Agenda.
How important is it to know about ESG today? Do you think this is a trend that tends to strengthen in the future?
ESG is no longer a trend, it has been in the corporate and financial world for a few years now and now with the recent events of the pandemic, war in Ukraine and climate change it actually tends to accentuate and accelerate in the coming years. Mainly because the UN, together with different financial organizations – investors, development banks, central banks – are making increasing commitments to direct capital for investment and acceleration of the current world economy towards a low-carbon economy that preserves and guarantees future life on the planet. After all, there is no economy if there is no planet.
As people, it is important to know about ESG because we live in a capitalist economy that is in a historical moment of change and transition, and if we can in our daily acts and consumption choices decide for better companies and products for all, we can contribute to this change.
As professionals it is important to know about the ESG because at some point these practices will come into our daily work, either in the format of an internal project at the company where you work or as an opportunity for a career change, since companies move where the flow of capital moves and sooner or later this will arrive in your area and on your desk.
As citizens it is important to understand how ESG can contribute in public policy, in public management, and in the daily lives of how we build and rebuild our cities and our lives in cities around the world. This year’s UN-Habitat data (2022) shows that by 2050 68% of the world’s population will live in cities rather than in rural areas.
I believe that the importance of knowing more about ESG, its applications and its impacts, comes from the fact that it is not possible to evolve, grow and transform oneself by walking the same path that brought us here with a warming planet and 9.8% of the world’s population, about 830 million people going hungry while the global economy turns over 480 trillion dollars every year. We need new paths, and the ESG is a new path of development for companies, society, economies, and for the planet.
As Albert Einstein said, ‘Insanity is to keep doing the same thing over and over again and expect different results.’
“As professionals it is important to know about ESG because at some point these practices will come into our daily work, either in the format of an internal project at the company where you work or as a career change opportunity”
What is your role in this? How can you help? At what stage?
I am a business consultant that supports companies, organizations or projects in developing sustainability and impact strategies for themselves, their supply chain, projects and/or investee companies.
My role is in the strategic planning stage, where the impact strategy, the indicators, the goal implementation plan, and the actions for the goals to be achieved and the indicators developed and then monitored are designed.
My role can happen at different moments of the company and the projects in relation to sustainability and impact: 1) Initial Stage; 2) Intermediate Stage; 3) Advanced Stage
1) Initial Stage
At this initial stage my role ranges from developing a diagnosis, mapping the actions being taken, benchmarking how the market and competitors are developing the ESG, and developing the impact strategy together with the company’s leadership.
2) Intermediate Stage
At this intermediary moment my work ranges from the development of actions to achieve the goals, timeline definition, design of the implementation team, investments, etc., to the development and implementation of the monitoring and reporting processes of the actions, indicators, impacts, and next goals.
3) Advanced Stage
At this more advanced stage my work ranges from the implementation plan of ESG practices, indicators, and targets for supply chains, through institutional development for certification (B Corp, WEPs UN Women, Global Compact, etc.) to development and implementation of sustainability and impact projects internally or in partnership with national and international organizations.
What does the company need to keep in mind before hiring you? What to expect in a transition process? Time? Team?
When hiring a strategy consulting firm, the company must keep in mind that the leadership will have to dedicate some time attending meetings and workshops so that the paths are co-constructed by those who internally have the responsibility and capacity to implement what is strategically planned and decided. Besides having the appointment of a team that can be focused (on sustainability) or a working group with people from different areas participating and with shared responsibilities within a sustainability committee that will monitor and contribute to all the consultancy work over the months.
On the consulting side, the team that will be called to participate in each job will depend a bit on the client’s demand and the focus of the work. At Zero&Co we work with a network of expert partners who are contracted by project.
The process of a company to start implementing ESG practices, like every transition process is a journey that will have hits and misses, as well as constant learning. And like any journey it is necessary that everyone, especially those directly involved are open and willing to build this journey together, which in the end will strengthen the company and each one individually to contribute with the best ESG practices for your company continuously.
The times of this journey depend somewhat on the involvement and time made available by those involved in the consulting process. I always recommend not spending too much time on each stage, so that the focus is not lost and the demands of daily life do not get in the way of the building process. My suggestion to clients for each stage is an average of 2 to 3 months per stage at most, with a timeline from both parties and process delivery targets.