ESG is Alive

To point to or wish for the end of the agenda does not imply its downfall; rather, it confirms its still important and serious discussion in both the public and private sectors.

“‘Sustainability is not ESG,’ ‘ESG is dead,’ ‘ESG has lost its meaning,’ ‘ESG has become ideologized,’ or ‘ESG is pure greenwashing.’” All of these are the headlines of recent analyses, columns, “articles,” and manifestos of the most diverse formats and perspectives.

Regardless of these “heated” discussions and tiresome “sterile and terminological debates,” one thing is certain: ESG is alive, and in 2024 it seems to be undergoing a gradual “maturation.” Slowly, indeed.

Even though the ESG agenda is under “death threats” or is alleged to have reached a supposed “end cycle,” it is necessary to reflect on the positioning of certain issues and also to emphasize that such a movement, in both public and private sectors, in Brazil as well as abroad, has generated concrete effects and impacts, which tend to point more toward its evolution than toward its demise.

The term ESG is by nature broad and dependent on a combination of actions and measures for its consolidation. As widely disseminated by experts, authors, and institutions, the acronym ESG, from the English words Environmental, Social, and Governance, gained global diffusion with the document Who Cares Wins, published in 2004 by the United Nations Global Compact in conjunction with a series of financial institutions. In it, ESG would represent, in free translation, “the integration and incorporation of environmental, social, and governance (ESG) aspects into the management and decision-making processes of organizations, as well as criteria for assessing sustainable investments favorable to all stakeholders.” 1.

As guided by the Brazilian Institute of Corporate Governance (IBGC), ESG is a set of practices and tools that serves to evaluate corporate sustainability and to provide guidance that helps leadership integrate environmental, social, and governance aspects into their management and processes. ESG, for the institute, is also a means for companies and organizations to achieve better performance in corporate sustainability², performance that contributes to sustainability in a broad sense, as the basis for sustainable development.

Thus, far beyond being merely another variable for so-called sustainable investments, ESG represents a legitimate strategy for companies, organizations (including public institutions, why not?), projects, activities, and businesses to be managed, developed, and executed with due regard to their impacts, risks, and opportunities on environmental, climate, social, and governance matters, alongside the economic dimension. It is, therefore, a mechanism of governance and organizational control, guiding economic activities toward sustainability.

Given these functions, an ESG strategy within a company cannot—nor should—be exhausted or have its cycle closed or absorbed by another function or a different nomenclature. The internalization of ESG will not render it irrelevant. On the contrary, just as occurred with compliance structures and programs, as well as with LGPD (Brazilian Data Protection Law) requirements—which did not die out and remain broadly demanded in organizational charts and global markets—ESG strategies, policies, and programs will increasingly form part of the governance structures of companies and corporations. In fact, they are already being internalized with significant impacts in major regulatory environments, such as Brazil and the European Union, among others.

One may ask: Is ESG truly dead or worn out even in the face of a relevant set of regulations whose guidelines replicate its objectives—for example, in the European Union³ and in Brazil⁴? If one of the purposes of the ESG agenda is—and has been, since its “awakening”—to demand greater controls and policies regarding social, environmental, and governance risks from companies, banks, and complex, high-impact economic sectors, why would its cycle be over or exhausted when its objectives are being enshrined in state laws and regulations?

The ESG agenda, as seen, transcended the financial market and investment criteria to illuminate—and rightly so—the important legal framework of corporate climate, social-environmental, and human rights responsibility. To exalt ESG merely as a market mechanism or investment fund tool is to underestimate its effects and its transformative potential as an agenda. There are climate lawsuits brought against corporations demanding compliance with ESG duties in the context of due diligence concerning climate risks and violations of human and social rights.⁵

Beyond regulation, recent figures confirm that 91% of companies in the Brazilian market publish ESG reports⁶, with the contradiction that 98% of domestic investors point to greenwashing in such reports⁷. There lies the vivid essence of ESG, the premise of its relevance: to confront corporate and economic actors and direct them toward sustainability. What, then, should be said of the advancement of ESG into the consumer market⁸?

It is necessary to distinguish between criticisms of a potential “fatigue” of the agenda and analyses that ad hoc proclaim its death or closure. Ceasing to use the term “ESG” or “ASG” will not represent the end of the agenda, nor its replacement by “corporate sustainability.” Rather, it represents, in many cases, an escape by companies whose measures fail to adequately achieve the systemic integration of environmental, social, and governance matters equitably and effectively, as the concrete idea of ESG requires and aspires. In other words, altering concepts, signs, and nomenclatures in corporate ESG strategies and programs opportunistically, when ineffective, verges on greenwashing.

ESG strategies will not cease to exist, nor will their purpose be “fulfilled” absolutely by reaching a certain scale, because there is no temporal limitation for actions and policies with this aim. Such a notion contradicts its very premises and objectives, namely, to become a cyclical, evolutionary, and permanent action and to become internalized in the culture and purpose of organizations and the actors who develop businesses, projects, and other economic activities through it and because of it. ESG must be a permanent benchmark of business activity, transforming it both quantitatively and qualitatively.

Contrary to declarations of the exhaustion or end of ESG, what requires reflection is the misunderstood—and at times intentional—diffusion of the term ESG to any and all corporate initiatives which, despite their limitations and inefficiencies, are presented as sustainable. For us, as enthusiasts and practitioners of the agenda, to “kill” or close the ESG field or term will not relieve us of the commitment to reaffirm the meaning of the movement and the spread of its impacts and effects within companies, organizations, and society at large.

Let us not forget that greenwashing existed decades before the emergence of ESG. Indeed, perhaps one of the main—if not the most relevant—reasons for ESG’s existence is precisely to combat subversive and fraudulent washings, whether in the financial market or in corporate structures and policies.

If ESG were “dead,” what would we do with greenwashing? Would we use a new acronym to, after burying one, simply put another in its place? It is time for the agenda to receive more engagement and evolution, in the pursuit of improvement, not the opposite.

Attention to all navigators: to play against the ESG agenda is greenwashing.

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[Automatically translated]

Originally published on LinkedIn

Author: Bruno Teixeira Peixoto