This thing called ESG

por The Winners

I was very honored to be invited by The Winners Magazine to sign a column dedicated to such a current topic, but whose understanding and scope are not obvious: ESG, which stands for Environmental, Social and Governance (ASG in Portuguese). In fact, to know why this enormous relevance of ESG practices is enough to understand that any human undertaking entails consequences, the so-called externalities, and that these consequences have to be measured and computed in the equation of this undertaking. In this first text, I will talk a little bit about the theoretical basis, starting with two English economists considered the first formulators of the concept of externalities: Henry Sidgwick (1838-1900) and Arthur Pigou (1877-1959).

In their times, trains were powered by water steam, produced by burning coal in a boiler that was mounted on the locomotive. In addition to a lot of steam and smoke, the result of this operation was also a lot of glowing coal sparks jumping out of the vehicle and burning the wheat fields along the railroad. Observing this phenomenon during a trip, Sidgwick theorized for the first time that that negative externality (the burning of wheat from a third party that did not participate in the train operator-passenger economic relationship) was not factored into the price of the trip, although it had a cost for the owner of the burning culture. Later, Pigou went even further in characterizing the externalities of an enterprise, which can be negative, as in the case of this train, or positive, such as carbon capture as a result of reforestation projects. Just a little more theory to help understand the emergence of ESG today: for many decades, companies were managed with the creation of shareholder value as their main social function. In this “shareholder primacy” as the economic liberalism strand of the so-called Chicago School became known, the company having a good financial performance is enough for it to prosper. However, today it is not even possible to accept that the company gains value for its shareholders at the expense of the environment, its employees or the quality of life of the community where it operates. In August 2019, clear signs of change in this concept of business value came from the Business Roundtable (BRT), an organization that brings together the CEOs of major American corporations such as PepsiCo, Apple, Black Rock and Walmart. In a joint statement, the companies pledged to add value to all the parties they relate to (“stakeholders”), including customers, employees, suppliers and the communities where they carry out their activities. Thus, the term “stakeholder capitalism” or “stakeholder primacy” was coined.

Well, putting all this together, we can say that the ESG is the system by which the company tries to gather, account and inform stakeholders about its intangible assets, that is, the social, environmental and governance aspects of its activities. It will be a great pleasure to explore these concepts with you in future issues.

Eduardo Marson Ferreira, CEO e co-fundador da Global Forest Bond, startup de precificação e monetização de florestas preservadas e Conselheiro de empresas. Foi CEO do Airbus Group Brasil, da Helibras e da Fundação Ezute. Membro do Conselho de Administração da Desenvolve SP, banco de fomento do Estado de São Paulo e membro titular do Grupo de Acompanhamento da Conjuntura Internacional do Instituto de Relações Internacionais da USP, do Conselho Consultivo BNPetro e da Câmara Ambiental de Mudanças Climáticas da CETESB – SP

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