Introduction
The advent of the coronavirus pandemic has caused a tragedy of extraordinary proportions. Representing much more than a global health crisis, such catastrophe has shuddered the Economy and the financial markets around the world. but it has also enlightened the boost in ESG sustainability, specially in light of the resilience of enterprises and corporations adhering to this growing business logic and prospering in such an adverse context.
The ESG topic grew even before the Covid-19 outbreak. Recent experiences, however, demonstrated the better performance of sustainable investments, even during moments of bear market (RBC Wealth Management, 2020). The three following cases well attest the practical effects of the new corporative perspective framed under the entrance of the youngest generations in the financial market.
PG&E: from US$25 billion to bankruptcy. After being criminally accused of having caused the fires that ravaged Northern California in 2019, the largest power distribution company in the state suffered an irreparable loss in market value. Among its investors, very few were ESG funds with contributions in the company, concerned with business sustainability and social responsibility (PENN, 2021).
B3 and S&P Dow Jones excluded Carrefour Brasil from the ESG index for investment. On the eve of black consciousness day, the murder of João Alberto Freitas scandalized the country and reverberated around the world. A black man, João was beaten and asphyxiated by security guards of a Carrefour store in the parking lot (SÃO PAULO, 2020).
A study conducted by Forbes pointed to better market performance of companies that value the inclusion of social minorities among their employees. Diversified professionals contribute to expand business views, based on the different perspectives and specific experiences of minority groups (NAPOLETANO and SCHMIDT, 2020).
Cases like these increasingly populate the columns for economy and investment in media outlets. It is the rise of ESG logic as an indicator of business health in today’s engaged and innovative society. The acronym for Environmental Social and Corporate Governance (ESG) refers to the set of business practices related to sustainable development as a strategic means of financial attractiveness and structuring of a righteous culture of governance. Dominating the mindset of investors and analysts, internal policies of social and environmental responsibility and corporate governance emerge as criteria for evaluating and balancing business quality, as well as for managing investment portfolio and decision-making.
ESG: Concept and application
From the acronym ESG, the category “E” considers environmental criteria related to utilization of natural resources, with special attention to the non-renewable ones and care for the conservation of the environment for future generations, which can be achieved through the preservation of forest areas, reduction of emission of pollutants and toxic waste, among several others measures. On the other hand, the letter “S” refers to the social responsibility, being guided by measures to guarantee human rights, tolerance and equity, in order to provide greater social inclusion in the corporate environment, valuing implementation of measures through risk analysis, monitoring and review of policies themselves that include ESG requirements.
It is an international trend to adopt ESG proposals, because such practices import competitive advantages over the new market model, as long-term sustainable innovation generates value for shareholders and demonstrates significant financial performance potential. Therefore, it is indispensable for companies to manage risk factors related to social and environmental responsibility and sustainability in order to prevent negative impacts over the values of the shares to investors, in the future, for the corporations themselves, as evidenced by the cases of PG&E and Carrefour Brasil. Harper Ho (2016) explains that risk management can contribute to companies’ financial performance by reducing the costs of possible accountability for complaints, legal executions and other risks events, consequently reducing losses in the financial market with the publicization of these. Thus, the ESG good practices contribute to the intangible assets of the business, in the form of goodwill, functioning as a guarantee of protection to companies (POLLMAN, 2019, p.10).
Beyond the philanthropic perspective of developing a more humane enterprise culture, the ESG mentality meets the needs of a new market conformation, guided by the proven best performance of the businesses that take sustainability as a structuring concept. Socially Responsible Investors (SRI) seek to provide their resources in socially conscious companies, more able to survive the demands of a society of the 21st century, which has taken environmental conservation, social inclusion and corporate governance as fundamental guidelines, inclusively legally required. According to Berger-Walliser and Scott (2018), this social governance responsibility is characterized by internalization of externalities related to the company’s activities, considering and managing its impacts. Thus, corporate reputation and integrity are the key for defining the market of companies.
In this scenario, the social fact of the ESG logic holds great contributing potential for the internal cultura of business. In a corporate structure based on the valuation of people and the cult of diversity, all employees benefit from managing partners to outsourced workers, because such a working environment allows the maximum use of individual skills. When innovation becomes a priority, traditionalist corporate environments lose space for diversity and inclusion in the search for talents of all identities, ethnicities, colors, features, sexual orientation and origins that enrich the human capital of the business with countless possibilities of new ideas, new experiences and new visions. Creative industries are the natural consequence of this scenario, advantage that makes it inadmissible any kind of discrimination for arbitrary reasons that prevent the acess of competent professionals to the market of the new millennium, in clear awareness of the participation of these employees in the company’s intelectual property, even because, as Pollman points out (2019, pp.11), professionals prefer to worl in companies with social and environmental policies, for the benefit of reputational capital, image or pesonal values.
For all these reasons, the adoption of ESG proposals goes far beyond responding to a demand for social justice. Equal pay and opportunities, respect for the labor guarantees and preservation of worker’s physical and mental health are some of the factors that contribute to the humanization of professional relationships, and the non-observance of this logic of collective responsibility puts in danger the integrity and the performance of companies in the capital market, which already attaches much value to human, social and environmental capital combined with financial capital (MAYER, 2018).
Overcoming the shareholder primacy
As of the new ESG trend, it is finally possible to identify the overcoming of Milton Friedman’s proposal on the shareholder primacy, an idea predominant in the late 20th century, when the main responsibility of companies was to increase their respective income indefinitely. On the subject, Pollman comments:
By the 1970s, the modern regulatory state indeed began to take shape with the rise of regulation concerning the environment, worker safety, and consumer protection. Expansive conceptions of corporate social responsibility were met with criticism from economists and legal academics such as Milton Friedman and Henry Manne who presented a different view of how corporations should be run. Friedman famously argued that ‘there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud (2019, p. 11).
Today, beyond corporate social responsibility, the rampant seek for monetary capital may be extremely detrimental to companies in the long term. For instance, climate change and water crisis significantly impact infrastructure and agricultural production, without which it is impossible to imagine promising economic growth. The reduction of carbon emissions and the financing of sustainable means of production are, therefore, essential pillars for investment in environmental capital, so as to promote sustainable development and availability of resources in a future scenario.
In spite of Friedman and the neoliberal school, the future framed for the Economy suggests the return of an updated welfare State, adapted to the new demands. The shareholder primacy held by the renowned economist has become misplaced in a context of progressive pulverization of financial investments, driven by the anonymization of contributors to joint stock companies and by Globalization: how to sustain that a shareholder, among many others with dispersed capital, is positioned as owner of a company? Beyond generating value for stock contributions, businesses have begun to be guided by interests of all collaborators, employees, service providers, customers and shareholders, and even by diffuse interests referring to society.
Additionally, before the model of globalized economy, decays Friedman’s indication (1970, p. 122) that the legal and administrative provisions for controlling the externalities deriving from economic activities are sufficient and dismiss the usurpation of such governmental functions by private agents, since there is no global regulator to exercise such control in the scope of action of multinational corporations, even because international law does not consider companies as subjects. Friedman, in this indication, referred only to developed countries, with a consolidated public administration, ignoring the reality of governmental failures of many developing countries, in which social and environmental responsibility of economic agents is fundamental in the sight of State’s regulation omissions (RUGGIE, 2019, p. 6)
In this scenario, the most recent public policies of global powers point out to paths different than those suggested by Friedman, nurtured by the advent of the Covid-19 pandemic as evidenced by the monumental declaration of the president of the United States, Joe Biden, in favor of breaking the patents for coronavirus vaccines (REUTERS, 2021). The financial interest no longer applies as the utmost business goal, and neither does the unconditional support of States to the neoliberal model. Despite examples diverging from the global trend suggest a last breath of the Economy’s disengagement to sustainability, such as the dismantling of environmental policies in Bolsonaro’s Brazil (FOLHA, 2020), the market is progressively more demanding with regards to socioenvironmental responsibilities and corporate governance, in a process boosted by the ESG agenda on excluding outdated businesses. The current business model is therefore driven by the principle that companies are responsible not only for capital accumulation, but also for the individuals who are somehow affected by their activities.
Companies thus represent agents for promotion of the basic democracy principles, such as equality, equity, freedom and social welfare, and they must cherish for capitals other than the purely financial. That said, it is possible to affirm that ESG practices arise as means to highlight the socioenvironmental and sustainable responsibilities in a context of dehumanization of the corporate business, with potential to avoid cases like Carrefour Brasil and PG&E and to promote good practices for economic development. Finally, says Ruggie:
The rise in ESG investing and the debate on repurposing the public corporation are not unrelated. Both express a view that the large public corporation should be more than a piece of private property that has been excavated and is insulated from its social and natural ecosystems. Both express a concern that the public corporation is not managing its adverse impacts on people and planet well enough. And both reflect a growing belief among investors and business leaders that there is unlocked value in creating shared value (2019, p. 18, tradução nossa)
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