What is ESG and why is it important in investments

The term ESG encompasses three essential factors that certainly need to adopt for sustainable development. But, what is the meaning of ESG? In English, the acronym stands for Environmental, Social and Governance.

These are already very popular in the international market and are motivated by the Brazilian market. This is because the term is no longer on the radar of people who want to invest in companies with socio-environmental issues.

 In fact, this is one of the analysis criteria that investors can use before deciding on the assets to which theirs will be directed. In other words, it is a conscious way of making investments, going beyond the profitability of organizations.

If you liked this premise, then it’s time to learn more about ESG. In this text, you know a little more about the concept and its application in the market. Good reading!

What is ESG?

ESG is an acronym for the term “environmental, social and governance”. In translation the meaning of ESG is: “environmental, social and governance”. That is, it is used to measure a company’s practices in these three areas.

The concept can be used to measure how much a business tries to reduce its impacts on the environment. But it also includes initiatives to build a fairer and more responsible world and better management processes.

 Another point related to the term is that it serves to characterize investments that follow sustainability. In this way, investors can analyze a company’s socio-environmental initiatives, far beyond its financial ratios.

The acronym ESG first appeared in a report called “Who Cares Wins” in 2005. This was the result of a United Nations (UN) initiative.

At that time, financial institutions from different countries met to determine guidelines for including socio-environmental and governance issues in asset management. The report concluded that it incorporates these factors in the financial market, the results generated are more society and the more active to the facts.

What are the ESG principles?

The letter “E refers to those adopted by companies for the environment, in addition to the way they act on some topics, for:

  • Global warming;
  • carbon emission;
  • Pollution of water and air;
  • biodiversity;
  • Logging;
  • Energy efficiency;
  • Waste Management;
  • Water shortage.

Social

The letter of the acronym refers to the way the company relates to people. That includes:

  • Clients satisfaction;
  • Data protection and privacy;
  • Team diversity;
  • Employee Engagement;
  • Relationship with;
  • Respect for human rights and labor laws.

Governance or governance

Finally, the letter G concerns the way in which the company is maintained. Ie:

  • Composition of the Board;

  • Audit committee structure;

  • corporate conduct;

  • Executive compensation;

  • Relationship with government entities and politicians;

  • Existence of a whistleblower channel.

ESG Investments

 An ESG investment encompassed, socialis and governance in its analysis. That is, it goes beyond the measures that are efficient as companies that the investor in its entirety.

Anyone who buys shares on the Stock Exchange has likely already invested in an ESG company. This is why most blue chip companies that attend the Ibovespa meet the criteria of this sustainability index.

ESG in the Financial Market

Namely, there are different ways to invest in ESG in the financial market. This is made possible through Funds of Funds (FoF), which directs its capital to equities that are not given and Fixed Ren Investments, but these are like the only categories of ESG investments.

As with other categories, ESG titles of deity are also possible. They are called ESG Thematic Bonds and are aimed at socio-environmental objectives for projects that have had a positive and real impact.

This type of title is categorized according to its objectives:

  • Greens: representG environmental protection to energy, reduction of protection, conservation of other links;

  • Social Bonds; to food security generation projects, for example Bondsambienta

  • (Sustentais) is a socio-environmental project.

Companies that want to achieve ESG goals can also issue Sustainability-Linked-Bonds. However, for this, they need to have clear and well-defined measures to monitor the initiatives.

For example, they can define that they want to reach 95% of electricity use by 2028. They can also say that they want to reduce carbon dioxide by 2030.

Sustainability indices at B3

B3 has Corporate Sustainability Indexes. Tools assess the performance of companies on ESG. Know more about them:

ISE B3

The Corporate Sustainability Index (ISE B3) represents a category of assets that meet the determination of methodology established in the methodology. The purpose of this index is to act as a performance indicator of the quotations of the selected companies’ assets. This selection is made through recognition of the company’s commitment to corporate sustainability.

In this way, investors are supported in decision-making and with ESG best practices. Only shares of entire companies on B3 that meet pre-determined ISE B3. On the other hand, they are long from this stock index that are in: In addition, B3 has the ESG Workspace Platform, which contains the performance of companies participating in the ISE B3 2021-2022 portfolio selection process. Thus, a platform will help users to define strategies based on notes and data related to ISE B3.

ICO2 B3 – Carbon Efficient Index

The B3 Carbon Efficient Index (ICO2 B3) was created in 2010 with the intention of being an instrument for discussions on climate change in Brazil. Companies that show low transparency to their carbon and preparedness for an economy.

Between 2010 and 2019, only companies that were part of the IBrX 50 were invited to participate in the index. The methodology was revised and took into account global trends and movements in 2020. For this reason, as of 2021, B3 began to be invited as companies in the IBrX 100 for the composition of portfolios

IGPTW B3 – Índice GPTW

The GPTW Index (IGPTW B3) represents a portfolio composed of companies certified as the best companies to work for. This definition is based on the national ranking developed by the Great Place to Work (GPTW).

In this way, it is possible to invest in companies that care about the relationship between people and the development of employees. In this way, it also has a positive impact on the business. The purpose of this content is to act as an indicator of quotations of the only companies that work on B3 and guaranteed by GPTW as providing the best treatments for performance.

Conclusion

The concern with sustainable development has been growing in society, and this is also reflected in companies. One of the strategies adopted by them to comply with this standard is an adoption of ESG strategies.

In addition, B3 brings sustainability indices for ESG to the financial market. In this way, they can be formulated as more investor-oriented resources for companies that take their initiatives. Do you already analyze your ESG when choosing investments? Tell us more about your experience in the comments!

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