The ESG agenda has been hampered by wars, high interest rates and reduced investment in the United States. Prospects for 2024, however, are for an improvement in the scenario
By Leticia Malaga, specialist partner at Peck Advogados, member of the innovation committee of the Brazilian Institute of Corporate Governance
Definitely, 2023 was not the year of ESG. With the unfavorable global economic situation since the pandemic, two ongoing wars, high interest rates around the world and uncertainties that have been going on for quarters, the perception is that companies are doing what they can (to survive) and not necessarily what should be done . To make matters worse, the regulators, who had been coming at a great pace until pre-pandemic, with increasing demands, also seem to have put their foot on the brakes. Given this scenario, thinking about sustainability was left for later. At least for a lot of people. Sustainability has been on the back burner for a year, analyzes Leticia Malaga, member of the innovation committee of Brazilian Institute of Corporate Governance (IBGC) and partner of Peck Lawyers, which recently celebrated 19 years of history.
Although the reality of many companies today is far from the best practices defined by the acronym (as they are not mandatory), Letícia observes that there are large companies very committed to the cause and that continue to invest heavily in the concept – in the case of Natura and Gerdau. These and others, he comments, can be a mirror for the others.
“Today this is not the number one agenda, but, on the other hand, there are climate issues”, comments Letícia.
As the climate issue is very strong on the global agenda of ONU, ESG has not stopped, but it is a fact among many CEOs and also funds, investments lost momentum in 2023. Starting with investor appetite. Investments in this area have fallen in recent months in the USA, leaving US$ 340 billion under management funds ESG to $315 billion at the end of September, reports.
“The truth is that it is much easier for companies and investors to think about sustainability in good times than in times of crisis. One of the explanations for this reduction is the fact that investment funds are responsible for allocating to “best return” products. At least in the short term. Therein lies the question: invest in sustainable issues and have a lower return? These are questions that end up overlapping. They are choices. The market is still creating culture. If you have a German client, they are more connected to this; already an Asian minus or zero. Brazilians are still trying to understand themselves and survive. There are companies with very legal, good practices, but there are others that still don't”, explains Letícia.
The good news is that the engines should reheat next year. In other words, 2024 tends to be better for ESG than this year.
Stakeholder monitoring needs to be a corporate priority
Slave labor is still far from being a problem in Brazil's past. It still exists, often far from the metropolises.
“Outside the major capitals there is slave and child labor and enormous challenges to be overcome. As Brazil is a very continental country, we really have no vision of what happens outside our eyes”, she warns.
For this reason, it is the obligation and responsibility of companies to investigate their supply chain among their stakeholders.
“Some sectors are more vulnerable than others, there is a lack of attention from the contractor themselves”, observes the lawyer.
So companies need to ask themselves: how do I guarantee my supply chain? Can my demanding a lower value from my supplier result in consequences such as non-payment of taxes or fair values to my supplier's employees? How to guarantee human rights and labor issues? Can I lower my profit margin a little to ensure this happens? This last issue is directly related to executive remuneration, whose life cycle within companies is increasingly shorter. The path, Letícia points out, lies in the collective, in the joint movement of several companies.
Work similar to slavery by third parties shows an internal gap
Cases of companies caught practicing work similar to slavery, even when the incident involves suppliers, they must check and recheck the way in which employees, even temporary ones, of their partners are treated.
“If this happens, it is because internal work was not done and this is unacceptable”, says Letícia, recommending that serious audit work be carried out, with the right to visits, questions and requests for documents – these, including, with subsequent verification of the veracity.
“The provider can say that the workers are being paid, that everything is up to date and that they sleep in a clean and regular environment. Then people sleep crowded together in the barn. There must be a complete audit.”
Even if the supplier is in Asia, it is the buyer's role to visit on-site visit. Including in the textile industry, which has been globally charged. Recurrence is also essential, such as surprise visits. Although Brazil has labor rights, many places in Asia do not. In this case, the company needs to ask itself questions about who it wants to bring to the table to interact with.
Letícia says that it is necessary to question the practices that suppliers have in relation to the pillars of human rights and extrapolate labor issues.
“There are, for example, extended maternity leave policies, can the person leave during this period, is there any additional assistance? It's not just about complying with the law. Complying with the law is the basics”, he concludes.
Source: ESG integrity