Understand What ESG Is and Its Impact on the Port Industry

The acronym ESG has been gaining more and more attention in strategic discussions among companies today, given the growing concern about reducing environmental impacts caused by certain business practices across various sectors.

As a result, sustainability-related aspects have become recognized as fundamental, even from a financial perspective, influencing risk assessments and investment choices in the market, imposing drastic changes on the business sector.

In this article, you will understand what ESG is, its pillars, and the most common practices for implementing it in companies. Let’s dive in!

What are the 3 pillars of ESG?

The term ESG was first used in 2004 in a publication by the Global Compact titled “Who Cares Wins.” It is based on criteria related to the so-called Sustainable Development Goals (SDGs), which are established by the Global Compact. This initiative, launched in the year 2000 by Kofi Annan, the former Secretary-General of the United Nations (UN), aims to align business strategies worldwide around universal principles in areas such as Human Rights and the Environment, to address societal challenges.

Three main pillars are grouped under the ESG acronym:

• Environmental
• Social
• Governance

Based on these pillars, it is possible to assess whether a given organization is healthy, socially, and environmentally conscious. If a company receives good ratings on all three criteria, it can be considered to be recognized under the ESG standard, signaling greater trustworthiness to society and investors, as well as its commitment to sustainability-related issues.

Therefore, it’s crucial to understand how these criteria are addressed. Keep reading!

Environmental Criteria

The environmental aspects are associated with the “E” (Environmental) in ESG. As the name suggests, it evaluates how the company performs in ensuring environmental preservation and making its operations more sustainable. Therefore, the environmental aspects of ESG focus on the relationship between companies and the conservation of natural resources.

Among the criteria addressed, for example, is the company’s position on the generation of solid waste in its activities. This pillar also sheds light on issues such as material recycling, greenhouse gas emissions (GHG), and zero-carbon initiatives.

Social Criteria

The second criterion, represented by the letter “S” (Social), addresses social aspects. Essentially, this area evaluates how the company manages and promotes its relationship with stakeholders, including employees, suppliers, the community, customers, and society in general.

In terms of employee relations, for example, it looks at how the company ensures safety and well-being at work, diversity in roles, training, and qualification programs, among other factors.
Regarding customers, these criteria examine the quality of products and services offered, ensuring they are safe and risk-free.

In relation to the community, the focus is on developing programs and actions that support people and institutions engaged with the company’s activities, whether directly or not. For instance, participation in charity events or donations to disadvantaged groups.

Corporate Governance Criteria

As the name suggests, governance evaluates how the organization positions itself regarding the application of good corporate governance practices.

In other words, this pillar of ESG indicates whether the organization establishes ethical and conduct codes, ensures fairness, accountability, transparency, and adheres to these codes.

Having transparent and ethical governance is what sets the requirements for an organization to be listed on the New Market of the Stock Exchange, for instance.

What is the Objective of ESG Initiatives?

The primary goal of the ESG concept is for companies to adopt criteria to achieve a more conscious operation, preserving environmental resources and adopting good sustainability and governance practices.

Therefore, understanding ESG helps realize how actions related to these topics are complex and contribute to corporate outcomes on various levels. Corporate activities aligned with the ESG concept generate numerous benefits for organizations, investors, and other stakeholders. The benefits are particularly significant when the organization engages in effective methodologies and management practices.

Here are the advantages of adopting ESG in companies:

Profitability

One of the factors that leads to good results is increased productivity. This happens because departments begin to work more strategically and efficiently, with more developed workflows. Additionally, employees become more engaged, reducing turnover rates and generating cost savings.

These factors contribute to greater profitability. In particular, this is an operational performance indicator that reflects how much the organization generates from its activities. In other words, it is capable of adding value and minimizing costs to optimize business results.

Brand Reputation

This is crucial for a company, in terms of its brand equity, which refers to the additional value a recognized brand can add to a product. It also contributes to digital branding – a practice focused on brand positioning in the online space – connecting more with current demands, and strengthening the company’s sustainability positioning. This can increase interest from its target audience, including customers, suppliers, investors, employees, and others.

Risk Reduction

There is a growing demand for more sustainable practices and greater social responsibility among modern companies. Understanding ESG and implementing it within your company helps align it with legal and regulatory requirements, reducing the risk of penalties for environmental damage, for example. As a result, this adds more value to the business, distancing it from potential reputational damage.

What Are the Most Common ESG Practices?

Renewable energy usage, waste management, pollution control, and CO2 emission reduction are some of the primary environmental preservation practices.

Regarding governance, leadership sectors are involved in developing strategies and corporate decisions, including executive compensation, succession planning, risk management, and compliance. At Wilson Sons, for instance, the company’s board follows recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), dedicated to promoting corporate transparency and supporting the evaluation and pricing of climate-related risks and opportunities. Currently, the Wilson Sons board ensures robust corporate governance, while an audit and risk committee assists in monitoring the effectiveness of internal controls and risk management policies.

In the Social pillar, organizations control their relationships with various stakeholders, such as suppliers, customers, employees, and communities, and engage in policies concerning diversity, human rights, and consumer protection.

It’s also worth noting that these best practices may be linked to the UN’s Sustainable Development Goals (SDGs), which we mentioned earlier. The SDGs consist of 17 key themes that address challenges and vulnerabilities to be overcome by 2030. Here they are:

• SDG 1 – No poverty: end poverty in all its forms everywhere;
• SDG 2 – Zero hunger and sustainable agriculture: end hunger by promoting sustainable agriculture;
• SDG 3 – Good health and well-being: ensure healthy lives and promote well-being for all;
• SDG 4 – Quality education: ensure inclusive, equitable, and quality education for all;
• SDG 5 – Gender equality: achieve gender equality;
• SDG 6 – Clean water and sanitation: ensure availability and sustainable management of water and sanitation for all;
• SDG 7 – Affordable and clean energy: ensure access to affordable, reliable, sustainable, and modern energy for all;
• SDG 8 – Decent work and economic growth: promote sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all;
• SDG 9 – Industry, innovation, and infrastructure: build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation;
• SDG 10 – Reduced inequalities: reduce inequality within and among countries;
• SDG 11 – Sustainable cities and communities: make cities and human settlements inclusive, safe, resilient, and sustainable;
• SDG 12 – Responsible consumption and production: ensure sustainable consumption and production patterns;
• SDG 13 – Climate action: take urgent action to combat climate change and its impacts;
• SDG 14 – Life below water: conserve and sustainably use the oceans, seas, and marine resources;
• SDG 15 – Life on land: protect, restore, and promote sustainable use of terrestrial ecosystems;
• SDG 16 – Peace, justice, and strong institutions: promote peaceful and inclusive societies;
• SDG 17 – Partnerships for the goals: strengthen the means of implementation and revitalize the global partnership for sustainable development.

What is ESG in Brazil?

In Brazil, ESG has become more relevant among organizations and investors. A survey conducted by Morningstar and Capital Reset indicates that ESG funds raised BRL 2.5 billion in the country in 2020.

According to the study “The Evolution of ESG in Brazil,” developed by the Brazilian Network of the UN Global Compact in partnership with the Stilingue platform, the use of ESG terminology on social media grew exponentially among Brazilians. In 2020, there were 22,000 publications on the topic, six times more than in 2019.

In a global scenario where increasingly restrictive regulations are coming into effect, company and investment managers must adapt and align with ESG criteria as sustainable development becomes a reality.

What are the Necessary Adjustments?

Adjusting to ESG is complex, but it doesn’t require companies to halt production. Examples of actions include reducing or eliminating carbon emissions, improving waste management, or finding alternatives for establishing a circular economy.

Some studies predict that by 2025, ESG-friendly projects will account for over a third of the international market. As a result, growth prospects for involved organizations are high.

Through ESG investments, port companies have the opportunity to attract good investments that can be applied to grow their activities. Additionally, these investments can help finance sustainable projects that positively influence society and the environment.

As you’ve seen, ESG investments represent a way to raise funds and apply them to address issues related to diversity, inclusion, governance, business ethics, quality of life, and climate change.

Now, did you understand what ESG is and its relevance today? How about discovering more about sustainable logistics? Stick around and check out our special article on the subject!