Beyond mere market demand fulfillment, a strategic differential of risk and opportunity management

Companies in general find themselves increasingly immersed in a business environment characterized by growing demands for corporate operations to be guided by environmental, social, and governance (ESG) investments. The pressure is significant for companies to achieve social legitimacy in their operations, especially in the current Brazilian scenario, where the Ministry of Environment and Climate Change explicitly values social participation and control.

In addition, project developers associated with financing from signatory agents of the so-called Equator Principles, as well as publicly traded companies, have now been required to incorporate guidelines and practices stemming from international instruments aimed at ensuring the effective sustainability of investments. Not by coincidence, the Equator Principles serve as a powerful benchmark for financial agents to determine, assess, and manage social and environmental risks in projects in a structured manner and based on constantly updated information throughout the life of the business. In reality, this extensive framework of guidelines, best practices, instruments, and international benchmarks – which now constitutes the backdrop for the “corporate and investment habitat” – ultimately stems from the widely acclaimed Sustainable Development Goals (SDGs), which emerged during the United Nations Conference on Sustainable Development, Rio+20, held in 2012.  The SDGs translate into a set of 17 goals, 169 targets, and 244 interconnected indicators.

In general terms, the 2030 Agenda for Sustainable Development and the SDGs offer the potential to transform prevailing approaches to economic, social, and environmental challenges, with a focus on creating and implementing an integrative agenda that encompasses environmental sustainability and social concerns, ultimately aiming at the overarching goal of eradicating poverty. The actual implementation of this agenda is entrusted to creative thinking and implementation by an increasingly diverse set of actors.

Within this broad array of stakeholders and their practices, the Global Reporting Initiative (GRI) plays a significant role.  The GRI aims to disclose the performance of organizations to internal and external stakeholders, considering the socio-environmental impacts and sustainable measures present in company operations. It assesses both positive opportunities and negative risks, directing a Strategic Planning aligned with the reality of the territory in which the business operates. The GRI reports these results with the necessary transparency.

The GRI Standards are also aligned with other official instruments, such as the United Nations Guiding Principles on Business and Human Rights, the Organization for Economic Cooperation and Development (OECD), Guidelines for Multinational Enterprises, the OECD Due Diligence Guidance for Responsible Business Conduct, the International Labor Organization (ILO) International Labor Standards, and the International Corporate Governance Network (ICGN) Global Governance Principles.

In this interconnected universe of corporate sustainability, some themes emerge and reinforce themselves as “the agenda of the day”: climate change and decarbonization, social participation and legitimacy, biodiversity and its interface with societal benefits, and human rights. Biodiversity, in particular, assumes an increasingly important role in all sustainability discussions, not only because it represents one of the planetary boundaries that has already been exceeded but also because of its importance in providing natural resources to organizations and individuals who benefit from them. In this context, the Principles of the Equator highlight Ecosystem Services and the “impact investments” directed towards them, Payment for Environmental Services (PES), and measures aimed at environmental conservation. It is important to emphasize, for reflection, that the attention given to the aforementioned topics is not a result of trends or fads.  Rather, they are all central and determining factors in the discussion and anticipation of negative risks and opportunities for corporations. This is because they seek to ensure the essential natural resources for production, reduce employee turnover, and mitigate the threats of a shortage of skilled human resources, as well as address unforeseen operational costs arising from social conflicts.

In this context, organizations being attentive and incorporating international demands and benchmarks into their planning is no longer just a matter of fulfilling obligations set by financial agents and/or the financial market and shareholders.  It represents a strategy for maintaining and leveraging their position in an increasingly competitive market and adding value to their brand and business.

To provide further insights into these important considerations, this month’s publications by Ferreira Rocha will provide guidelines for the necessary interaction between the “mere” compliance with environmental licensing obligations and commitments to financial agents. This will help minimize negative risks to the business, increase predictability, optimize costs, and implement business decision-making that explicitly aligns with the ESG culture.

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Best regards,

Delfim Rocha

Chief Executive Officer Ferreira Rocha Assessoria e Serviços Socioambientais