In 1987, a commission headed by a doctor published one of the most impactful texts of our time: the “Our Common Future” report alerted the world to the severe consequences of the planet’s environmental and social problems. Since then, corporations have tried to understand their role within a long-term development model. Managing innovations trends reached large companies with concepts such as social responsibility, sustainability, and environmental certifications. The productive sector sought to adopt the idea of sustainable development, both to reduce environmental and social impacts and to offer ecological or environment-friendly products.
However, considering the escalation of problems, such as those related to climate change, the transformation has not come at the necessary pace. There is still a huge gap between recognizing the responsibility of companies in facing social and environmental problems and, on the other hand, implementing a new truly sustainable production pattern. After all, changing is expensive, but not changing is becoming increasingly costly.
In this scenario, the effort to adapt and improve management and production systems in pursuit of sustainability cannot be neglected. However, it’s necessary to accelerate the change already underway. The idea of sustainable development has been hitting the walls of the corporate world for some time and can now increase its presence with the reinforcement of the “ESG trend”.
It is not a new idea, but a renewed approach to the concept of sustainability. Through indicators, ESG assesses whether the behavior of companies contributes to improving environmental, social, and governance standards. It attempts to bridge the gap between sustainable development theory and business practice with metrics that can be understood and compared by investors, governments, society, and consumers.
ESG became a constant reference in the speech of most Brazilian agribusiness companies, still based on large corporations, as they are more exposed to the demands of the international consumers and financial market. And here I emphasize the financial institutions’ role in this process. Perhaps this is the great new behind the ESG trend.
It is important to take into account that business’ changes have responded more quickly to financial markets than to consumer demands. According to the report “ESG Investing: Practices, Progress and Challenges,” prepared in 2020 by the OECD, the number of portfolios that incorporate key elements of ESG analysis could reach US$ 17.5 trillion globally. This amount should be a stimulus for Brazilian agribusiness companies. The financial market took decades to understand its role in sustainable development. Opportunities for the productive sector are multiplying, especially in carrying out more profitable financial operations when related to commitments based on ESG goals.
Financial market agents under pressure to improve their performance in ESG portfolios need to overcome the restricted scope of large companies to learn about the diversity of Brazilian agriculture. As head of the international area of the Brazilian Agriculture and Livestock Confederation (CNA), I visited rural developments in all biomes in Brazil and witnessed the diversity of incredible initiatives that combine sustainability and production. From cocoa cultivation in Pará to a Bahia fruit growers’ cooperative, from wineries in Rio Grande do Sul to the grain farms in Mato Grosso do Sul, I witnessed good examples of agricultural production combined with forest conservation, renewable energy production, rational use of water, wildlife conservation, among so many other positive practices.
Brazilian agribusiness has developed a range of solutions that prioritize the mitigation of environmental impact. Innovative technologies, such as the integrated crop-livestock-forestry system (ICLFS), with the capacity to increase productivity and mitigate carbon emissions, are an example of the sector’s ESG potential. The Brazilian Agricultural Research Corporation (EMBRAPA) recently developed a traceability protocol – called “zero-carbon meat” – that is based on the adoption of ICLFS, which is a present case of the creation of indicators that can help cattle ranchers and meatpacking companies to link their production to climate goals within the scope of the ESG. The protocol, managed together with the CNA, was created to position beef brands with consumers seeking a differentiated product. However, it may have reached another target by creating reliable metrics: the financial market’s need to have ESG indicators in a large-scale productive activity.
Establishing replicable and scalable metrics is the challenge to be faced by producers, companies, and research institutions, but also by the financial sector and other institutions linked to the ESG theme. There has been notable progress in areas such as water consumption or measuring carbon emissions. Many companies already use these indicators in their sustainability reports with clear goals for future years. However, for other environmental assets, there is still a lot of room for advances and investments, such as indicators for land use that can reflect the maintenance of forests, conservation, and productivity.
Accounting for the impacts of agricultural activity and creating useful and reliable indicators for decision-making by investors, governments, and consumers are essential to position the sector in the ESG trend of sustainable development. Greater openness to the subject will be needed on the part of the rural producers, in particular, to expand their role in the social and governance pillars.
ESG opens two windows of opportunity for agribusiness: improving the relationship with the consumer market and increasing synergy with the financial market. The combination of these opportunities can generate a highly positive externality, increasing visibility in the sector’s environmental, social, and governance commitments, improving its image with the Brazilian urban public and final markets. It is also on the consumers’ image that the main risk of ESG lies: the reputational risk.
If global problems related to environmental, social, and governance sustainability brought together engaged consumers and a financial system willing to encourage changes in production, the ease of real-time communication allowed greater scrutiny of the commitments made. “Greenwashing” can be very costly for companies that do not demonstrate what they publish in their sustainability reports or advertise in marketing campaigns. And the risks outweigh the actions of the company itself, as they are shared throughout the whole production chain.
ESG is not a panacea, as it will not solve all environmental and social problems. It will not replace public policies, and regulatory pressures strongly drive its evolution. It may be just another management trend that another acronym will hereafter replace. But this does not erase the fact that the ESG agenda causes a frenzy in corporate structures and provokes changes that affect the agricultural sector. These are new opportunities created by the market. We are yet to see who will be left behind and who will enjoy it.
Lígia Dutra is the director of International Relations at the Brazilian Confederation of Agriculture and Livestock (CNA)
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(*) Originally published on Broadcast