Inside ESG: the impact on climate change awareness

2024/02/01

Posted by 3Capital Partners

Awareness of Climate Change

It has become a crucial point in ESG’s role within companies to prevent even more drastic changes than those already occurring, which have an irreversible impact on businesses and society. This theme emerges as a guiding force for more conscientious actions by the corporate market.

Ana Paula Candeloro, strategy and business advisor at 3Capital, is an ESG specialist and has brought us her perspective on the subject in an exclusive article. Check it out!

The Importance and Challenges of ESG Practices Today

In the current global scenario, awareness of climate change has reached unprecedented levels. The urgent need to address these environmental issues has led to the emergence of a holistic approach known as ESG (Environmental, Social, and Governance).

I like to say that ESG is a framework (a solution strategy) for business behavior and a guiding principle for the creation of new products and services. These are new parameters that become integrated into the decision-making process, cross-functionally. I firmly believe that these principles should be at the core of a company’s main business.

That said, organizations are indeed increasingly recognizing the importance of incorporating environmental considerations into their operations. Within the scope of ESG, the environmental dimension focuses on issues such as:

• Carbon emissions;
• Waste management;
• Energy efficiency;
• Conservation of natural resources.

Many companies are setting specific emissions reduction targets, investing in sustainable technologies, and reviewing their supply chains to minimize environmental impact.

Furthermore, corporate social responsibility (CSR) initiatives related to the environment have become an integral part of ESG strategies. Companies are seeking partnerships with environmental organizations, participating in reforestation projects, and implementing sustainable practices in their daily operations.

Although awareness is growing, challenges in the effective incorporation of climate change into ESG strategies still persist. One of the fundamental obstacles is the lack of uniform standards for reporting. The diversity in metrics used by organizations makes it difficult to compare and transparently evaluate their environmental initiatives.

Another significant challenge is the cost associated with transitioning to more sustainable practices. Many companies face financial dilemmas when trying to balance the long-term benefits of sustainable practices with immediate financial pressures. This tension between profit and sustainability continues to be a point of friction in the widespread adoption of ESG strategies.

Conscious Capitalism

This is where the shift toward a more sustainable economic system, conscious capitalism, comes into play. In essence, the idea behind this concept is that businesses should be developed to create value and well-being for all stakeholders of a company and also for the planet.

This value, in turn, can be offered in various forms: cultural, ecological, intellectual, emotional, ethical, financial, social, physical, and even spiritual.

It is important to emphasize that conscious organizations are not solely focused on profit, but they certainly do not disregard it. In the model proposed by conscious capitalism, financial returns become a consequence of the value generated for society and the environment, benefiting all parties involved in the business.

Companies embracing conscious capitalism typically have a close relationship and some experience with ESG investments, with combating climate change being one example. In this way, this phenomenon influences the decisions of conscious investors. Companies with sustainable practices and resilience to climate change are becoming increasingly attractive to investors, as they demonstrate an effective understanding of environmental risks.

The growing awareness of the financial impacts of climate change has led to a greater demand for ESG funds and socially responsible investments. This trend suggests that the market is responding to environmental concerns, positioning ESG investments as a key tool to drive the transition toward a more sustainable economy.

As a result, investors are increasingly focused on climate risks in their portfolio analyses. This assessment has become an integral part of their decision-making process, considering factors such as carbon exposure, climate resilience, and a company’s environmental policies.

Our Mission is to Generate Value with Consciousness

Transparency in ESG-related disclosures has become a growing demand. An organization’s ability to clearly communicate its environmental practices and climate risk management has become a determining factor in attracting investments.

Recent news about the phenomenon of climate change also plays a crucial role in influencing companies’ and investors’ perception of the importance of ESG practices. Extreme events, alarming scientific reports, and increasing public pressure can serve as catalysts for corporate action.

Organizations that are negatively featured in the news due to unsustainable environmental practices can face significant repercussions, from financial losses to damage to their reputation. This external pressure can be a key factor in ‘convincing’ companies to reconsider and strengthen their ESG strategies, recognizing the importance of addressing climate change on a global scale.

Global awareness is shaping corporate and financial decisions toward a more sustainable future. 3Capital acts as a mediator in these paradigm shifts and corporate practices and in investment decisions, which are proving to be profitable. We can understand ESG as the precursor to this trend toward sustainable development in the corporate world. Count on our team of experts to navigate this path!

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