Sustainability: a strategic agenda that cannot be postponed

My teenage years bring me the best image, the one that reassures me about how the sustainability, in its essence, requires changes. We were used to washing our own cars on Saturday afternoons then. It was a homely routine. When that happened, our hoses were constantly spilling water everywhere, for as long as the washing lasted. We were not harming the environment, or purposely being irresponsible. It was simply the habit at the time. Today, that attitude would obviously be reproached, not only because of the unnecessary waste of such a valuable asset, but also because of the total lack of environmental concern involved. This leap in time follows the evolution in the understanding that sustainability does not mean “hugging trees or kissing little children”. We are talking about an absolutely interconnected agenda, one that includes the EESG aspects, named as such: Economic, Environmental, Social and Governance. There is no way to separate them, or we would be working alongside the financial world – and then we would not go forward.

The basic concepts on sustainability used lead us to the definition established by John Elkington, in 1994, in his book “Cannibals With Forks”: “The ‘triple bottom-line’ is the expansion of the traditional accounting and performance framework to encompass its ecological and social impact, in addition to its financial impact”. It also leads us to the definition used by the UN, in 1987, from the “Brundtland Report – Our Common Future”: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” It is simple and complex at the same time.

Among the various facts that support this strategic agenda, one that cannot be postponed is the growing global warming and consequent climate catastrophes, which have real impact on the economy and on the society. The financial losses from 1995 up to 2015, according to “The Human Cost of Weather Disasters” report, are around USD1,9 trillion, with Brazil having the most affected population among all Latin American countries ((https://www.undrr.org/publication/human-cost-weather-related-disasters-1995-2015).

If we take a closer look at all the trends, we can see that the subject already arrived at the CFOs, CEOs and key people a long time ago, at least for those who have a broader view and that are attuned to risks and opportunities. Even more importantly, the understanding that sustainability is not only a long term commitment is growing. A study made by McKinsey&Company in Feb’2020, “The ESG Premium: New Perspectives on Value and Performance”, shows us that, in a 10-year period (2009-2019), the understanding about environmental, social and governance factors and the short term impact of these factors has grown significantly among C-Level executives and investment professionals ((https://www.mckinsey.com/business-functions/sustainability/our-insights/the-esg-premium-new-perspectives-on-value-and-performance).

And then we finally reach the emblematic years 2019 and 2020. Right before the end of 2019, Business Roundtable, a non-profit organization formed by the main CEOs in the United States, whose companies employ more than 15 million people and have annual revenues of more than USD 7 trillion, made a public announcement about radically changing paths in their corporations. Breaking with their 20-year-old companies’ traditional practice, one which aimed, above all, at maximizing the profit of the shareholders, they announced that the objectives of their companies would from then on be amplified to also favor their employees, clients and the communities in which they acted. Then, earlier in 2020, Larry Fink, BlackRock’s CEO, stated in his annual letter that his company, the world’s biggest investment management corporation, currently managing around USD 7 trillion in assets, would center their investment policies on sustainability (https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter). During the World Economic Forum, in Davos, in Feb’2020, the most used expression was “Stakeholder Capitalism”. For the first time, the traditional Global Risks Report (that lists the main risks for the next decade, based on interviews with more than 800 specialists and opinion leaders), has indicated that the main risks, be them connected to probability or impact, are all environmental (https://www.weforum.org/reports/the-global-risks-report-2020). These are the EESG staking a claim on their place in the world. Environmental factors generate social and governance crises, and bring economic losses. You can change the order of the four terms in bold. It will always make sense, because they are interconnected. Period.

BlackRock put into focus sustainability as a business. But investors have been working on this agenda for a long time, as movements like CDP – Disclosure Inside Action (https://www.cdp.net/pt) and PRI – Principles for Responsible Investment (https://www.unpri.org/) show us. Frameworks are created to stimulate information transparency, so that better business decisions can be made. Examples of this have been given since the pioneer GRI – Global Reporting Initiative (https://www.globalreporting.org/), which created the standard for the world’s most used corporate reports, and also by TCFD – Task Force on Climate-related Financial Disclosures,  (https://www.fsb-tcfd.org/) that has the support of a group of investors with USD 118 trillion under management.

UN is another important player here, with the Global Compact and its Ten Principles, and the launch of the 2030 Agenda in 2015, as well as the SDGs – Sustainable Development Goals, a worldwide commitment of people and countries  (https://www.unglobalcompact.org/ e https://www.pactoglobal.org.br/). Regulatory agencies, banks, the stock market, all these agents from the financial sector are working and bringing new perspectives, incorporating the EESG issues. In this dynamic context, companies, CEOs and Boards also have a central role. I can see them acting intensely, searching for the best way to understand and practice this agenda. Some are ahead of the game, some are not quite there yet. That is how it is. But there is something in common here: everything goes through the leadership, mainly - and more than ever - during this world pandemic.

All signs from CEOs, mayors, countries are towards the economic reconstruction after COVID-19, and they benefit EESG. It is necessary to face the reality of climate change. The world will not be able to face two crises in a row, as well pointed out by Christiana Figueres, former Climate Convention Executive Secretary and one of the main articulators of the Paris Agreement: “The crux of the matter is that the pandemic-induced financial decisions made over the next 12 months will shape the global economy for the next decade, just when we must halve our emissions. The recovery packages will cost trillions of dollars. Governments are unlikely to have the resources to direct capital at such scale towards other urgent global needs for years. We cannot jump out of the frying pan of the pandemic and into the fire of exacerbated climate change. By that time we will have run out of fire hydrants.”