ASSESSMONEY has been investing and focusing efforts on ESG opportunities in the Amazon region. In view of this movement, it brings an article written by our economist partner Valdemar Camata Junior, who brings a unique, disruptive, transformative and determining vision to potentiate, sustain and solidify necessary and sufficient actions in the ESG universe.
We witness every day the speeches, sometimes focused, sometimes inflamed and polarized, about issues involving climate, greenhouse gas emissions, the ozone layer increase in global temperatures, melting ice, pollution of all kinds and a series of other aspects that would require several pages of clarification.
However, until the advent of the ESG (Environmental, Social and Governance) we had not yet systematized our agendas for coordinated action in this direction.
This new perspective regarding how companies and investments should be analyzed removes the centralism of financial results, previously considered as the main (if not the only) factor of analysis, but also the environmental impacts caused, on the social side and in corporate governance.
After all, the 51 billion tons of greenhouse gases released each year into the atmosphere are incontrovertible evidence of our responsibility for the destructive effects of this “circulating environmental liability”[1] that can quickly lead us to “environmental insolvency”[2].
I will not analyze here in detail the conditions that lead to this disastrous action on the planet, because we will find criminal and highly malicious sources, as well as inevitable circumstances, the result of society’s negligence and disregard with those who are far from the minimum conditions of subsistence.
In his book “How to Avoid Climate Disaster: How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need” (2021), Bill Gates begins by talking about his trips to sub-Saharan Africa and South Asia, making clear the aspects directly linked to the minimum conditions of survival of more than 800 million people under total precariousness as to housing, food, and especially without access to energy, since such access is directly linked to per capita income.
We are faced here with a dichotomy that is relatively easy to understand: if we move towards cleaner and considerably more expensive energy production/generation, we will be more expensive, we will be increasingly distancing the populations without income from access to this energy. Consequently, the entire population subjected to the use of highly polluting energy sources of energy will increase.
So far, we have only talked about necessary energy, but if we move on to access to food, the fruit of agriculture, forestry and other land uses, we will reach 19% of the total annual emissions of greenhouse gases, especially through the harmful effects of methane and nitrous oxide, much larger than carbon dioxide. We can add here the process of deforestation and fires.
For a better understanding we will confront here the current environmental liability with the “current environmental asset”[3] necessary to maintain our “environmental solvency”[4].
When we evaluate our forests under this aspect, we can observe an infinite number of active environmental services in its BIODIVERSITY, from the volume of wood and carbon stock, fauna and flora, food, medicinal active ingredients, water table maintenance of groundwater, security for springs, streams and rivers, air filtration reducing and/or eliminating pollutants, maintenance of temperatures and microclimate, evaporation, generating the “flying rivers” that reach other parts of the planet. Each hectare of original forest in the Amazon region holds in stock something close to 420 tons of carbon, on average, sequestering, at least, another 3 tons of CO2 annually.
It is from this daily confrontation between the circulating environmental assets and liabilities that we arrive, or not, at our environmental solvency. Only then will we know if we are covering our environmental footprint or if we are causing irreversible damage to our ecosystem.
We now return to the ESG aspects that are so relevant for companies and people engaged in solving problems arising from business activities at all levels.
The approach I propose here requires a small but highly significant change in the acronym ESG to SEG (Social, Environmental and Governance). The proposal is to start with the social issues, centering on people the beginning of all work focused on sustainability. If we do not turn our initial attention to the human being the most diverse conditions and needs, we will not reach the objectives resulting from understanding of the state of environmental solvency or insolvency. And we are only talking in the short term, because the quality of the results we seek in the defense of the environment and consequent sustainability of our planet also requires medium- and long-term actions.
If we seek a fairer performance in ESG we should start with the S (Social). Here we can give a visible example of how important this would be.
According to EMBRAPA Territorial, of the productive rural properties in the Amazon region, which exceed one million units, about 89% are small-sized. That is, there are hundreds of thousands of small producers and their families working in areas with a maximum extension of 100 hectares. Most of these small properties have remaining forests, and these are the most vulnerable (https://previsia.org ).
However, most of the families living on these small properties have annual incomes just above two thousand dollars. Therefore, even if they take care of their small areas of remaining forest, they receive nothing for the environmental services delivered to the planet.
On the other hand, the booming carbon market does not privilege small areas of remaining forests, which are excluded from this process. At this moment, only the large areas in RED, RED+ and RED++ projects get some financial return. Important social results are obtained but restricted to small groups of extractivists located in large areas of reserves. These results are extremely important, both for the planet and for these social groups involved, but the social reach achieved by bringing into this market the millions of small rural producers in this country would be extraordinary.
Attention to the small farmers mentioned here, adding to their family incomes a well-deserved return for the environmental services they provide in the defense of their remaining forests, would certainly greatly enhance the SOCIAL aspect and its direct results in the lives of millions of people inserted in this context. By providing better living conditions of life to families, such as food, housing, education and prospects for a better future, we will certainly have a greater mobilization of all on the environmental aspects (ENVIRONMETAL), because everyone would easily recognize the expansion of their income from the care of the forest.
Simultaneously and continuously, we would have the possibility to evolve from the technological point of view, the activities linked to land exploitation, generating increased productivity and reducing/eliminating the need for new deforestation for the expansion of agricultural production. In the same way, the anthropized areas must be recovered from the new resources available, joining the productive whole of the country.
From this stage of involvement of people and their families we will expand exponentially the actions focused on the environment and sustainability.
But what is the cost of all this action? At what point will companies and people involved change the focus from EXPENSES/COSTS to income and RESULTS/PROFIT? When will ESG (or SEG) investments have their pay backs reduced? Will there be sales expansion and customer growth for engaged companies and brands? Will it be possible to achieve overprices resulting from this engagement?
This is already happening. There are many examples of companies with brand and product valuation. Investments in more sustainable structures already experience a reduction of 50% in their pay backs. Expansion in ROI and, mainly, respect from employees, consumers and the entire society.
From the business point of view, the question is: how to expand profits in this market aligned with ESG aspects?
ESG aspects are observed, applied, and experienced in companies both internally and in the external environment. They are actions that take place within the company linked to the three aspects in their respective relevance, whether of a technical nature, such as the use of clean/renewable energy, waste management, emission control, water use, etc., as well as people and governance issues. However, without observing what happens outside the companies, around them, in its insertion environment, with stakeholders of all kinds, there will not be the necessary social engagement. The positive and negative externalities of the enterprise must be observed, either reinforced or treated/compensated. Simultaneously, society must be involved and informed about this set of actions (GOVERNANCE).
When it becomes clear to society that the company is evaluated not only from the standpoint of financial results, but also social and environmental, the whole set of performance rises. The result of the change in consumer behavior (conscious consumption) and the greater engagement of investors will be visible in the return of the investment.
This collective involvement will lead to the absorption of ESG aspects as a philosophy of life for all involved.
Quoting again Bill Gates in his book “How to Avoid Climate Disaster: How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need” (2021), the sooner everyone is engaged, the sooner there will be an understanding and immediate action on what each one can contribute as a conscientious citizen, be it in his/her private/family environment, be it in the professional/technical environment. It is worth noting that the politicization and polarization of the discussions on this subject are totally unnecessary and will contribute nothing to the evolution that we seek.
We will reinforce here our concern with the format of the actions linked to the word SUSTAINABILITY. Actions in this sense must be based on SOCIAL premises so that the results obtained in the ENVIRONMENTAL sphere are definitive. Without keeping the focus on man and society for their learning and development, there will be no reduction in the environmental impacts caused, nor will there be an economic result that is sustainable.
For those who observe the carbon markets and ESG certifications on the rise, the great opportunity we must align ourselves with the purpose of generating assets with great potential for appreciation, especially those that prove the social scope from its origination.
Only with attention to these aspects will we be closer to understanding The Sustainability´s Economy
VALDEMAR CAMATA JUNIOR
ECONOMIST