What is ESG and why is it important?

Article written by Tiago Freire de Andrade, co-founder of 14ºC and LINXAI.

In creating 14ºC, our intention was clear, to make environmental sustainability a naturally spoken topic, something that people perceive and are willing to work to make it happen.

When starting our infinite and unfinished research on this topic, I came across something called ESG - Environment, Social and Governance, an expression in English that has not yet been translated because the topic has barely arrived in Portugal.

Actually, it's a very simple thing that we all think about when we think about climate change. ESG is about the responsibility of companies to do the bare minimum with respect to the environment, social conditions and governance (related to the transparency of company processes, with all that that entails). By “minimums” I mean avoiding major social scandals, fines, environmental disasters or rumors that the company is not behaving well. At first glance, this doesn't seem to have a big impact, as it only implies that companies avoid making big nonsense.

However, it is important to mention that ESG Ratings (all companies receive an ESG score) are made in relation to the industry, that is, each company is compared to its competitors, which means that there is now competition between companies in terms of social and environmental responsibility, which is driving big changes.

Something that is accelerating this change is the fact that large fund managers, such as BlackRock (manages 8 trillion dollars, 11x the Portuguese debt) or Vanguard (7 trillion dollars) have announced that, from now on, , will only invest in companies that have good ESG scores and, if the companies they already invest in, do not change their efforts to have a less negative impact, they will take the money, and may even cause the bankruptcy of large companies.

An example of this is Chevron, an American oil company, responsible for 3.2% of global emissions from fossil fuels and cement, which declared that it was not interested in investing in renewable energies, which caused great discomfort in its shareholders, even having a threat to withdraw their shares, something that would lead the largest US oil company to go bankrupt, as BlackRock and Vanguard have 20% of the company.

It is in this context that I am creating my startup - LINXAI - that will help fund managers to invest more responsibly, following the ESG criteria, using technology to collect and process information on the sustainability of companies.

I believe that the financial world has the power to change business trends faster than consumer pressure, I also believe that trying to fight capitalism while fighting climate change is a losing fight, which will lead to environmental sustainability debate to a political debate, where the polarization of sides can drastically impede the change we have to make. We do have an economic aspect in environmental sustainability, in fact, it is more than recognized that climate change could cause huge financial crises, which is not good for any company, and that there are great business opportunities with the change in consumer behavior.

By this I mean that we have an opportunity to accelerate business change with the pressure of big investors and governments, while consumers have their share of the pressure for change.

Who knows, two or three years from now, the ESG conversation will be outdated, as companies no longer create relevant negative impacts and we will be talking about SDGs - Sustainable Development Goals - that is, how is that companies can create a positive impact, and not just a neutral one, in all their activities

I may have false hopes, believing that capitalism can solve the problem it created, but seeing my colleagues at 14ºC, my startup and great world leaders believe that they can make a difference to have a more positive world , I do have hope that we can have an environmentally, socially and financially sustainable world.





Sold Out