Organizations today are increasingly aware of climate change, the scarcity of resources and the urgency of changing practices that can be harmful to the environment, people and communities in which they operate. There is a growing effort to reduce the risks associated with climate change, promote economic growth and create a more sustainable economy.

Growing social, environmental and regulatory pressures are transforming the role of companies in the 21st century. Companies that implement ESG practices recognize that in addition to the financial results of the business, they generate a lasting impact in the social and environmental spheres, acting as proactive agents of change and committed to the future of the planet.

In this context, the integration of ESG principles – Environmental, Social and Governance – has become a determining factor for the long-term success of companies.

What is ESG?

ESG is the acronym that defines the three fundamental pillars of corporate sustainability:

• Environmental: How the company impacts and protects the environment;
• Social: How it manages human and community relations;
• Governance: How you structure and internally regulate your processes and leadership.

More than a concept, ESG represents the measurable result in terms of an organization's overall sustainability performance, influencing the perception of investors, consumers and employees.

The Origin and Evolution of ESG

Introduced in 2004 within the framework of the UN Global Compact and in collaboration with the World Bank, ESG is now aligned with the 17 Sustainable Development Goals (SDGs). Its application goes beyond corporate social responsibility (CSR), which is more internal and qualitative in nature. ESG, in turn, focuses on objective, traceable and comparable indicators.

The 3 Pillars of ESG in Detail

1. Environmental

The ability to recognize and manage its direct and indirect ecological impacts and contribute to a decarbonized economy, through the following efforts:

• Reduce greenhouse gas emissions;
• Energy efficiency and use of renewable energy;
• Circular economy, recycling and waste management;
• Green technology and green buildings;
• Product design and life cycle management;
• Source and circularity of materials;
• Conservation of biodiversity and water.

2. Social

Social sustainability is closely associated with the way each company manages its relationships with its people, whether employees, customers, suppliers or the community in general.

Companies are concerned with applying the following practices:

• Equal opportunities policies;
• Decent working conditions, diversity and inclusion;
• Safety and well-being in the workplace, including work-life balance;
• Human rights in the supply chain;
• Attracting and retaining talent through support and incentives for ongoing training;
• Data security and privacy;
• Product safety and quality;
• Ethical marketing.

Today's consumers and workers are increasingly attentive to transparency and ethics in business practices, valuing companies that commit to these responsibilities in practice.

3. Governance

It concerns the corporate governance structure and practices of companies, more specifically the diverse composition and independence of the board of directors, transparency in financial information, responsible financing and investments, anti-competitive practices, fair remuneration policies and due recognition for performance. Respect and rigor in the application of codes of ethics and conduct, risk management and combating corruption.

Companies that follow these steps tend to be more efficient, avoid corporate scandals, and generate better perception and trust among potential investors.

How ESG can help companies in detail

Intangible benefits include increased stakeholder trust and brand reputation. Tangible and measurable benefits include increased return on investment, reduced risk , and greater ease in attracting and retaining talent.

ESG criteria are key factors that can leverage companies on several fronts, whether in sales, cost reduction, increased productivity, risk reduction and improved investments. Below we analyze each benefit in more detail!

Sales growth

Today's consumers are more expressive of their ecological, civic and social awareness and want to collaborate with organizations that are truly committed to the quality of life of workers, consumers and all people involved in the production and development of their products and services.

If your company adopts an ESG approach, it will not only be easier to enter new markets, but also to grow in those in which it already operates. By gaining the trust of government entities and banks, it will be more likely to have access to and approval for licenses and investment opportunities. Organizations with a good ESG rating are seen as less risky and more resilient.

Cost reduction

In addition to reducing costs with raw materials, water and electricity, companies can achieve better resource efficiency and financial performance. Cost reduction includes some of the following examples:

• Reduce water consumption;
• Reduce energy consumption and prioritize renewable energy;
• Produce recyclable or biodegradable products;
• Reduce, recycle waste generated and improve logistics by optimizing routes.

Increased Productivity

Increased employee satisfaction can be associated with a sense of purpose that inspires employees to increase their productivity and performance. The greater an employee’s perception of the positive impact of their work, the greater their motivation.

Sustainable companies attract and retain talent that seeks organizations that support causes linked to sustainability.

Risk Reduction and Investment

ESG contributes to a holistic approach (social, governmental, environmental) to risk management and to compliance with relevant laws and regulations that ensure the full functioning of the organization.

Did you know that it has been proven that 89% of investors in the main global markets consider ESG as an evaluation criterion?

With a solid ESG strategy, managers not only identify opportunities to invest in more environmentally friendly resources, but also eliminate energy-intensive equipment and production processes that waste a lot of raw materials, thus avoiding low-return investments that can negatively affect the environment and jeopardize the company's reputation.

The New European Regulation: CSRD

The European Union has stepped up its ESG requirements with the entry into force of the Corporate Sustainability Reporting Directive (CSRD), which requires more companies, including listed SMEs, to disclose standardised information on environmental, social and governance factors. This standard will be implemented in phases between 2024 and 2028 and requires the use of the European Sustainability Reporting Standards (ESRS), promoting the comparability, auditability and reliability of ESG reports.

Evolution of ESG in Portugal: Statistical Data

Despite strong interest, there are still structural barriers to effective ESG implementation in Portugal:

According to the study “The Search for ESG Talent” by ManpowerGroup, 83% of Portuguese companies have already developed or are developing ESG strategies.

However, 91% say they do not have enough talent with ESG skills, which is one of the main gaps.

A survey by CIP (Portuguese Business Confederation) revealed that only 36% of SMEs monitor their environmental performance, which highlights significant room for improvement.

Portugal is among the EU countries with the lowest rate of companies that integrate ESG across their business strategy. So which Portuguese companies have already taken the leap towards climate transition?

Practical Examples in Portugal

EDP ​​has stood out for its commitment to decarbonization, setting carbon neutrality targets by 2030, and is regularly featured in international sustainability indexes such as the Dow Jones Sustainability Index.

Galp announced the transition to a greener portfolio, with investments in green hydrogen and solar.

Corticeira Amorim , a world leader in cork products, integrates ESG into its business model through circular practices and a commitment to biodiversity.

These examples are proof that it is possible for companies to combine profitability with socio-environmental responsibility.

Has your company already integrated ESG into its business strategy?