In an article published on the ACIONISTA portal, our preventive coordinator, Dr. Deisy Granado, comments on Innovation and management models based on ESG.

Innovation is the basis for paradigm and process change, which can occur with small or large innovations, but which together generate progress for humanity.

In this sense, innovation is essential for any management model based on ESG. Currently, the ESG concept has gained great relevance worldwide, which has an impact internally. However, Brazil is still at an early stage in the ESG agenda, partly due to the lack of regulation, which does not yet include it in the central decisions of many companies.

Therefore, companies seeking to implement ESG practices in their business model will necessarily have to rely on innovation.

As an example, we can mention companies that supply agricultural inputs that are responsible for participating in the production chain, by financing agricultural producers with the supply of products (pesticides, seeds, fertilizers, etc.).

Innovation in the form of financing, implementing socio-environmental compliance analysis of rural producers as a financing condition, was something that changed the way credit was assessed, which resulted in greater product traceability, seeking more sustainable production.

To this end, companies have started to adopt satellite monitoring systems in order to verify the environmental regularity of the property where the commodity will be produced, as well as implementing certification programs for areas of producers that are not in environmental compliance, in a proactive manner, which maintains the link with the end consumer and assists in environmental recovery.

Another example would be Green bonds, which show that more and more resources are being directed to finance projects with environmental/social benefits or to catalyze the ESG agenda of companies. In short, these are bonds that can be used to finance projects that are considered sustainable and that generate positive environmental effects.

A new category of ESG bonds has recently emerged: Sustainability-linked Bonds. Unlike Green Bonds, in these bonds, the company must commit to objective environmental and/or social goals within a certain timeframe. In other words, the ultimate goal is to ensure that the issuer achieves ESG goals, which are calibrated based on key performance indicators (KPIs). If the goal is not achieved, there will be a penalty in the form of a premium on the interest rate, which increases the cost of credit. This mechanism is called a rate step-up. The aim is to finance the improvement of companies' ESG performance.

In this context, it is clear that innovation is essential to add value to the management model based on ESG, being decisive for the maintenance of companies in the market, since the ESG score will define the competitive advantage, as the choice of investors and consumers will be guided by good socio-environmental practices.

Source: Reproduction of the Acionista website