ESG - acronym that has become popular in the business world and is identified by the market as one of the main trends of 2021 - is used to measure a company's environmental, social, and governance practices, but it can also be used as a criterion for investments, as the concern with the environment is becoming increasingly noticeable. 

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The acronym, which stands for Environmental, Social, and Governance, is used to represent how much a business cares about contributing to a more sustainable world by minimizing its impacts on the environment. The model tries to develop a more egalitarian system for those around it and has an efficient administration process. Thus, the criteria for a company to be considered an ESG are: 

 

E - Environmental

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In this first component, there is an assessment of the company's environmental responsibility, which must implement initiatives to preserve the environment, ecosystem, and natural resources. Some actions may include, the use of sustainable materials, reduction of pollutants and discharges, the correct disposal of waste, and the reduction of harmful gases into the atmosphere.

 

S - Social

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The social aspect of this model evaluates the company's management, commitment, and overall relationship with its community (managers, customers, sponsors, etc.). Here, there must be inclusion and diversity in the public that makes up the business, human, and labor rights, as well as importance and dignity in work safety and other various factors.

 

G - Governance

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This final component examines and directs the company's policies and practices, in which these aspects must be executed in an ethical and transparent manner, in order to avoid corruption, discrimination, and harassment.

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This said, the advantages of implementing the ESG criteria are numerous, because, in addition to becoming a means that attests the responsibility of companies, it ultimately offers greater transparency for those who wish to invest in such businesses. The model also offers a more viable and effective path towards sustainability.

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Therefore, it is necessary to recognize the change in social and environmental values that the new generation is demanding from companies, as the impact of Generation Z (born between 1995 and 2010) - that in 2019 started to comprise 32% of the world population, surpassing the number of Millennials (born between 1980 and 1995) - grows every day. 

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In this sense, the fact that this generation is concerned with climate change above other social, environmental, and economic aspects is a key factor for the development of the ESG model, which seeks precisely to build a more sustainable world while providing beneficial economic results to national, state, and local businesses.

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However, there are still many suspicions from the investor's perspective, mainly due to episodes of “greenwashing” carried out by several entities. 'Greenwashing' is where a company pledges on sustainability yet their commitment is performative by engaging in actions that are not consistent or genuine. 

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In addition, it is necessary to understand that even productive activities normally associated with sustainability can generate negative impacts on the environment, inasmuch every type of investment has its advantages and disadvantages. Therefore, because the ESG strategy is a new and evolving concept, great care is taken in means for it not to turn into another form of corporate fraud, such as 'greenwashing'.

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The ESG model is not only undoubtedly gaining a seat in the corporate market, but also in the current decade. For this reason, it is hoped that there will be a greater understanding, development, and application of this approach, as it can generate change towards a more fair and sustainable world, starting from one of the most crucial parts of society - the economy.