The good, the bad and the ugly
A closer look from an expert in Brazil
In case you have just returned from Mars or your lack of interest in business has made you tune out anything to do with the corporate world, ESG – the acronym that refers to taking into consideration Environment, Social, and Governance issues when making business or finance decisions – has taken the world by storm, or rather by “tsunami.” It threatens to engulf the term “impact” (as in “generating positive impact in the world”) as well.
Before I share with you my views on the matter, it will only be fair to also share where my point of view comes from: I am a social entrepreneur from Brazil with a previous career in the private sector, including traditional names like McKinsey & Co. and Harvard Business School. I recognize that this path stems, in part, from privileges such as being male, white, hetero, and being raised in a middle-class family who gave me everything I needed to access a top-quality (free) degree and an (expensive) post-degree education.
At the beginning of 2008, I founded SITAWI Finance for Good, a nonprofit that mobilizes capital for positive socio-environmental impact. Starting from my living room, we grew to a team of more than sixty full-time staff operating in Impact Investment, Philanthropic Capital Management and Territorial Development Programs (in the Amazon). We have mobilized over R$ 300 million (USD 60 million) and have supported close to 2,000 organizations that reached 12 million people in Brazil. SITAWI has been recognized by the Inter-American Development Bank IDB (BeyondBanking Award 2011), Environmental Finance (Impact Award 2020) and by Folha de Sao Paulo, and the Schwab Foundation for Social Entrepreneurship (Social Entrepreneur of the Year 2021, for COVID-19 related efforts).
SITAWI means to flourish or develop in Swahili, a name chosen to remind Leonardo of his climb of the Kilimanjaro, the tallest mountain in Africa.
Because of this work and our partnerships, we have been at the center of the ESG/impact movement in Brazil, and we’ve seen the good, the bad, and the ugly – and it does have a bit of all of that.
How Should We Deal with the Tsunami?
My first consideration is that there is a lot of noise out there: overnight almost everyone has become an ESG specialist (just check your LinkedIn contacts byline), and companies are running to become “ESG companies” (pretty much reflecting that they do not know what they are talking about). Unfortunately, a good amount of that is just “ESG/SDG/social/green-washing” by people and companies that feel they must be the first ones to jump on the latest trend. Fortunately, there is some meaning and truth beneath all that noise – a lot of people and companies are, in fact, paying more attention to sustainability issues. Apparently, all they needed was a push from investors and a new acronym.
But let’s be honest: if a company reviews its planned initiatives, just tagging them with Sustainable Development Goals (SDGs) or rebranding them as ESG-linked, it will not have any practical effect (although it helps a bit with the signaling). On the other hand, real-world changes will start once companies change their decisions, processes, and replace some of those activities with more impactful ones. We are still somewhere in the middle of that process.
Real-world changes will start once companies start to change their decisions, processes and replace ‘old’ activities with more impactful ones.
Another risk brought by this “tsunami”is a sense that ESG-minded businesses alone will save the world. The same goes for believing that ESG-themed investments alone will save the world. They will not, regardless of how tempting it is to use the marketing motto: “Not only can you invest and profit financially from this trend, but you also don’t really need to do much more. Just (re)allocate your investments and all the problems of the world will be solved.”
Being Reasonable
Can we make money in the transition to a new green economy? Yes! Is everything that we need in order to transition to a green economy an investment opportunity that will yield financial returns? Absolutely not!
Does a more diverse workforce generate more profits? Yes! Should we implement diversity, equity, and belonging initiatives only when they generate profit? Absolutely not!
Nature does not need humans. Humans need nature
Nature has its own timing, and we are the ones that should adapt to it.
Can business save the Amazon and generate profits? Well, some businesses will fail, others will just survive, and others may even thrive, but if the objective is to save the Amazon, there are a lot of things that will need subsidies for the foreseeable future, maybe even longer. (We even published a report on that subject.) A separate note on the Amazon: Having done business there for the past five years, I’ve learned that nature has its own timing, and we are the ones that should adapt to it. Nature doesn’t need humans; we are the ones who need nature.
Opening All Three Pockets and a Bit More
Want to make a difference? So, be prepared to reach not only into your investment pocket, but also into your consumption and philanthropy pockets. In our work, we try to provide opportunities for investing impactfully into the first and third of these three pockets through a Crowdlending Platform (which, at this point, only takes investments from people with Brazilian bank accounts) and Philanthropic Capital Management Services (which accepts local and international funds but is legally limited to deploying capital exclusively in Brazil).
The Crowdlending Platform attracts those who want to align their money with their values. Obviously, most of the money comes from higher income/net worth individuals and families, but anyone with R$10 (US$2) and a bank account can participate. This model is an evolutionary successor of our original grants-to-loans model. It is what has propelled us into becoming the most active impact investor in Brazil with over 70 transactions, supported by hundreds of individual investors.
Our Philanthropic Capital Management Services have attracted both companies and foundations focused on deploying capital collaboratively with strong compliance and social entrepreneurs that want to focus their time on the mission and not on the financial management of an organization. We have managed over 60 of what we call “philanthropic funds” that range from R$100, 000 to R$100 million, covering a plethora of causes from education to COVID relief, from Black entrepreneurship to ensuring human rights.
Alas, money alone will not do the trick. We must be clear that what can be done by business in its own self-interest does not equate to the impact we need, and for that, more types of capital will be needed. And much more than capital as well – our time, joint effort, votes, active citizenship, and (responsible) leadership. That goes way beyond what is being discussed under the ESG banner.
So, I welcome the ESG discussions (mostly the non-washing part, although I believe it is just natural that the washing part also happens), but we must go deeper and further if we want to have a chance to build a better world for all.
