Environmental, social and governance (ESG) issues have gained space on the financial market’s agenda. Companies around the world have been reviewing their business models to integrate ESG commitments that go beyond the traditional agenda centred exclusively on shareholder value creation. The value of a company is now viewed on a broader approach – what the company brings to employees, clients, suppliers, investors, governments and to the society as a whole. The name of the game is the admirable profit – harmonising financial results with impact on the society and contribution to future generations.
That is not a new concept, and the acronym is widely known in the market. But why are we only now seeing it everywhere? It all started in Europe as a result of the actions of NGOs and think tanks related to these issues, and then it went to the individuals. Those individuals are also investors, and started to demand that money managers incorporate the broader approach to the investment decisions those make on their behalf.
Times have changed for good and for the benefit of the global society
The pandemic collaborated to expedite the process, given the growing concern about protecting people and the environment. Moreover, ESG aspects also started to be seen as risk factors. How well a company deals with those aspects may determine how economically sustainable the business is going to be in the future. That has a deep impact on valuations and on the analysis by fixed income investors of a company’s capacity to generate cash in the future to repay its debt obligations.
Meanwhile, consumer trends are also changing dramatically, for many reasons that include generational aspects. According to a study by Morgan Stanley, 86 percent of millennials are interested in sustainable investments, and those same individuals are also consumers.
According to a report by BoFA & McKinsey, it is estimated that 60 percent of millennials consume brands with strong social and environmental responsibility. We are dealing with a public that debates consumerism, condemns environmental degradation and increasingly fights for social justice. It is all related and integrated.
Good for the world
At Suzano, the world’s leading pulp producer, one of our cultural drivers states that ‘it’s only good for us if it’s good for the world.’ This concept is present in all our initiatives and determines how we practise ESG on a daily basis. We see the growing importance of ESG not only as the right thing to do, but also as a huge business opportunity for a company on the right side of the history, renewable raw materials, biodegradable and recyclable products are part of the solution.
The phenomenon is also present in financing activities. Last year we decided to launch our sustainability-linked bonds (SLBs) and became the second company in the world to go for that structure. The SLBs are debt instruments with the interest rate linked to the achievement of sustainability targets. We issued a total of $1.25bn, priced at Brazil’s lowest interest rate ever for a 10-year issue.
This means that, for the first time ever, investors were willing to accept lower interest rates for an instrument that potentially creates positive externalities (ESG goals). Today, 30 percent of Suzano’s debt is linked to ESG features (SLBs, sustainability linked loans, green bonds). In other words, there is a vast market to be explored, and the demand for these instruments represents one of the potential ways to monetise a robust ESG strategy.
Times have changed for good and for the benefit of the global society. Every company may have a role in that process that is bigger than the achievement of financial results. It is up to every one of us business leaders to find our own way to contribute.