One of the great challenges facing organizations in these times of multi-stakeholder capitalism is the integration of environmental, social and corporate governance factors (ESG - Environmental, Social and Corporate Governance) in its strategic planning, business model and organizational culture. Unlike environmental sustainability, which is a subject already known by companies, the ESG agenda becomes a broader effort to monetize, account and reflect in numbers environmental, social and governance concerns in the financing and investment decisions of markets, funds, investors and funders.[1]

We have followed clear messages from institutional investors, capital allocators, international organizations and academia warning that the company's function is to "generate value for all stakeholders" (Business Roundtable, 2019) and "generate shared and sustainable value" (World Economic Forum, 2020). The ESG movement gained even more prominence in January 2020 with the BlackRock CEO's (Larry Fink) annual letter to its shareholders around the world, announcing a twist on the group's investment policies. Sustainability would become the center of BlackRock's investment strategies and decisions, determining a significant reallocation of capital in order to mitigate the effects of climate change and foster long-term value creation.

A year later, in the annual letter of 2021, Fink points out that "climate risk is an investment risk," but also says that "climate transition creates a historic investment opportunity," and so BlackRock will continue to "advocate public policies to help make the financial system more resilient, sustainable, and equitable, including progress toward the carbon neutrality goal."

In Brazil, ESG initiatives will be increasingly prominent in the establishment of public policies and guidelines of financial and capital market regulators. One example is the sustainability agenda released by the Brazilian Central Bank in September 2020, the Agenda BC#, whose role will be fundamental in allocating resources for the development of a more sustainable, dynamic and modern economy.

The Brazilian Securities and Exchange Commission (CVM), in turn, positioned itself as an innovation facilitator, promoting the green agenda through its Financial Innovation Laboratory (LAB). With the contribution of LAB, on December 7, 2020, CVM placed a proposal to amend its Instruction No. 480/2009, which establishes the rules for the structure of the Formulário de Referência, the main document disclosed by companies publicly-held in Brazil. CVM sees growing investor interest and accelerated development of content and the way information about ESG is disclosed by issuers, either voluntarily or as a result of legal and regulatory obligations. Future, more robust and prescriptive regulatory initiatives focusing on sustainability issues should not be ruled out.

In this new scenario, organizations that are unable to integrate ESG concepts into their business models will certainly face competitive disadvantages, real possibilities of loss of value of their shares and brands, reputational damages and, in the end, impact on dividends and return on investment. Neglecting the integration of ESG factors into business models and investment analysis may cause a failure of pricing, inadequate risk measurement and inefficient allocation of capital. Systemic risks may affect certain segments, so that the consideration of ESG themes becomes one of the main characteristics of the prudent investment process.

This new stakeholder capitalism leads us to ask some important questions about the performance of directors and officers of publicly-held companies: can they refuse to implement ESG policies and actions on the grounds that their sole duty of trust is to seek financial return for shareholders? Would administrators have discretion, ethical duty, or legal duty to seek to implement ESG policies and actions? This duty would be understood as a duty to seek value for shareholders from a fundamentalist perspective (correlating sustainability initiatives with long-term value creation) or it would be a new fiduciary duty, not limited to shareholders, but extendable to different stakeholders?

Law No. 6,404/76 (Corporations’ Law) determines that the administrator must exercise his duties "to achieve the purposes and in the interest of the company", but also provides that his/her performance must satisfy "the public good and the social function of the company" (art. 154). In addition, the administrator is authorized by such Law to "authorize the practice of reasonable free acts for the benefit of employees or the community in which the company participates, in view of its social responsibilities" (art. 154, §4).

As it turns out, our Corporations’ Law is not exclusively focused on maximizing shareholder profit. In fact, it is quite advanced in this particular, legitimizing administrators to make decisions aimed at meeting the interests of stakeholders in general, and not only to the interests of shareholders. In our current legislation, there is no specific obligation for administrators to mitigate negative impacts or generate positive impacts for other stakeholders in addition to shareholders. This would be a business decision that aims to reconcile the solution of socio-environmental problems with investment returns to shareholders, and therefore protected by business judgment rule.

However, the Brazilian administrator has other duties, such as the duty of diligence, which requires the administrator to be as diligent as any active and probe man usually employs in the administration of his own businesses (art. 153 of the Corporations’ Law and art. 1011 of the Civil Code). In the current context, investors, the market, consumers and employees require companies to act respecting ESG principles, and it is already more than proven that companies that adopt such principles are more resilient to face a scenario of crisis, uncertainties and instabilities such as the current one – and, with this, generate greater value to shareholders.

In this sense, we can understand that the expected diligence of an administrator in the stakeholder capitalism was expanded, so that it cannot be omitted in the consideration of ESG factors in decision-making. In order for the administrator to be adequately informed about risks and opportunities, it is imperative to map the ESG themes. Only then can he/shemake reflected decisions taking into account the impacts for the different stakeholders Involved. It is a new decision-making process that requires the administrator to consider internal and external factors in the organization. Although the stakeholders are not granted ESG rights by law, the duty of diligence of the administrators takes new contours, since the negligence of the ESG aspects has the clear potential to destroy shareholder value in the long term.

There is no doubt that companies should continue pursuing profit, the ultimate purpose of their social interest. At the same time, however, they must take into account their social interest and the interests of their shareholders, employees, suppliers, customers, members of the community in which they operate and the environment, among other stakeholders. The Davos Manifesto 2020, the result of the 50th meeting of the World Economic Forum, preaches that the interests of all stakeholders be taken into account in corporate decisions and that the goal of a company is to involve all its stakeholders in creating shared and sustainable value. In other words, the governing bodies, such as board of directors and executive board, should not only look at the generation of short-term dividends, but also at the interests of the other actors surrounding the company.

It is undeniable that ESG initiatives are already changing the world of business and investment and will continue to do so. In these new times, investors, consumers and society in general expect more from companies than the mere maximization of profits. Organizations that internalize these responsibilities and implement ESG initiatives, meeting the expectations of their stakeholders, will bring greater long-term benefits to their shareholders and the communities in which they operate. With this, the administrators will more adequately fulfill their duty of diligence, in the best interest of the company, with the satisfaction of the public good and the social function of the company.


[1] A major study released in 2020 by BAILARD, called "From SRI to ESG: The Origins of Socially Responsible and Sustainable Investing – 2020", teaches that "ESG analysis seeks to assess the materiality of non-traditional data to determine which companies are best prepared to compete in a world facing a gradual reduction in natural resources, increased regulatory burden, growing population and climate change."