Arquivo da tag: ESG

Study indicates a correlation between good practices of Private Social Investment and the ESG agenda

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Since aspects related to socioenvironmental impact and risk assessment started to integrate into the business strategy of an increasing number of companies, we have seen the market turn upside down and the subject gain strength and scale. It’s evident that the idea of sustainability and corporate social responsibility is not new, but the market logic has certainly changed since it was suggested that resources allocated to socioenvironmental projects of public interest should no longer be seen as expenses, but rather as investments that bring short, medium, and long-term returns. This is what we call private social investment – or strategic philanthropy, integrated into an ESG agenda.

We understand that private social investment practices have high penetration and can substantially enhance a company’s socioenvironmental actions. In other words, when done well, social investment can help unlock various other aspects of a corporate sustainability agenda. Empirically, the Third Sector has been working for years to demonstrate the impact that private social investment can have on an organization’s ESG metrics, especially in the social field.

To prove this hypothesis, IDIS – Institute for the Development of Social Investment undertook to analyze the correlation between private social investment and the scores of the brazilian stock exchange’s Corporate Sustainability Index (in portuguese, abbreviated as ISE B3). Established in 2005, it is currently the largest sustainability index in the country and was the fourth to be created globally, undergoing periodic revisions and analyses according to societal and market demands.

The companies included in the Index are chosen annually based on a ‘best-in-class’ process — a term used to describe practices or processes considered the best compared to market standards. The Index questionnaire is based on SASB Standards and maintains consistency with the Global Reporting Initiative (GRI), one of the world’s leading ESG measurement standards.

The survey analyzed the 2022-2024 triennium of companies included in the index, and during the evaluation period, it was very rewarding to identify that the practice of private social investment consistently ranked among the top ten topics most correlated with the ISE B3 score. In other words, companies that perform well in strategic philanthropy tend to excel in overall corporate sustainability.

It is also interesting to note that private social investment practices are aligned with aspects such as ‘foundations of corporate sustainability management’, ‘business ethics’, and ‘trends and purpose’. The alignment with topics that naturally have greater cross-sectional relevance indicates the tactical nature of private social investment in formulating and implementing integrated corporate sustainability strategies.

A private social investment strategy aligned with an ESG strategy helps to materialize the organization’s purpose for its stakeholders, generating tangible results for both the company and society. A company’s investment in socioenvironmental projects can be a good way to engage different stakeholders and initiate collective agendas with the government and organized civil society, promoting benefits for both society and businesses. Furthermore, it helps companies clearly and robustly demonstrate their socioenvironmental commitments, signaling to the market and consumers a real commitment to different causes.

Despite seeming logical, this alignment is not an easy task. In addition to connecting actions with business challenges and brand purpose, strategic action must consider material business aspects and a thorough mapping of stakeholders and different ways to engage them. Moreover, socioenvironmental actions should complement efforts undertaken by the Third Sector, promoting exchanges that enrich the performance of all actors. Study data shows that this is a relevant task that should be given importance by the private sector, as it is highly correlated with comprehensive corporate sustainability management.

 

Other findings

Regarding the scope of this study and the adoption of private social investment practices, some results stand out. For example, the most adopted actions in 2024, representing 93% of the 85 companies that responded throughout the triennium, were:

–  Considering collective agendas, such as SDGs, as a general reference for defining social investments;

–  Working in partnership with the community and other stakeholders in the formulation or execution;

–  Valuing the leadership of local actors and strengthening civil society;

–  Contributing to the participatory construction of public policies and/or collective sustainable development agendas.

Additionally, it was identified that the performance in private social investment topics is slightly better, both in average and median, in companies that operate, where applicable, through philanthropic vehicles, such as a foundation or corporate institute with its own structure. There was no statistically significant difference in total ISE B3 score performance between companies operating via philanthropic vehicles and those that do not. We can establish that scoring well in corporate sustainability is possible even in the absence of specific philanthropic vehicles. However, these vehicles remain important structures (alongside endowments, another modality capable of fostering co-investment) that mark firm corporate commitments in the face of numerous social dilemmas and issues. They will be even more effective if they can connect their areas of focus to the business, constituting important elements to boost the growth of a broader and deeper ESG agenda linked to purpose that permeates the entire organization.

In topics involving consultation with stakeholders to define investment priorities and maintaining open channels with the community, the difference between companies that claimed not to adopt such practices and those that do was more than 10 points. Companies that emphasize the leadership of local civil society actors in their private social investment actions demonstrate considerably superior performance compared to those that do not consider this aspect. Local dialogues, consistent positive social impact aligned with the company, open channels, and transparency in private social investment move the needle and demand new perspectives from companies. However, companies need to further advance this agenda, seeking ways to engage with local actors, working in partnership with the Third Sector in a complementary manner. Private social investment plays an important role: by building relationships focused on the community and surroundings, in line with internal company guidelines and demands, socio-environmental investment strategies are more assertive, targeted, and promote improvements in territories.

Another discovery is related to the practice of impact assessment by companies. Companies that assess the results of initiatives supported through private social investment have a higher performance in the ISE B3 and also showed a relatively high increase in performance between 2022 and 2024. In practical terms, systematic collection of impact indicators allows for reflective and strategic examination of the efficiency of a given social intervention, thereby enabling periodic review and improvement aimed at maximizing the desired and generated social benefits. Often, social projects end up generating unintended positive impacts that would go unnoticed without an evaluation that takes into account, for example, the beneficiaries’ perception of the changes in their lives.

In summary, we empirically know that by connecting the concept and practices of private social investment with the organization’s purpose and institutional values, considering the economic bias of the business and the perspective of key stakeholders regarding the socio-environmental value to be created by the company, it is possible to enhance the organization’s capacity to generate positive impact for society and real value for the business. This relationship is now quantitatively proven, considering an extremely relevant sample of Brazilian companies.

IDIS maintains the view that to catalyze lasting social transformation, Private Social Investment must be accompanied by a robust strategic planning, grounded in specific data and indicators, implemented with precision, and accompanied by monitoring and evaluation of its results and impact.

Access the full study, available only in portuguese here.

Socioenvironmental: the integration of social and environmental spheres

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The pursuit of sustainability has become a fundamental goal for organizations, considering its value to society and the preservation of natural resources and the environment, as well as its benefits for organizational development and growth. This pursuit encompasses the economic, social and environmental spheres, which, although often addressed separately, are highly interconnected.

The current trend towards adopting sustainable practices is further driven by the urgency of climate change. According to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), climate change is undeniably caused by unsustainable energy use, land use changes, unequal consumption and production patterns, and lifestyles, resulting in high greenhouse gas emissions. These changes have already caused a 1.1ºC increase in the planet’s average surface temperature compared to pre-industrial levels. Their impacts range from human health and well-being to biodiversity and ecosystems.

 

But how do the environmental and social spheres intersect?

In general, it’s true that all economic activities have some environmental and social impact. With the evolution of corporate sustainability, now incorporated into the ESG (Environmental, Social, and Governance) agenda, organizations seek to mitigate their impacts within the social and environmental spheres through initiatives ranging from diversifying product and supplier portfolios to engaging stakeholders and implementing private social investment (PSI) actions. The complexity of the correlation between the social and environmental spheres necessitates equally complex initiatives.

While the environment is commonly understood as the natural world elements (water, air, soil, plant and animal biodiversity), its concept is broader. It typically includes not only these natural elements but also the relationships between people and their living environment, considering political, economic, cultural, and health aspects. Thus, addressing environmental initiatives inherently involves an integrated approach that also considers the social dimension.

Changes in the social sphere often correlate with environmental impacts at various levels, and vice versa. Among the various possible impacts and correlations, the following example focuses on water-related impacts, specifically alterations in water resources:

The interconnected functioning of these spheres is evident through this example. But could an environmental project operate, even in a remote location, without direct interactions with society? Initially, it may seem possible; however, considering the systemic impacts of the environment — namely, the natural environment and its relationships with society — it becomes clear that the interdependence of these concepts is inherent. The same applies to social projects; it is necessary to consider environmental factors.

Therefore, the need for a joint approach to these spheres is evident. Failing to consider the socio-environmental interconnectedness within projects and initiatives diminishes their effective impacts and their ability to reach broad audiences. The Intergovernmental Panel on Climate Change (IPCC) has emphasized the importance of integrating all sectors of society and implementing cross-cutting actions that address the complexity of interdependencies among climate, ecosystems, biodiversity, and human societies, particularly concerning climate change. This also applies to socio-environmental integration.

 

The role of philanthropy and Private Social Investment

The interdependence of spheres and, consequently, the causes associated with each of them, form a complex issue in which philanthropy and private social investment are already well equipped to act, without losing focus on the beneficiaries, namely those most affected by socio-environmental damage.

In our material, Perspectives for Brazilian Philanthropy 2024, we address the poly-crisis generated by this interdependence of spheres, highlighting the cross-cutting nature of causes and responses, and emphasizing the incorporation of these themes into our ecosystem’s strategic approach. Including connections, stakeholders, causes, and consequences in projects enables more informed decisions for generating structural changes.

This cross-cutting approach can be observed, for instance, in the Water Grant from the Mosaic Institute, which encourages community projects focused on water resource management and sustainable agriculture.

In the 2024 grant, the Institute offers up to R$45,000 for at least 12 projects contributing to SDG 6 – Clean Water and Sanitation – of the UN’s Agenda 2030. Projects aim to promote best practices in water resource management, increase access to water and sanitation, expand sewage and water treatment systems, preserve and restore water-related ecosystems, provide professional development for civil society organizations, and foster intersectoral cooperation.

 

IDIS in promoting socio-environmental action

Through well-planned and monitored private social investment, companies can navigate the interplay between Social and Environmental aspects, demonstrating their socio-environmental commitment to key stakeholders. Furthermore, they can engage stakeholders in collaborative processes to address complex social and environmental issues.

IDIS provides technical support to families, companies, and social organizations looking to initiate or enhance their private social investment with an integrated view of Environmental and Social aspects. We operate in a customized and participatory manner across six areas of action.

For more details, please contact us at comunicacao@idis.org.br

The ‘S’ of the Brazilian ESG will not evolve without dialogue with CSOs

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The B3 (Stock Exchange in Brazil) revealed last year that it would have new rules for its Corporate Sustainability Index. The changes in the ranking stemmed from pressure from investors so that the companies evaluated became increasingly attentive to ‘ESG’ actions (Environmental, Social and Governance).

Following the announcement, B3 started to openly publish the scores of the 73 organizations participating in the index. Dimensions such as human capital; corporate governance and senior management; business model and innovation; social capital and environment were all disclaimed.

Among the top 10 companies, the dimension with the lowest average rating was human capital, which includes issues such as diversity and labour rights – followed by the social capital index, which covers the topics of private social investment and community relations. Both represent, not only, but essentially, the ‘S’ within ‘ESG’.

The findings reveal a weakness in materializing actions, measuring achievements, and an unclear commitment to social transformation. A study by BNP Paribas (ESG Global 2021) revealed that 51 per cent of investors surveyed considered the ‘S’ the most difficult to analyse and incorporate into investment strategies. Another analysis, carried out by the Global Reporting Initiative (GRI) in partnership with Deutsche Bank, shows that only 14 per cent of the ‘social’ ratings compiled by the GRI are aimed at investors. In contrast, 97 per cent of environmental ratings and 80 per cent of governance ratings have investors as their primary audience.

The next step for Brazilian companies

Facing this scenario, what should Brazilian companies do to evolve on the social agenda in their ESG practices? The answer is not simple, nor is it unique. Among the options, there is a great opportunity for companies to rethink the way they dialogue with communities, and the role of grantmaking and strategic philanthropy, promoting social transformations aligned to the business.

As a trend, we see a raising involvement of CSOs in companies’ initiatives and, more than that, a transfer of knowledge from the social organizations to their investors, instead of the other way around. Projects are developed in collaboration, and direct investment is made on CSOs, which can increase their influence and capacity for execution and transformation alongside beneficiaries.

The pandemic showed that in the most difficult moments, problems are concentrated in the most vulnerable populations, whether due to the precariousness of the system or to the lack of work and income. At the same time, the experience made it clear that they were the ones most capable of finding the best solutions. Proofing points are the gigantic mobilizations conducted by community leaders during the emergency, such as those carried out by CUFA (Central Única de Favelas), which provided basic needs such as food and PPEs and promoted entrepreneurship in favelas across the country.

The connection between the ESG Agenda and philanthropy can no longer be invisible or ignored. A Census conducted by Gife in 2020 registered an increase of 11 percentage points in the number of social investors focused on ‘strengthening civil society’ in relation to the 2018 survey. Instead of creating new and promoting their own projects, companies should choose to strengthen grassroots organizations, which are more likely to act faster, more precisely and promote the changes we long to see.

Renato Rebelo was the Project Director at IDIS.