In recent years, the acronym ESG has taken center stage in discussions about the future of companies and the global economy. More than a corporate trend, these three letters represent a set of practices that redefine how organizations relate to the planet, to people, and to their own management structures. Understanding what lies behind this concept has become essential for managers, investors, and anyone seeking to grasp the direction of corporate sustainability.

The roots of this discussion, however, predate the acronym itself. In 1994, British consultant and entrepreneur John Elkington, a pioneer in corporate responsibility, coined the term Triple Bottom Line (TBL), or the “three pillars of sustainability.” His goal was to encourage companies to look beyond financial profit and consider their social and environmental impacts—what became known as the “3 Ps”: people, planet, profit. The concept served as the foundation for initiatives such as the Global Reporting Initiative (GRI) and directly influenced what would later be known as ESG.

A decade later, in 2004, the conversation gained new momentum. Kofi Annan, then Secretary-General of the United Nations, challenged leaders from 50 of the world’s largest financial institutions to consider how environmental, social, and governance criteria could be incorporated into investment decisions. The result was the Who Cares Wins report, developed by the UN Global Compact in partnership with the World Bank. It was in this document that the acronym ESG appeared for the first time, consolidating the idea that companies with strong practices across these three dimensions tend to perform better over the long term. Since then, the agenda has continued to expand and now guides business decisions on a global scale.

What does ESG mean?

ESG stands for Environmental, Social and Governance. It refers to the environmental, social, and governance dimensions that are now considered in assessing an organization’s performance and sustainability. These three elements function as interdependent pillars that guide companies’ actions in response to the challenges of the 21st century.

According to Annelise Vendramini, professor and researcher in sustainable finance at FGV EAESP, the most objective way to understand the importance of ESG is to recognize that environmental, social, and governance issues represent significant risks to any business. “If they are not well managed—if they do not form part of strategic risk management tools—they can compromise a company’s ability to generate economic value and can destroy the economic value already created,” she explains.

The three pillars of ESG

ESG is supported by three pillars: environmental, social, and governance. Here’s what each encompasses:

Environmental

This pillar includes all practices related to the impact of business operations on the environment. It covers water use management, energy consumption, waste treatment, greenhouse gas emissions, biodiversity preservation, and commitments to the circular economy, among others.

Social

The social component includes how the company interacts with its employees, surrounding communities, suppliers, and customers. This includes topics such as diversity and inclusion, working conditions, occupational health and safety, respect for human rights throughout the supply chain, and contributions to community development.

Governance

Governance refers to management structures, transparency, and ethics in business. It includes everything from board composition to compliance practices, anti-corruption efforts, data protection, and accountability to stakeholders.

Although these pillars are often presented separately for learning purposes, the distinction is more operational than conceptual. “At the strategic level, these issues are viewed in an integrated way. At the tactical and operational levels, however, they must be broken down into actions and projects to create monitoring indicators,” explains Annelise.

Why are ESG practices important?

The relevance of ESG goes beyond brand image or market positioning. It is about recognizing that companies are part of society and operate within a planet with well-defined environmental limits. As the FGV researcher notes, “A company does not just relate to society—it is part of society. When we look at today’s challenges, such as social issues and reducing inequalities, these are part of the spirit of our times.”

This perspective is supported by concrete data. A 2023 McKinsey study analyzing more than 2,200 publicly traded companies found that those with superior performance in growth, profitability, and ESG practices generated shareholder returns that were two percentage points higher than those that excelled only in financial metrics. The study indicates that a strong ESG commitment adds value for shareholders—as long as the company also maintains solid management fundamentals.

Global transformations also demand attention from business leaders. “The climate is changing; the conditions affecting business operations are changing. A good manager cannot ignore the facts,” says Annelise. Failure to act, she adds, often results in lost margins, market share, and profitability.

How are companies implementing ESG?

Implementing ESG practices begins with a well-structured materiality assessment to identify the issues most relevant to each specific business. A financial institution will have different priorities than a cosmetics company or a pulp and paper producer. What matters is that the organization maps its impacts and develops actions to minimize negative ones and strengthen positive ones.

In practice, companies have adopted initiatives such as carbon reduction targets, diversity and inclusion programs, investments in renewable energy, responsible water management, development of products from renewable sources, and strengthened governance practices.

A strong example is Suzano’s Commitments to Renewing Life, a set of long-term goals aligned with the UN Sustainable Development Goals. Among the commitments are: helping lift 200,000 people out of poverty, removing 40 million tons of carbon from the atmosphere, and connecting 500,000 hectares of forest fragments through ecological corridors.

What are the advantages of adopting ESG practices?

Adopting ESG practices brings concrete benefits. Annelise highlights three key advantages:

Market access: Companies gain access to markets—such as Europe and parts of Asia—where socio-environmental standards are increasingly important. Some sectors already require strong ESG stewardship.

Access to capital: Companies with strong ESG practices attract investors and financial institutions willing to offer longer timelines, better rates, and greater strategic alignment.

Reputation and legitimacy: “Today, it is impossible to safeguard your reputation without incorporating these issues to some degree. No one wants a long-term partnership with a company that has a poor or questionable reputation,” says Annelise.

Conclusion: ESG must be a commitment

It is important to emphasize that ESG must be a genuine commitment—not just a marketing narrative. We have entered a new phase of the sustainability agenda, marked by greater scrutiny and verification of data and indicators.

“More and more, institutions—be they companies, regulators, or consumers—want to know whether the information is true and whether it fully represents the company’s engagement and actions,” says Annelise. The path forward, therefore, is one of transparency, coherence, and genuine commitment to transformation.

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