ESG: Balancing E, S & G factors for a truly just transition

The news that Brazil’s government is considering using royalties from the country’s oil industry to finance $1.4 billion in cooking gas subsidies for families in poverty is conflicting.

The oil industry is one of the biggest contributors to climate change, responsible for over 37% of CO2 emissions in 2019.

While, with renewables meeting almost 45% of primary energy demand, Brazil’s energy mix is respectable, as the largest energy consumer in South America and most important oil and gas producer in the region, the country has some way to go to being truly green.

However, if the profits from these non-environmental activities are helping to tackle poverty – thereby bringing significant social benefit – to what extent does the positive outweigh the negative? How do we measure the impact of such inherently indiscrete, immeasurable factors?

ESG is often presented as a neatly wrapped package, whereby E, S and G factors live alongside each other in harmony. But in reality, this is not the case.

Often, the three are in conflict with each other, and furthering one may come at the cost of another. Banning deforestation results in the loss of jobs for those in often already undeveloped economies with limited alternative income options, for instance.

COVID-19 is another brilliant example. While the pandemic had disastrous implications on a social front, causing death, exacerbating inequality across fronts including healthcare, unemployment and housing, to name a few, on a global scale, it had significant environment benefits: worldwide lockdowns and travel bans meant that, across 2020, global emissions plunged by almost 2 billion tonnes – the largest absolute decline in history. And most of this – around 1 billion tonnes, which is more than the annual emissions of Japan – was due to lower use of oil for road transport and aviation.

Among others, a key takeaway here is that ESG is nuanced and complicated. If you’re a company looking to communicate your ESG strategy to your key stakeholders – spanning shareholders, employees, customers and your wider community – it is critical that you understand this and convey it effectively.

A successful ESG strategy will convey an understanding of these complexities, and the importance of a just transition – meaning that the benefits of a green economy transition are distributed fairly, and benefits are not just limited to developed countries, coming at the cost of developing countries, as has happened so many times in history.

If you’re interested in hearing more about how we can help develop your ESG communications strategy, get in touch.