 Welcome everyone to this, to this transformation talk. I'm very pleased to be able to have Carolina Dacosta with us. And the topic today really would be about unpacking the transmotive power of the three pillars of the corporate system ability. How could sometimes we ask ourselves one question. How can ESG and by ESG I mean environmental, social and governance be a pivot for transformative change in organizations. But before I move forward, let me just introduce Carolina. Carolina is a partner at Mauer Asset Management. She helps build new business model to basically support entrepreneurship, ESG and impact. So she has over 20 years of experience in high growth, nonprofit, social impact project, as well as organization based on innovative strategic models of action and governance. She serves as the vice president at INSPIR, INSPIR, which is a teaching and research university in Brazil. And she also served as the dean of the undergraduate program where she lives, the entrepreneurship, she led the entrepreneurship center. Now, of course, to set the stage here, we do hear people talking about ESG and the question that we could ask ourselves, how might in ESG agenda transform organizations? So before we dive deep, what I would like to do is for us to go through the topic in three stages. First, let us set the ground, let us set the stage. Let us look at the whole ESG. So taking all three elements, how can they help transform organization? What is the transformative power of each of the ESG pillars? So this would be the first question for Carolina that should be, I mean, and I want this to be more like a conversation. So she'll be able to actually go through and help us uncover the transformative power of each of the ESG element. Carolina, welcome. Thank you very much, Tahiro, for the invitation. I'd like to compliment the whole audience and say that I'm very honored to be here sharing some thoughts and experience with all of you. So this is an important question, Tahiro, especially considering that corporate sustainability is not new to companies. So companies have been engaged in this type of topic for decades. And recently, to the attention given from the financial market where I am in right now, we see a more strong interface between financial sector and companies, and then creates lots of pressures and opportunities for companies to really make a transformation in their business models. So coming from the awareness of corporate sustainability, the importance of considering their impacts in their economic production business models, then with the incorporation of this integration with the financial market, companies now have to report more information, and that creates a change power in the way they organize themselves in terms of reporting, in terms of how they actually going to have the relationship with investors. And from the side of the financial sector, it creates a whole pressure for new modes of information that is going to be apprehended in the model, a classification model, risk model, and how actually the financial sector puts values in companies. And that's not for the stock market, it's also for financing. And from the side of the company, this whole context, and which is more than just awareness, it's a new way to discuss capital allocation, creates for companies several opportunities to actually revise their production mode, their business mode, so they follow a transition to a low-carbon economy. And that creates opportunities for innovation, that creates opportunities for new financing modes. So it's a whole set of issues that we'll be able to discuss throughout this conversation. So we have now the very strong participation, at least from the asset managers and banks that are really into the agenda of low-carbon economy, and that putting public commitments that they're going to just invest in a real economy that is committed with low-carbon agenda. So this whole set of new information so creates lots of opportunities for companies to transform and to really take advantage of this movement to new refer innovation, for transformation, and so forth. Thank you, Carolina. And then if we can dive a little bit deeper now, taking environmental, maybe taking social and taking governance, on each of these three, what is happening? What are organizations doing? And what is pushing organizations to transform? So let's start maybe on the environmental front. What is happening? What is creating that need to transform? So it's a good way to organize the thinking at our heroes. So from the side of environmental, so when the financial sector starts to require reporting on carbon footprint and all other risks associated to climate, companies have, first of all, to make a strong effort to increase and transform their reporting system. So especially for investors who have a strong or a significant share of the business, companies will have to make a strong case for reporting that is very clear and objective in terms of carbon footprint and in terms of risks that is not on climate, but also the S, the social risks that is very tied to reputation and branding. And they're like a mission in the society. So it's not just a marketing thing, is much more than that. So it's a whole issue of how they're going to be perceived by their employees, by their clients, by their suppliers, so by the whole ecosystem. So this new requirement, the financial sector, imposes to companies, especially those who have a strong share of the business makes companies more pressured to improve reporting system and also that is actually coupled with risk assessment and opportunity assessment. So why is that? Why is everybody concerned with that right now? Well, we are leaving this global tragedy which is COVID that actually exposed that risk assessment is a huge issue that has to be much more addressed and accounted for by who actually evaluate businesses and talking about climate change and the need that countries and governments will have to put a limit in carbon footprint. So lots of sectors will be impacted by a possible regulation in the carbon market is going to put a price on this type of externalities. So the whole point from the economic view is the price of externalities, the governments will more and more make that to be part of the company's balance sheet. And when that becomes part of their balance sheet, they have to actually make the case for cost of capital. So reporting is the starting point of the whole ethane and reporting has everything to do with improvement of risk assessment, with improvement of long-term view of externalities and the changes in market regulation that can put a cost, a very strong cost in the cost of capital when the companies will look for access to capital for financing their operations and their investments. So that creates a cascade effect that makes companies, if they wanted to do adequate risk assessment, if they wanted to incorporate that view of long-term impact on externalities in order to change their business, that creates a whole chain reaction that makes companies have to rethink their governance, that makes companies to rethink innovation, they have companies to rethink access to capital. And I would say the same for us. So the same mental model that companies are using for E, they have to use for S because S is like all the social impacts and very rarely environmental issues are only environmental. They are also social because they create like constraints in communities, that creates impacts in employees, in the suppliers, in the whole ecosystem the company is embedded in. So when you look at this systemic view of risk assessment that not only looks environmental but also the intricacies of the environmental aspects with the social that actually put a very relevant pressure on how to improve governance, which is the G of the equation. Thank you here. Thank you. And of course, when you see in acronym with three, four letters of, I mean in this case three, sometimes people ask, which one is the most difficult to put in place? Is it the environmental side? Is it the social? Is it the governance within the organization? Which one do you see organizations struggle the most with these days? I think it is a question that is very, it's very debatable and like I don't want to sound like certain of the of my answer because this is the type of things that people do discuss. But I'd like always to look at the ESG as an equation model in which you have variables that are within more control than others. Of course, you as a company has to do your mission to mitigate environmental and social externalities, but not only mitigate but to transform, to create prosperity. Of course, that is within companies' hands. But without question, what is most in companies' hands is the governance. And for companies to change their mindset, like the corporate mindset, this is a whole issue of how leadership organizes and changes the culture, how actually organizes the role of the board, how actually organizes the committees that we're going to assist. And it's going to have the participation of all the stakeholders, so it has to carry a stakeholder field. And you also have the importance of walk the talk. So you have to look at compensation. You have to look at how you actually walk the talk in terms of the culture you wanted to create. So I would say, very humble here, like my opinion, based in everything I observe, especially with my head of a professor, like helping to form boards and C-level of companies, the governance is something that is the beginning of everything. So how the companies are really going to change the functions of their executives to incorporate this whole view of prosperity. So it's a change in the mental model. And I don't want to sound philosophical because this is a very pragmatic thing. So the main executive search firms in the world are redefining the roles of the C-level to actually revisit the whole of the CFO, the role of possibly our chief sustainability officer, of the CEO, and especially of the boards. So boards have to take the lead on make this, the companies to have a different way to look their impact and also with a view of long term. So like the boards can have that look. And this is the look that investors, institutional investors have. So boards can definitely be, and for me, this is the G, this is the governance. This is the beginning of the whole transformation. Thank you so much. I prefer to think that, Tahiro, than I could make a case that no, the change is going to come from the pressure of the environment. So that is going to look at companies and see them as too reactive. What I believe they can be very proactive because of productivity is going to make them capture much more value. It's like the first mover advantage that we all know from strategy. So companies that wait just to react, we're not going to be able to capture the value of ESG transformation and ESG value creation. Thank you, Carolina. And this is quite insightful. I mean, I've been sometimes doing some, some maturity assessment, capacity assessment. And usually we look at one pillar that is called governance. And we tend to see that whenever the governance is good, sometimes all the other parts tend to take care of themselves or tend to be kind of taken seriously. But when the governance is not working, then it seems like the whole thing is unstable. And then getting to move or getting to get the different pieces online becomes a challenge. Absolutely. Now moving on to the next point here, everybody is talking about it and it's been there for a long time. And then sometime when you talk about ESG, or especially the environmental path, you'll hear people pushing back saying, I mean, is it something that there will be reward or is it something that will be, I mean, beneficial, let's say for them and maybe for society at all. Can you maybe share with us how organizations that have fully embraced the ESG, how are they performing vis-à-vis those who haven't? And from performance, I'm not looking only on financial numbers. Of course, that is important, but also the happiness of people within organizations and these type of things. So we have all dimensions in terms of performance financially, of course, and then the happiness of people within the organization and the difference that the organization is also making the world. Do we have any data point to compare? We have many studies on that. I also, I always like to cite the economic argument so that we take this conversation down to earth, not sounding as like a new topic statement. So we have studies that show very clearly and some folks from Harvard Business School, Seraphine and his colleagues have shown several studies following data over 10 years. Over 50 industries, over more than six sectors showing that when you look at ESG materiality, what is ESG materiality? Are elements of that industry that make that industry perform well in terms of results? Not talking about only financial results, being like the leader in the sector to be like an industry that is seen by the customers as producing value. So this is ESG materiality. It's like these elements that makes companies excel in their activity. So when you take those elements and you look at the financial results in the financial market, you see clearly companies performing 6% to 10%, 2% to 6% alpha in the financial market. And I'm looking at a very long series of data, looking at 10 years most. So this is definitely something that has been shown and proved. But I don't want to only look at the financial results. We haven't seen Tahiro and I think the pandemics make that much stronger, that people don't want to, like there's less room for fragmentation between personal life and work life. So I'm here with you in this home like home office conversation. And sometimes I see your kid running behind you. And so the lines between private and public life is becoming less and less visible. So people don't want to have like personal statements that are very different from their corporate statements. So when you have that alignment, when you feel as a professional that you are living like a professional statement, that it's aligned with your personal statement. So if you're proud of yourself in terms of why you are generating that your company is taking care of the community, that the company is walking the talking and being coherent in their compensation practices that match their culture of values. People and did their loss of studies that show that people feel much more enlightened, much more inspired. And that creates a whole set of creativity energy, commitment energy, engagement energy. And we know that is key for sustainable prosperity. So I think that's for me the strongest case for companies really to engage is not just and if you see, for example, is you take Brazil as a reference and you see companies that have excelled for the past years in terms of ESG reference. Our companies that have been investing on that for many, many years. This is not something that you achieve from night to day. So you have to have a strong commitment. You have to be very coherent in terms of your culture and your strategy. And as I said, when we talk about governance, it's just not just not a matter of checking points on and like the format of governance that for example companies that are like have capital that IPO companies have to to take into account or to be to be in the market is much more than that is the subtleties and what I say is the feeling of the of the governance that actually makes the whole different in the in culture. So I would say that much more than the financial argument, I would say that the employee engagement community engaged engagement is by far the strongest case for innovation, for sustainable prosperity, for create creativity and like all sources of non financial that actually produces financial. Excellent. You started actually covering some of the next things that I had in mind when you were mentioning that of course companies that do succeed tend to make it for the long run. So it's not a one of but it's a sustained effort to be dedicated, committed and making sure that things happen. Can you elaborate more also what are other success criteria? What are let's say the companies that tend to do well on this front? What are they doing? What is the secret behind this? That could be the next question. And if you may, you can also use the same opportunity to share with us the companies that are not succeeding. What is making them failing? So two questions in one if you can. I think it's like it's the same question for both for the ones who are succeeding and the ones who are not succeeding is what I call strategy and culture integration. So companies who are looking at a ESG merely as marketing strategy or just a communication set of ideas that you're putting the sustainability report are not being consistent in their practices and actually make it worse because everybody's looking at it. So when you see companies going public saying, oh, I'm going to actually to reduce carbon footprint in X percent or 100 percent by 2030 or 2050. So they're making a public statement. So they're going to be charged for that. So people are going to be looking for them in terms of whether they're going to deliver that or not. So if you're not actually saying like with a true commitment with your strategy in your governance model, it's going to make it much worse for you. It would be better not saying anything because actually that is going to show that you're only using that as a marketing strategy. So the main component for success is the true commitment of long term strategy for transition to low carbon economy. And this is not my point of view. This is in the Larry Fink letter that he publishes every year. So this year in particular, the latter makes a strong statement for a transition economy. So is how companies are going to actually showing a very clear and straightforward commitment for this transition. So they want to look at their financial results. They want to look at how they are actually committing themselves to the investments. They want to look to compensation. They want to look to diversity. So more and more investors are looking for very objective data. It's not just a thought or intention. So companies that are not actually truly committed and that is not actually shown in their long term strategy, they're not going to succeed. And they're going to actually do more harm than good to themselves because it's going to very clear to the audience that they're just doing like greenwashing. So for me, it's a very straightforward answer, Tahiro. It has to be for real. And investors are looking at KPEX. They wanted to look at the compensation. They wanted to look to diversity ratings. They wanted to look of like innovation. So what companies are doing to make the transition and it's not doesn't surprise why the letter from the investor starts with like a dear CEO because it's looking at the leadership of the company, asking that leadership of the company to show in a very straightforward objective terms, what are the commitments and how that is linked to the strategy and to talent attraction, to talent compensation and so forth. So it has a whole coherence system that was going to be checked it out. Excellent. Thank you. Now, let's look at it because of course, when you mentioned it's the long term piece, many organizations maybe haven't necessarily embraced it or they haven't necessarily started the journey. So if you are in an organization that say, okay, today I want to make it front and center. I want to give it the attention required, but not just for a communication matters, not just for paying lip service, but because you strongly believe in it and because you are also aligning your employees within the organization around it. The question that may come here is how do they start? What would be the first step? Excellent question Tahiro. I'm going to always have a bias to education what I believe right line as well. So first step, let's educate the board. So board members and there are many studies that show the board members are not really aware of their role in that agenda. So let's educate the board and the CLAB of the company. So what is education has to take into account? First thing, systemic view of risk assessment. So it has to be very pragmatic. Systemic view of risk assessment is like a long term risk assessment. And at the same time a strong view with value creation assessment. That actually is going to help companies to establish a plan for in a roadmap for a transition. And the second step after that plan is to look at everything we are doing how we can improve. So I'm going to give you a bit of example here. Let's talk about the supply chain system. So there are lots of systems in place that talks about supply chain finance. How to actually invest in our supply system in order to provide the type of raw material and the services I need. So can I improve that? Is that a room for sustainable supply chain finance? Of course there is. And that is a market that actually is expected to grow and to be almost 20% a year until 2027. And just a sustainable piece of that can be one third of highly secured receivables. So there's a huge market to rethink the way I do supply chain finance. I can incorporate KPIs. I can incorporate another way to finance with the things I already do. Let's look at my corporate venture capital hub. How can I look for new ideas and innovation that can also help me to change as a company or my supply chain system? So once I have that plan it's a very long term plan owned by the board and also aligned with the sea level. I'm going to look at the things I do and I'm going to actually change the way I access the capital market looking for financing models that take into account for example ESG goes. For example, there is a recently new product in the financial sector called sustainability linked loan. Those type of loans are based on ESG targets. So the more I attain them I can reduce the cost of my capital, the cost of attracting that capital. So I have an incentive. So companies can really rethink the things they do but everything starts from the board. I like very much a literature on enacting proposed initiative by is led by Oxford University and other universities in the United States and it shows the importance of the board to own the ESG statement and help the company to construct a long-term view of the transition. So for me this would be the first like educate the board and let the board own together with the sea level the long-term plan of ESG transformation and then it's going to prompt the company to revise and rethink all the investments they already do either in supply chain system, corporate venture capital, new products and you name it. So it's going to be like as I say a chain reaction that is going to transform the company to capture value through ESG transformation. Excellent and I just have a stake with you. I guess I will say of course we mentioned the board and we mentioned the sea level and we see that now and even when you look at transformation in general it is the employees within the organizations that are demanding it. Some people or let's say if you want to go to a company it is employees looking at basically if the organization is adhering to this principle before even considering joining. So what force do you see in the employees like say the people on the ground supporting the organization and playing a role because we tend to say that whenever an organization is embarking a transformation it's not just about the I mean where the organization wants to go but it's also about where the individual employees within the organizations are taken. So I get it the board the sea level but I want to hear from you the employees how do you bring them or how do you have them as a power that will shape that agenda for the organization. You're absolutely right like when like when employees have that clear statement and the coherence checked by the board they're definitely going to be the main change power in the organization and you have two motors of this change first talent attraction. So the most talented or the most I prefer to work like the skill and competencies that are relevant for that for that industry will be attracted when they see the that coherence like all over the organization but there's also a risk if there's another also another motor which is the risk of those employees especially the youngest ones because it's another generation is much more committed with the purpose that like to do like whistle blowing of the things they don't agree and this is something like a risk that more like more and more companies are taking to currency duration and is a very is a very strong change motor which is the whistle blowing process that when the company is not following that coherence in the way they present themselves to society how they actually do things employees can really be a source of information for the public truly and that's going to become more and more is like stronger with the like social media and the opportunities for employees to really vent and voice the things that are ethically incoherent so either from the side of attraction if you wanted to attract the most talented the most skillful the more competent people they're going to look at those side of us the system in place and if at the end of the day we're not following the things you promised you have the risk of employees making like a public those incoherences so I don't like very much for the light of the trap but this is something that companies definitely have to be aware that they have to look at delivering the promises the promises are good for attraction and to make those employees engage and of course that that talks to governance so for the governance has to give space for them for them to lead for them to create their own innovation they have to be compensated for that so there has the whole issue of how the culture supports innovation and is tolerant to error and so forth but I think the main model here is delivering the promise to them so attract but at the same time allow them to experience that the reality matches the promises so let's let's start with the first question from the that we got actually from Odyssey who like coming and the question is uh about is there a standard framework on sustainability that companies can adopt have you seen a detailed rfp covering these areas so I don't know what rfp yeah rfp is usually a request for proposal meaning that you send a request for proposal and you detail what you want to see in the rfp so those are different things for example in terms of a standard framework the two most cited and used for reporting is the gri global reporting initiative and the sasb sasb materiality matrices and also reporting parameters for for ESG so um both of them have opportunities for companies to rethink what we said earlier on in this talk about ESG materiality uh it's always important to take into consideration that those are references for reporting uh in the financial sector you have the ratings uh so ratings from Bloomberg and from other providers Refinitiv and you name it um but those rent ratings as is expected to uh they don't correlate much with each other so the MIT has a very interesting project called aggregated confusion showing that the ratings have a low correlation because there's still a lot of subjectivity in how we actually take into consideration this type of information in the in the pricing modeling but that's not to be disencouraging because this is a matter of time very quickly technology we will evolve for these informations to be captured and put in those um rating models so for companies to begin with a good starting point is either uh and also uh like they're like there's some some special um references depending on the sector for example for banks there's there's the TCFD but particularly for the corporate world either gre or sasb are a good reference model for to start the conversation of course consulting companies and there are consulting companies that are doing a very relevant work can also be partners for this type of assessment and allow companies to make uh a good um uh what i say customize the look at their uh at their activity and how that produces impact it's good to have a reference like a global reference so companies can have something comparable to other companies so otherwise are they going to look only at themselves and they're not going to have produced something comparable um wonderful yeah wonderful yeah go ahead if you still have because i was going to move to the next question as well uh go ahead the next question is from shuan sadre gazi and he said why there is so much hot and uh lip service around the esg's initiative of course you mentioned that or companies that don't use it or that pay the lip service to it uh would not be successful actually it could be even worse but irrespective of that why as he's asking or she's asking why why uh a company paying that lip service because they find it's as simple as that because the financial market it's already putting a pricing on that you can tell you can have a huge debate on whether this pricing is correct it's over is under like uh it's not the the point here but that by the time the financial sector start to putting a pricing on that everybody wants to capture that either making my stock market my stock value increase or have the perception of uh increase or in the way i access capital for financing uh so there's a now an expression called called greenium that some companies that have like a green projects can capture capital in the market at a lower price than whether they didn't have any project related to that uh for i think this is something's a word of cash on here uh by the time the financial sector sector starts to put a price and compensate companies that have green or esg projects more uh coherent to that of course companies will hush into look how beautiful i am as well uh but at the end of the day the financial market is becoming more and more skillful in capture those information because they are aware of the the like a side effect that is not desirable of the green washing so let me look myself on prettier so that i can have access to this to this cheap resources or to this more valuation that favorable valuation of the stock market uh so that i can capture value but this is not a real value capturing this is just uh is a is a short term um impression that soon the financial market will correct excellent we'll take uh one next question before uh moving to the closing remarks and that one is coming from uh sarah shaffi and the question is are you seeing technology playing a role in helping to support these goals and initiatives of course i mean beside the esg one thing that you hear a lot is digital transformations and there are a lot of technology that is coming in so what role could technology play uh to help her it's huge i'm glad for this question the world economic forum establishes that uh for the transition to low carbon economy and either for good because i wanted to live in a world that it has it produces less impact uh either social environment or whether i do that for pain because i don't want it to suffer taxation for that uh the world economic forum established that 80 percent 80 percent depends on new technology to be invented and accelerated to change the production systems in place so that's the reason we have to talk about transition and not something that you're going to change from night to day uh because it requires uh financing of this technologies it requires long term planning for companies to adjust and revise the production system so 80 percent is what word economic forum predicts the importance of new technology for the transition to a low carbon economy so it's huge it's a huge component of this equation makes sense so i mean digital transformation esg you put them together and then you have a nice way of delivering results and changing and i can like to that question to here i don't know if you still have time i would love to present like a a very synthetic model of value capturing of the esg i don't know if you have time okay it's a good timing you can present it and we'll use it as a way to close them and with that you can deliver your closing remark as well perfect so if you bear with me what i wanted to show in this chart is has everything with technology any strategy integration so if you look at the vertical axis you see the level of subjectivity in the information regarding esg and right now there's a lot of information that is more um related to the human analyst to input that information because these facts are still in transformation is is to be pressified is to be captured but by the time you have the these variables identified and the value and impact of them shown in the price models and the risk assessment models uh and this is pretty much due to technology as well technology to capture this information uh you're going to see a move uh in the the whole issue of what is my horizontal axis value appropriation of the esg in terms of the value of the businesses and the value of the companies uh so this increase of objectivity and is really makes the case for a new equilibrium point in you're going to have true to technology and true innovation the possibility to have a much more appropriation of value by companies so that's the reason this is like the whole idea of transition and for this area where i put like in yellow to be really appropriated there comes the three pillars that we are talking about the esg the systematic systemic and systematic assessment uh of uh risks and opportunities the strategy integration which is the whole coherence thing we talked about and the importance of the tree the third pillar which is governance which is the role of the board the role of the sea level and as a consequence of the employees to carry this change so it's very important to make it that point clear that's many people say oh because information is too subjective companies will actually appropriate that to do a bit of greenwashing and take advantage and this is going to be just a fashion not true because technology itself is going to generate much more data for that to be included in the models that are going to put a price and a cost in either esg or non esg practices and when that becomes a reality and is becoming a reality soon companies that in the right side of the equation value we're going to capture value much more strongly so that's the point I wanted to actually to show to synthesize the importance of look at a long-term systemic model of value of value creation um so I think that's that'll be my final remarks to make the points more clear I hope more clear based on the conversation nice conversation we had to hero thank you so much Carolina and I would like to thank everyone who joined us for this session and thank you also you have any care for putting it together this is our transformation talk and we'll be looking to come back more and more with these nice discussions and covering insight that would be useful to help organization transforming and being successful in in this transformation so uh I I'm very pleased that we had that talk here and I'll say again we can do good and then we can do well as well so until then thank you everyone and then we look forward to have you in another transformation talk I'm brought to you by a bright line thank you very much Tabiro Yaxmica everybody it was a pleasure to be here with you thank you we appreciate it