Stock exchange sustainability ranking comes up against ESG questions


At the end of January, B3 published the ranking of companies with the best scores on the ISE, the Stock Exchange’s Corporate Sustainability Index. For the first time, the ratings of the companies that make up the portfolio were released — including those that participated in the process, but were not selected.

The new format is the result of a methodological change made in July 2021, which sought to make the index more transparent. It is now possible to have access not only to the organizations that were excluded, but also to the scores obtained in each of the analyzed dimensions.

Of the 73 companies that signed up, 46 were evaluated enough to enter the 2022 portfolio. The first place in the ranking is EDP, in the electricity sector, followed by Renner, Telefônica do Brasil, CPFL Energia and Natura.

However, not all of them are exactly unanimous in good environmental, social and corporate governance practices. Despite the stricter methodology, companies with questionable ESG history or in controversial sectors continue to feature on the list.

One of the examples is Braskem, which rejoined the ISE this year and occupies the 15th position in the ranking. The petrochemical industry is linked to an environmental disaster in Maceió, after the exploitation of rock salt caused the subsidence of the soil in several neighborhoods of the capital of Alagoas, affecting around 57,000 people.

In addition, the company has been involved in corruption allegations and is controlled by Novonor — formerly Odebrecht, which was associated with scandals in Operação Lava Jato.

In the index report, it is possible to see Braskem’s performance in the five dimensions evaluated. The best score received by the company was in the corporate governance and senior management dimension (83.67), followed by social capital (76.61) and environment (74.55).

B3 also provides a document detailing the scores obtained in each sub-theme. In combating corruption, for example, the petrochemical company got the maximum score: 100%. In human rights and community relations, the score was 86.03%.

Sought for comment, Braskem said it would not comment on the matter.

In the presentation of the ISE, B3 emphasizes that the scores reflect exclusively the answers self-declared by the company. Although they have to submit documents to support the questionnaires, the Exchange does not carry out any type of audit, qualitative assessment or receive any influence from third parties.

Asked if the presence of companies with socio-environmental issues in the history does not represent a contradiction in a sustainability index, the Exchange said that the ISE methodology does not exclude sectors or companies.

According to B3, this vision helps to deepen the ESG diagnosis of the companies, show the evolution of the themes and highlight those that present the best practices.

“We understand that there is no contradiction and that the methodology is effective for the current moment of development of assessments on ESG topics, so much so that it is adopted by other exchanges and rating agencies around the world”, says a text sent by B3.

In addition to Braskem’s presence, the ISE also incorporates companies from controversial or polluting sectors, such as agribusiness.

Agriculture is the second activity that emits the most greenhouse gases in Brazil (27% of the total), with livestock accounting for most of these emissions: 65%.

Minerva Foods is the meatpacker’s representative in the portfolio, occupying the 44th position. The company was even excluded in the first preview of the indicator, in December, but returned after updating data on climate change from the CDP (Carbon Disclosure Project) — one of the external criteria for participating in the ISE.

Minerva’s best score was in environment (66.10), followed by business model and innovation (65.95) and corporate governance (63.75).

In a statement, the company states that its inclusion in the ISE for the second year in a row reflects its commitment to best ESG practices. The slaughterhouse recalls that it was the only company in the beef sector to compose the 2022 portfolio, and that it also integrates another green index of the Stock Exchange, the ICO2 (Carbon Efficient Index).

“In the last ten years, the company has been adopting initiatives for an increasingly sustainable production throughout the value chain”, he says.

Minerva also cites initiatives adopted to reduce emissions, such as Renove, a program that measures and monitors the carbon balance on the agricultural properties of its partners in South America.

Another sector that is present in the Exchange’s sustainability index is aviation, which accounts for 3% of the world’s total greenhouse gas emissions.

Azul is the only representative in the portfolio, occupying the 53rd place. The company had the best performances in the dimensions of governance (65.03), business model and innovation (63.15) and social capital (61.91).

The company said, in a note, that it is committed to achieving net zero emissions by 2045 and that it works with a focus on eco-efficient operation, through a younger fleet with lower fuel consumption.

“Currently, Azul operates with the most efficient fleet in Brazil and its fleet transformation program is a fundamental pillar for the company to achieve its goals of sustainable growth, generating very positive social and environmental impacts”, he said.

Azul also highlighted that it is part of the ICAO (International Civil Aviation Organization) carbon offset and reduction program for international aviation.

Fabio Alperowitch, founder of Fama Investimentos, an ESG-focused fund manager, says he sees no problem with companies in controversial sectors being selected for a sustainability index.

“Even Petrobras could be there, being a fossil fuel company, as long as it was a responsible company”, he says. The oil company was in the 2021 portfolio, but, given the changes in methodology, chose not to participate in the new selection.

For him, the economic segment has less relevance than the sustainable actions that a company practices.​

However, Alperowitch criticizes the presence of organizations with socio-environmental problems on the list. “When an individual investor —or even an institutional investor who is far from this ESG debate— sees the ISE, he understands that those companies are sustainable and have the stock exchange seal,” she says.

“The sustainability index should be composed of sustainable companies, not businesses that are on this path”, he adds.

The manager emphasizes the historical importance of the ISE, which was launched in 2005, when the market gave little importance to the topic. According to him, the new version is better than the previous ones in providing more transparency, applying questionnaires according to the sector and adopting external references, such as CDP and Reprisk (which indicates reputational risk).

However, Alperowitch’s criticism is with indices in general, as it is difficult to establish objective criteria for analyzing complex issues such as ESG. For him, the rankings end up emptying the debate on sustainability as they become a podium of the best companies, without having a more detailed look.

“I’m not against rankings, I’m against using them interchangeably, as if they were a universal tool and exempted people from understanding other issues.”

Filipe Ferreira, director of Comdinheiro, provider of financial market analysis systems, says that the presence of companies with socio-environmental problems in a sustainability index can put the selection methodology in check.

However, he assesses that the construction of these portfolios is not a binary process, where there is good and evil. Adopting a rigorous methodology in all ESG aspects, in his view, would end up emptying the indicator and would not help the market’s evolution.

“Thinking about the ultimate goal of an index like this — and the concept of ESG — it is necessary to have a model that encourages companies to improve. Sometimes we have to get off the pedestal of the perfect world to think about more efficient policies”, he says.

According to Ferreira, the presence of Braskem illustrates the point well. Although the petrochemical company has controversies in its history, it adopts good initiatives for chemical residues, which, according to him, needs to be positively signaled to the market.

“No [defendo] that these companies enter the index left and right, but giving them the chance to build policies that improve their production process — and reflect that in an index — has its positive side.”

For the director, the ISE portfolio is not perfect, but it shows the incipient moment in which the Brazilian corporate scenario finds itself in the ESG.

“The ISE fulfills its role well by giving an initial signal to the market, but it has to continue evolving, raising the bar, to encourage companies to progress”, he says.

“The great is the enemy of the good, if we wait for an ideal index, we may never build this market”, he adds.

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