Author: Marcelo Bacci, Chief Financial Officer and Investor Relations, Suzano
August 11, 2021
Environmental, social and governance (ESG) issues have gained prominence on the financial markets agenda. Companies around the world have revised their business models to incorporate ESG commitments that go beyond the traditional agenda focused exclusively on creating shareholder value. The value of a business is now seen in a broader perspective – what the business brings to employees, customers, suppliers, investors, governments and society as a whole. The name of the game is admirable profit – aligning financial results with impact on society and contribution to future generations.
This is not a new concept, and the acronym is widely known in the market. But why don’t we see it everywhere until now? It all started in Europe thanks to the actions of NGOs and think tanks related to these issues, then it went to individuals. These people are also investors and have started to demand that fund managers incorporate the broader approach to the investment decisions they make on their behalf.
The times have changed for good and for for the benefit of global society
The pandemic has worked together to speed up the process, given growing concern about protecting people and the environment. In addition, ESG aspects have also started to be considered as risk factors. How a business manages these aspects can determine the economic sustainability of the business in the future. This has a profound impact on valuations and on bond investors’ analysis of a company’s ability to generate cash in the future to repay debt.
Meanwhile, consumer trends are also changing dramatically, for many reasons that include generational aspects. According to a Morgan Stanley study, 86% of millennials are interested in sustainable investments, and these same individuals are consumers too.
According to a report by BoFA & McKinsey, an estimated 60% of millennials consume brands with strong social and environmental responsibility. We are dealing with a public that debates consumerism, condemns environmental degradation and increasingly fights for social justice. Everything is linked and integrated.
Good for the world
At Suzano, the world’s largest producer of pulp, one of our cultural drivers says “it’s only good for us if it’s good for the world”. This concept is present in all our initiatives and determines the way in which we practice ESG on a daily basis. We see the growing importance of ESG not only as the right thing to do but also as a huge business opportunity for a company on the right side of history, renewable raw materials, biodegradable and recyclable products are part of the solution.
The phenomenon is also present in fundraising activities. Last year, we decided to launch our Sustainability Bonds (SLB) and became the second company in the world to opt for this structure. SLBs are debt instruments whose interest rate is linked to the achievement of sustainability objectives. We issued a total of $ 1.25 billion, at the lowest interest rate ever recorded in Brazil for a 10-year issue.
This means that, for the first time, investors were ready to accept lower interest rates for an instrument potentially generating positive externalities (ESG objectives). Today, 30% of Suzano’s debt is linked to ESG characteristics (SLBs, sustainability loans, green bonds). In other words, there is a large market to explore and the demand for these instruments is one of the potential ways to monetize a robust ESG strategy.
Times have changed for good and for the good of global society. Every business can have a more important role in this process than delivering financial results. It is up to each of us as business leaders to find our own way to contribute.