Sustainability: Business opportunity in the intermediation industry

Published by: The WFE Focus Team Nov 2017

Felipe Paiva, Brazil Clients Relationship Director and Sonia Favaretto, Media Relations, Sustainability, Communications and Social Investment Managing Director from B3 tell us more about the launch of its most recent sustainability guide.

As the heart of the capital market, stock exchanges play a crucial role in fostering best practices as they interact daily with leading national and international companies and investors.

ESG (Environmental, Social and Governance) criteria have gained traction in many companies across the globe, and B3 is committed to promoting ESG in Brazil. The sustainability agenda, and the integration of socio-environmental and governance issues into business activities, pose a significant challenge, so that risks inherent in one’s own business can be mitigated, while improving the supply of products and services in line with the real needs of clients.

The theme of sustainability in the financial intermediation industry is fairly recent, and charts different paths from mainstream business. However, there is growing support for the claim that corporate governance affects not only the company's endurance, but also its valuation. We have entered an era of accountability, and reputation should be a deep concern for both individuals and corporations. As a consequence, following ESG guidelines sometimes makes the difference between collapse and triumph in closing a deal, accessing finance and attracting investors. This change of mentality should be celebrated. In Brazil, 70% of managers adopt at least one ESG criteria, and nearly 40% of managers adopt criteria in all three ESG dimensions. When firms engage in the task of protecting people and the environment, they benefit not only investors and entrepreneurs, but also society at large.

The involvement of the intermediation industry in this process of sponsorship for the adoption of good practices related to sustainability is an essential condition for ESG criteria to work.

Due to the very nature of its operations - the transfer of resources from surplus economic agents to deficit ones - financial intermediation is often the first to indicate and adopt new trends that, in a short time, tend to become a standard for the entire financial system.

For this reason, B3 is taking a special look at intermediation, elevating it to the status of one of the main stakeholders in the journey of endorsing good sustainability practices.

B3, to aid its stakeholders and with its role in the market, is doing its part. In 2011, it launched its first sustainability guide for listed companies, having its second edition five years later. In 2016, B3 announced a sustainability guide for privately-held companies, and, on October 2017, it launched a guide called 'Sustainability: Business Opportunity in the Intermediation Industry'. This publication targets brokerage houses, securities dealers and banks trading in the markets managed by B3, urging them to integrate ESG criteria into their processes, products and customer relations, and to support them in discovering initiatives related to the sustainability agenda. In addition to the guide's documentation, this agenda also will provide a face-to-face workshop.

B3's new guide is divided into two parts: (1) Opportunities for new business development; (2) Business structuring as per the Brazilian Central Bank Resolution 4327. In the first part, B3 addresses the basic roadmap for its PQO (Operational Qualification Program), brings an overview of the ESG global scenario, presents international initiatives, such as PRI (Principles for Responsible Investment) and explains B3´s products, some of which are the indices such as ISE (Corporate Sustainability Index), ICO2 (Carbon Efficiency Index) and IGCT (Corporate Governance Trade Index), as well as information on Green Bonds. The second part is specifically dedicated to Brazilian Central Bank’s resolution 4327, published in 2014. This resolution establishes rules to be observed in the implementation of the Socio-Environmental Responsibility Policy by financial institutions and other institutions authorised to operate by the Central Bank of Brazil. Its section should help the industry to understand the guidelines, so those who are not yet in accordance to the resolution can work on it.

Stock exchanges exist to develop financial and capital markets, to be a source of growth for companies, and to function as an investment alternative for market players. These roles are only feasible when leaders understand the importance of a truly sustainable development that considers social, environmental and economic factors. Clearly, the integration of these issues into mainstream business, although challenging, represents a great opportunity for participants, their clients, the market and, ultimately, the country itself.

Read the guide here.