Stakeholder Governance Advocates Plant Seeds For Growth In Brazilian Stock Exchange

Labor market upheaval, climate threats, and worsening social inequality are challenges that threaten the future of businesses of all sizes. For proponents of stakeholder economics, they also are serving as evidence that it’s time to act for broad and lasting systemic change. 

One of those proponents is Marcel Fukayama, head of Global Policy at B Lab, who is working with stock market leaders in Brazil to introduce changes — “new norms, new regulations, new self-regulations” — that help advance a more inclusive, equitable and regenerative economic system. Prior to his work at B Lab, the standards and certification organization behind the B Corporation movement, he is the co-founder of Sistema B Brasil and was Executive Director of Sistema B International, which is the Latin American affiliate of the organization. 

As part of my research on purpose-driven business, I recently spoke with Fukayama about his work in Brazil in collaboration with B3, which oversees the Sao Paulo Stock Exchange and other entities, and the effects of the regulatory updates. 

“B3 launched a newer version of the Corporate Sustainability Index in which those listed companies have to disclose their practices in different dimensions,” he said. As businesses learn more about measuring and reporting on purpose, accountability, and transparency, Fukayama said, they are realizing the value of incorporating social and environmental factors for their future success. 

“We have seen three drivers for change in this movement: workers, consumers and investors,” he told me. “The millennial generation is driven not by financial return but by purpose in their career. So businesses have to adopt purpose of positive impact in their work environment, business model, and value chain if they want to succeed, to attract and retain these talents.”

Chris Marquis: Please share a bit about the history of B3 and the Sao Paulo Stock Exchange. How many companies are involved? How are you and Sistema B Brasil involved? 

Marcel Fukayama: B3 is basically a result of consolidation of different companies and operates the Sao Paulo Stock Exchange, one of the largest in the world. B3 is a pioneer in the sustainability agenda and in corporate governance, because in 2002 B3 launched a new stock exchange segment called Novo Mercado, or New Market, for which members have to meet the highest level of corporate governance among companies on the B3. So Natura &Co (at that time Natura Cosmetics), for instance, was at the time one of the first publicly traded companies to adopt these high levels of corporate governance. About 16 years ago B3 also launched the Corporate Sustainability Index, or ISE in Portuguese.

So B3 today has 486 listed companies. The New Market has a bit more than 200 listed companies, and the Corporate Sustainability Index has 46 companies. These companies together have about half a trillion dollars in market cap, which represents about 40% of the total amount of the Sao Paulo Stock Exchange. 

Considering that B3 is the core of capital markets in Brazil and Latin America, at Sistema B we saw the opportunity to advance conversations about governance. We reached out to B3 in 2019 and they said, ‘We’re going to do a public consultation for the evolution of the corporate sustainability index. Would you like to join us and send us your input?’ And we did share some questions that they adopted.

Then B3 launched a newer version of the Corporate Sustainability Index in which those listed companies have to disclose their practices in different dimensions. We embedded three elements of B Corp movement ideas into the standards. One is fiduciary duty, so legal accountability and how businesses legally commit themselves on sustainability — if it’s in the bylaws or other policy. The second is about what we call best governance practices, which basically are the governance instruments or governance body that you have in your company to consider stakeholders: workers, community members, suppliers, et cetera. And the third element is about disclosure and transparency, so how they measure, manage, and report their triple impact. We recommended on this practice the use of the B Impact Assessment (BIA) as the platform for these measurements. 

The day after we did that, companies started calling Sistema B Brasil. Large enterprise, publicly traded companies — these 46 companies — started calling Sistema B to learn more. Asking, ‘I just got this question. Can you teach me? Can you indicate that?’ So we could create different conversations, and as a result, some of them are now Certified B Corps: Natura &Co and Movida. Two others are B Movement Builders, companies that are using the B Corp framework to advance stakeholder governance practices: Gerdau and Magalu. And 10 others took a program that we have called Camino + B, which provides consultancy services to these companies to support them pursuing B Corp Certification. Others are using the BIA to manage their impact, so it was like a point of a culture that we touched in changing the demands.

The Corporate Sustainability Index is a voluntary adoption, and companies don’t really feel obligated to do that. But some of them have told us the requirements are high. But we see it as no pain, no gain — right?

Marquis: You mentioned a number of companies are using the BIA as part of the Camino + B program. Did you think those might become B Corps someday? 

Fukayama: Yes, some of them started applying the BIA in their subsidiaries, so some of those other companies became B Corps such as Reserva (now a subsidiary of Arezzo&Co) and Cia Hering (a subsidiary of Grupo Soma), and others are more aware of that process. One example is when Magalu called a shareholders meeting to amend their bylaws to advance the B Corp legal language. After that, the association of the capital markets — which has about $800 billion under management — called me requesting a meeting. They asked me about Magalu’s bylaws and about the value of doing these types of practices. So that is creating conversations in the market, raising awareness in the core of the capital markets.

Considering our positioning towards the mainstream, our pipeline, considering the different programs that we have applied to the listed companies, we believe that in the near future we’re going to have more and more publicly traded companies adopting the BIA and pursuing certification; and more importantly engaging their whole value chain towards a new economic system.

Marquis: What is the status of benefit corporation legislation in Brazil?

Fukayama: Well, our strategy at Sistema B Brasil was advocating through the national strategy for impact investing and impact businesses in collaboration with the local community of impact lawyers. This policy was created by the former President Temer and it is aligned with a strategy of the Global Steering Group (GSG). As part of this policy, I have served on a committee in the Ministry of Economy and we advocated for the benefit corp legislation from the executive power. and we introduced it internally as a project. 

While we have had challenges to move forward with this proposal in the current Administration, we advocated in the Senate and in the House for this project and, finally, a senator presented the project that creates the benefit corporation in Brazil. So we believe that this year will be really key to advocate in the Senate for this proposal and make some progress. The proposal presented (PL 3284/2021) also creates a National System for Impact Investing and Impact Businesses, which can be a powerful platform to integrate market players and public policies for a new economy.

Marquis: How is your work with B3 or the benefit corporation legislation influenced by similar work in other countries? And how is your work influencing efforts in the UK and US — the global B Lab network? 

Fukayama: In Brazil, we are working with different market players including B3 and the Brazilian Securities Exchange Commission (CVM). Through this type of work, as part of the B Lab Global network, we can influence changing the rules of the game and new market regulatory regimes, not only legislation. We can place new norms, new regulations, new self-regulations with market regulatory bodies.

At the same time, we have learned a lot with the experience of benefit corporation legislation in the U.S. Over 50 different jurisdictions around the world have adopted the benefit corp legislation including Italy, Colombia, Ecuador, Peru and Uruguay or similar framework, such as France, that includes purpose, accountability, and transparency. 

We’ve also learned a lot with the evolving proposal of benefit corporation legislation in the UK and Europe. In the UK, the Better Business Act is evolving the proposal of benefit corp to make it mandatory — make it the default for every business incorporated in the UK. So this is an important mindset shift, because the benefit corp legal framework was created as a voluntary change. If the UK initiative succeeds, there will be a massive change in terms of structure, culture, and behavior in the business sector and capital markets. 

The lessons learned in Europe have been great as well. There, an Interdependence Coalition is coordinating with other organizations to present a proposal to the European Commission to embed in corporate governance two elements: the duty of care, the duty of diligence. These two things combined basically are the infrastructure needed to foster stakeholder governance in corporate governance. The good thing is that the coalition includes dozens of different organizations, hundreds of businesses. They are actively advocating. It won’t be easy. It’s very ambitious. 

At B Lab Global, we defined a global strategy specifically to catalyze policy change that leverages business as a force for good. As part of our theory of change, our policy approach to this is to lead, coordinate, and promote public policies, regulation, and self-regulation of companies and capital markets to enable the adoption of stakeholder governance, while supporting external partners in initiatives focused on enabling and incentivising the broader impacts of business — all with an end goal of systems change.

Marquis: Have the pandemic and its economic ripples – plus the climate crisis – led more people to believe that change is needed now? 

Fukayama: We have seen three drivers for change in this movement: workers, consumers and investors. In three years, half of the workforce on the planet will be the millennial generation. The millennial generation is driven not by financial return but by purpose in their career. So businesses have to adopt purpose of positive impact in their work environment, business model, and value chain if they want to succeed, to attract and retain these talents. 

But at the same time, the pandemic has created a phenomenon called The Great Resignation — in one single month almost 5 million Americans left their jobs. So I’d say the pandemic is accelerating these dramatic changes of expectations for work environments, and businesses have to adapt. 

Consumers are also raising their awareness about the impacts of their consumption and responsiveness. There is important research by a B Corp called GlobeScan that found of 30,000 consumers, 63% said that climate change is very serious. And that perception changed during the pandemic. Another survey by Google IPSOS showed that 54% of Brazilian consumers say they would opt for responsible products with social environmental impact if they have this option. There is a challenge, which is the price. Consumers are very price sensitive, so embedding the cost of these externalities is the next level of how to tackle the price challenge.

Lastly, investors are mainly driven by risk. Each day, investors are becoming more conscious, but we have different levels of consciousness around the world. In Europe, in the UK we see a higher level of consciousness than in Brazil. In Europe, for instance, we see investors much more driven already by creating and generating positive impact, while Latin American investors, particularly in Brazil, are more driven by negative screening or risk mitigation. 

But there is an important change. A recent survey by the Brazilian capital markets association (ANBIMA) said that 87% of fund managers in Brazil are more conscious about social and environmental issues because of the pandemic; 70% of them said social issues are the main problem while only 47% said climate issue is an issue. So there is still a challenge in terms of raising awareness that you can allocate your capital for the climate emergency. For these three drivers of change, the pandemic has created another level of impact and awareness.