Gerdau, a Brazil-based steel corporation with more than 28,000 workers, looks to build on its leadership as one of the largest recyclers in North and Latin America by embracing or expanding other purpose-minded business practices. It formalized this commitment in 2019 when it joined five other large multinational companies with at least $1 billion in annual revenue for the B Movement Builders coalition to advance a more sustainable and resilient business model.
Paulo Boneff, Global Head of Social Responsibility at Gerdau, says the decision to become part of the coalition, in partnership with B Lab and Sistema B, reflects the 120-year-old company’s commitment to systems change and practices that consider stakeholders rather than only shareholders. That commitment has roots in Gerdau’s founding as a family-owned business that in 2018 had a governance change and named Gustavo Werneck as its new CEO, while three Gerdau family members continue to serve on its board.
Boneff points to Gerdau’s reliance on scrap metal — used in 73% of its operations — as an indicator of its interest in environmental, social, and governance (ESG) factors. As part of my research on purpose-driven business, he recently spoke with me about Gerdau’s role as a B Movement Builders and its vision to help create a more sustainable future by scaling positive impact through its supply chain and other stakeholders. Excerpts from our conversation follow.
Chris Marquis: How did Gerdau come to adopt a model that incorporates recycled steel in its manufacturing?
Paulo Boneff: We are a big recycler, and have been for more than 50 years when we bought our first Brazilian steel mill in the ’60s. Since then we’ve been using scrap for most of our locations, which is one element of our sustainability strategy. Another is water. A long time ago, we’ve understood the importance of the water supply in the rivers close to us that are vital for our communities.
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Other element that is connected to the circular economy is the byproducts generated in our industrial process. We invest in R&D to find applications to our byproducts, transforming them in to raw materials to other industries, like concrete and cement. We understood the connection among social, environmental and the economic. It’s not new for our company.
When we started to focus more on steel production in the 1960s, our leader at that time said that our engagement with the scrap suppliers was central to the business. He build strong relationships with these suppliers and, in my opinion, this is the biggest impact that Gerdau has on the society, the legacy that we deliver, is the amount of scrap that we transform in new steel, every year, we are talking about 11 million tons in 2020.
Marquis: How does Gerdau actually get that scrap, and how does the market vary in different countries?
Boneff: While in North America there is a more formal recycling system, in Latin American there is an important part of the chain that is informal. You usually have waste pickers in the streets that sells or work with small businesses or get together with others to create a recycling cooperative. Waste pickers are the first level, they will collect the metal and then pass it through some middleman that is a formal (small business or cooperative). In our case, we need a formal document (e.g. receipt) to buy the materials, which only formal business can provide. But for the waste pickers and the informal business (e.g. cooperatives), we saw that we could help empower through projects for the development, training and business formalization, so they can sell directly, removing the middleman from the operation and receiving more for the material.
A large part of our scrap comes from industry as waste, other part comes from small and medium business and cooperatives, the amount of scrap is not the same but it’s a large number of suppliers. They supply us with items in the end of their life cycle like old cars, refrigerators and electric appliances.
The use of scrap helps us reduce our carbon emissions. In 2020, Gerdau emitted half of the global average of CO2 in the steel industry because of our production uses recycling of ferrous scrap as the main raw material and the use of charcoal from planted forests. In 2020, we totaled 0.93 tCO2e/t of steel produced, against the global average of 1.83 tCO2e/t steel produced, according to the World Steel Association.
Marquis: What are some other ways that Gerdau mitigates the environmental impacts of steel production, including the use of coal?
Boneff: Our locations that operate only with scrap use energy from the grid, in Brazil, most of the energy comes from renewable sources. In the U.S., some of the available energy is non-renewable, but we’ve been working to increase the percentage of renewable energy. Last year we started to build a solar farm at our biggest location in Texas, to support our strategy. We also plan to build a new solar farm in Brazil in the coming years, in partnership with energy firm Shell, as part of a long-term strategy defined by out new business arm, named Gerdau Next.
For primary steel mills, which we also have, there is a process of using coal to produce pig iron (intermediary product for steel). This is one of the main challenges in the steel industry. The sector is investing a lot in research and development to shift from coal to renewable sources like hydrogen or other disruptive technology, but these initiatives are still under development.
Marquis: Thinking about your partners and suppliers, how do you assess their sustainability and social responsibility?
Boneff: Considering the complexity of our supply chain, we have five areas related to suppliers and each one of then with process and initiatives. For example, with logistics our focus is on transportation. It’s not just about safety in the roads, but also about one issue that is unfortunately common in Brazil, that is exploitation of children for sex abuse on the highways. We’ve offered training and been part of this national program, for more than 15 years, to raise awareness of the issue among truck drivers.
Another area of focus is energy, this is something we have advanced more this year. In the next open call for buying energy, we will demand that the supplier of the energy have some percentage of the profits invested in social and environmental development. So adding to the clean energy factor, we are demanding that the generator of the energy has some positive social or environmental impact.
For procurement, we have a program supporting small and medium-size businesses in management skills, so we can work with local supplier. In Brazil, we prioritize suppliers within 100 kilometers from our location, empowering local businesses and generating local impact.
We’re also working with suppliers on diversity and inclusion, the Inspire project. We invited our suppliers to sign a commitment letter pledging to create a diversity & inclusion process in their companies. This is an action that I really believe, because when we talk about the responsibility of big companies, I believe engaging the value chain is the key element — that’s how we scale up the impact.
Marquis: Why did Gerdau decide to be one of the first corporations in the B Movement Builders program?
Boneff: We are a multinational company, so it’s a huge commitment to make changes and adjust processes, improving the way we relate with our employees, communities, suppliers, and clients, in many countries with different cultures. When we created our new purpose in 2018 — empowering people who build the future — we decided that we needed to deliver a clear legacy to society, otherwise there is no true meaning to our existence.
Through the B Movement Builders and our work with B Corps, we’ve encountered some really good questions. One of them is, “If your company doesn’t exist, is that better or worse for the planet?” For me, this is a very powerful question. Another statement connected with B Corps values is the phrase: “to be the best company for the planet, not the best company on the planet.”
When we accepted to be part of the B Movement Builders journey in 2019, we understood that we needed to support and engage more large companies to follow this journey, that is how we can really scale up the impact and move faster to address the global challenges, like climate change and social inequality.
It’s an honor for us to learn and to share the journey with the other B Movement Builders companies, also to understand our responsibility looking outside the company to engage other organizations.
We started to engage the financial sector to raise awareness about it in our meetings with investors and financial institutions in some markets where we are traded – New York and Sao Paolo. We have an investors presentation, led by the investor relations department, with some slides talking about ESG and the B Corp journey. This is the kind of change we believe we can help bring — to investors, to the financial sector.
Marquis: How is Gerdau engaging with the BIA and other elements of the B Movement Builders program? And what are the company’s plans to work toward B Corp Certification or adopt benefit corporation governance?
Boneff: The B Impact Assessment (BIA) and the journey toward B Corp Certification are parallel to the B Movement Builders engagement. Our ultimate goal is not to receive a certification; our main goal is to increase the company sustainability standards. That is the finish line for us, so the BIA is showing us the topics and the processes that we need to raise the bar and improve. We’re using the B Corp standards as a path to become a better company.
Our commitment is to gain B Corp Certification for the whole Gerdau group in 2025. It will come in waves, considering our governance structure, as we’re currently operating many business divisions in many countries. This also has been a learning process for B Lab, because of the complexity of a multinational organization. This process will generate a great learning for all.
As for legal structure, we have two options: adding B Corp commitment in the bylaws or changing the company to be a benefit corporation. We chose the first option. If the support of our legal team, we will work on this direction. In addition, the new companies that we are creating, will start already with this commitment in the bylaws.
I’ve been talking with people at other B Corps in Brazil, learning and sharing our believes. Sometimes people create expectations that when you start this journey, with this public commitment, you become a foolproof organization. We want the society to know that we are formed by people who are working together and learning everyday. It’s a learning journey for us, and we are doing our best. We are changing what we believe it’s important to change, we are improving processes that we understand are important to improve. But unfortunately, mistakes can happen in the future, if they happen, we will admit, we will learn with that and we keep our journey. It’s an expectation alignment that I believe it’s important when we talk about becoming a B Corp.