Sustainability has become a buzzword over the last decade. It is defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Over the years, the concept of sustainability has evolved into a broader definition that encompasses environmental, economic, and social issues.
ESG in full is environmental and social governance. It is the concept of creating a positive impact on society and the environment over time. Therefore, companies should consider their social and environmental impacts rather than solely focusing on financial returns. In addition, they should focus on other aspects, like corporate governance, social responsibility, and the result of their actions on their stakeholders, such as employees, customers, and suppliers.
Although ESG is encompassed in sustainability, the two terms are different. ESG is a corporate governance framework that helps companies adopt principles to measure, report and improve their social, governance, and environmental business aspects, besides financial considerations. Here’s the difference between sustainability and ESG.
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Relevant Stakeholders
The difference between sustainability and ESG is the stakeholders each is involved with. Sustainability is concerned with the company’s relationship with the environment. It seeks to measure a company’s impact on the environment from its operations. Every company should strive to positively impact the environment by planting trees and reducing harmful activities like pollution.
ESG is concerned with the company’s identity, stakeholders, and decisions. It seeks to determine the relationship between the company’s leadership, employees, shareholders, and other stakeholders.
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Different Frameworks
Sustainability is more of an internal capital investments framework. For instance, it covers installing energy-efficient measures like LED bulbs or electrification. On the other hand, ESG is a framework that helps investors audit a company’s operations, risks, and performance before deciding to invest.
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Varying Standards
Varying standards are another difference between sustainability and ESG. Sustainability standards are more standardized and science-based. For instance, a company that emits carbon doesn’t need to overthink the sustainability standards since the impact of carbon on the environment is well known.
Investors create ESG standards, lawmakers, and ESG reporting organizations like MSCI. These bodies lay down specific guidelines to help a company operate accordingly and in the best interest of society and the environment.
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Different Focus Areas
The significant difference between sustainability and ESG is the difference in their focus areas. Sustainability focuses on the company’s impact on the world, while ESG focuses on how the world impacts a company.
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Risk Involved
A company can provide sustainability by working in a zero-waste, carbon-free company with renewable power capabilities. However, if the work premise is a dangerous place to work in terms of safety and health, the company isn’t meeting its ESG goals as efficiently as it is meeting its sustainability goals. So, sustainability on paper doesn’t necessarily reflect successful ESG obligations.
Conclusion
Since ESG and sustainability are essential aspects of every company, executive teams, modern companies, and investors should give them equal consideration without necessarily overlapping. Therefore, the difference between sustainability and ESG is the approach a company uses, what it prioritizes, and how it measures the performance of its ESG initiatives and sustainability programs.