What is the Difference Between ESG and Sustainability?

ESG is a contemporary buzzword that revolves around the Environmental, Social, and Governance sectors. ESG has an undertone of sustainability, however, the sustainable essence of ESG is limited to business operations, eco-consciousness, responsible investing, long-term sustainable profits and its related humanitarian factors.

What is Sustainability?

Sustainability is about having a long-term visualization regarding the usage of present-day resources. It is concerned about the well-being, social equity and economic prosperity of the future generation and therefore averts the over-usage of resources. 

The Sustainable way of life is holistic. It also builds the notion of interconnectedness and accountability towards the future. Globally, humans are connected by this common cause of sustenance. This urge for continuous improvement to live up to the future in turn gives rise to innovative practices, technologies, and policies.

What is ESG (Environmental, Social, and Governance)?

A company’s performance is measured beyond its financial metrics using the ESG metric. ESG comprises three sectors of evaluation namely:

Environmental

It evaluates the environmental impact that the company’s business operations bring. The performance is measured regarding the company’s sustainable environmental consideration and strategic implementation. The metrics include the company’s carbon footprint, energy consumption, waste management, and the extended usage of natural resources.

Social 

It screens the company’s attitude towards the stakeholders involved such as the employees, customers, communities, and suppliers. The social considerations that are evaluated are labour practices, gender/race/disability diversity and inclusion, human rights, community engagement, etc.

Governance

It mainly focuses on a company’s internal operations like its directorial core. To be ranked well, a company needs to positively impact factors like board diversity, executive compensation, transparency, ethics, anti-corruption, and risk management

ESG Disclosure

It is now a standard expectation towards the companies by the global regulatory bodies, to disclose information regarding their ESG practices. This transparency is required on a global scale to make informed decisions which affect people beyond the stakeholders involved. 

This annual disclosure is a regulatory requirement which helps to understand a company’s —

1.  Legibility and material considerations
2.  Indicative ESG metrics
3.  Voluntary and CSR initiatives 
4.  Third-party assurance, goodwill, credibility and trustworthiness
5. Stakeholder engagement.

What Is the Difference Between Sustainability and ESG?

Understanding the Key Terms of ESG

ESG = An ensemble of Environmental, Social and Governance aspects to evaluate a company’s performance based on its sustainable intent, beyond its revenue turnover.

Let’s break it down.

1. Eco-Friendly Business (Environmental)

This overlooks the discrepancies and potential greenwashing tendencies of companies and holistically establishes an eco-conscious working culture and business operational structure to keep the planet liveable for the long run. 

2. Socially Conscious Connections (Social)

Responsible business practices involve the best interests of its stakeholders. Thus, humanitarian standards like fair wages, diversity, indiscrimination, and fair labour practices should be taken care of.

3. The Ones Who Rule Justly (Governance)

Governance is more about coordination, fair representation and inclusive leadership. Ethics in the workforce should be primary and the board of directors must govern the company with a humane approach.

Understanding the Key Terms of Sustainability

1. The 3 Rs: Reduce, Reuse, Recycle.
2.  Carbon Footprint: The metric to understand the amount of GHG emission.
3.  Carbon Credit: A permit to allow a company to emit a restricted amount of carbon fumes.
4.  Net Zero: The balance between the GHG emission and removal.
5.  Governance Goals: SDGs Sustainable Development Goals to ensure that society is adopting sustainable practices.
6.  Profit with Purpose: Building products and business practices with an eco-friendly intent. This ensures balanced economic growth with environmental and social responsibility.

Heal the World: There are no climate superheroes. Protecting the planet is a daily choice, rather than a responsible one. The government, society and its people must tend to conserve resources, reduce pollution, and protect biodiversity.

How Procurement Can Spearhead ESG Improvements

Procurement (Supply Chain) is the make-or-break factor of  ESG objectives within an organization. Here is a checklist to make things right —

1.  Selecting the supplier who aligns with ESG principles.
2.  Assessing the supplier’s ESG performance.
3.  Collaborate with the best supplier for ESG improvements like waste reduction, saving resources, bettering labour conditions, etc.
4.  Supply chain transparency is a must.
5.  Identify and mitigate risks timely within the supply chain.
6.  Through collaborating, the supplier and the company can co-create, research and innovative sustainable solutions.
7.  Suppliers should be given periodic training to continuously enhance their performance capacity which will result in better KPIs.

The Governance Perspective

Unlike the Environmental and Social, Governance is quite rigid structure as it makes up for the required flexibility in the former two ESG sectors.

It is critical to have strong corporate structures to ensure accountability, transparency, and ethical behavior within any company. A fair and just governance body fosters trust among stakeholders, and makes sure the company averts any knee-jerks, thereby making the relationships sustainable.

Conclusion

Sustainability and ESG are inseparable as both have the ‘Human’ as its core intent. These holistic fields try to ensure a better future for human society by balancing economic, environmental, and social considerations. ESG is a part of the whole; the whole being sustainability.

FAQs on Difference Between ESG and Sustainability?

What is the relationship between ESG and sustainability?

Sustainability is a wide and far-sighted approach to ensure the responsible use of resources so that future generations can use them too. Whereas ESG is a non-financial reporting framework that ensures sustainable practice in the corporate world. 

What are ESG criteria for sustainability?

There are several measures, some are —

1.  Carbon emissions
2.  Labor practices
3.  Diversity
4.  Operational Transparency

What is the ESG strategy of sustainability?

An ESG strategy integrates such considerations into business operations and decision-making processes. For example —

1. Enhancing structure and accountability.
2. Teaching the importance of ESG at schools and corporate training sessions.
3. Setting sustainable development goals.

What is the role of ESG in sustainable development?

ESG considerations like —

1. Encouraging businesses to adopt ESG principles. 
2. Promoting business ethics and humanitarian responsibilities.
3. Creating value (beyond money) for all stakeholders.

Partham Barot is an ACCA-certified professional. showcasing his expertise in finance and accountancy. he’s revolutionising education by focusing on practical, real-world skills. Partham’s achievements underscore his commitment to elevating educational standards and empowering the next generation of professionals.