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What is the difference between ESG & Sustainability?

Updated: Mar 13, 2023

What is the difference between ESG & Sustainability?

I am often asked what is the difference between Sustainability and ESG? I am sure if you asked a dozen experts you would get a vast range of different opinions and the lines are very much blurred.

ESG (Environmental, Social, and Governance) refers to a set of criteria that are used to evaluate the sustainability and ethical impact of a company or investment. ESG factors may include things like a company's carbon footprint, labour practices, diversity policies, executive compensation, and more. ESG is often used by investors to assess the risk and potential return of an investment, as well as to identify companies that align with their values and goals.

Sustainability, on the other hand, refers to the broader concept and was first defined in 1987 in the United Nations Bruntland Commission report as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”. 25 years on sustainability has developed and encompasses environmental, social, and economic factors, and is concerned with creating a world that is healthy, equitable, and resilient over the long term. The Sustainable Development Goals are a good example of where the thinking around sustainability has expanded and looks more at a global interconnected system. While ESG is one way to assess a company's sustainability performance, sustainability can be a much broader concept that extends beyond the financial bottom line and considers the impact of our actions on people, the planet, and prosperity.

In my mind you need to consider both ESG and Sustainability. For example, if you need access to any serious amounts future capital you will need to have a good ESG ranking, or you may find your cost of capital being more expensive. You won’t be able to get a good ESG ranking if you do not have a credible sustainability program that includes for example emission reduction targets in line with science that are externally validated. Essentially ESG is a framework that helps stakeholders understand how an organisation manages risk and opportunities around sustainability issues. You must consider both.

ESG can be a confusing world full or acronyms, jargon and there is a lot to navigate. The best advice I can give is to stay curious and across the areas that matter the most to your business. Think about you wider stakeholders and think about what their needs and future trends may be. With this information you may unlock some clues as to what your future areas you should work on. In the end it is all about minimising your impact on the planet, keep your social licence to operate, looking after people and wider society whilst also having a credible governance and disclosure.

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