ESG is the environmental, social, and governance implications of different businesses. Ecological sustainability refers to a company’s long-term effects on the environment. However, sustainability is an inclusive term that relates to a company’s long-term prospects.
Activist investors commonly use the two terms, but the recent increased focus on social and environmental responsibility has included them in the mainstream vocabulary.
Although people use ESG and sustainability conversely because they share a similar goal, they differ in some aspects. Take a look at the main difference between ESG and sustainability.
Main Differences Between ESG And Sustainability
What Is ESG
ESG is a broad term that incorporates the interests of investors and asset managers concerning environmental, social, and governance issues. Environmental issues include waste management, greenhouse gas emissions, and reliance on fossil fuels.
Social issues pay attention to a company’s impact on people, including customers, employees, and the community. Governance issues focus on leadership and structure, including board structure, executive compensation, and corporate policies.
What Is Sustainability
Sustainability is a broad term that encompasses the overall efforts of a company to design a long-term stakeholder value through a business system that can run forever. It applies beneficial changes in a company to operate indefinitely without causing problems that will have drawbacks.
How ESG And Sustainability Differ
Even for the government, contrasting ESG and sustainability can be a challenge. A recent rule by the SEC about enhanced requirements for ESG funds refused to define ESG and any related term.
A sustainable business wants to operate for as long as possible without destroying the environment. An ESG-centered company operates on a code for certain environmental, social, and governance issues.
The standards and metrics used are another key difference between ESG and sustainability. These frameworks depend on the standards set by investors, lawmakers, and reporting organizations. In summary, ESG frameworks focus on measuring hard-to-quantify and compare variables like employee satisfaction, while sustainability focuses on quantitative metrics like tons of carbon emitted.
A Difference Without A Distinction
One of the reasons why ESG and sustainability are used interchangeably is that they both try to achieve the same goals via different means. The contrast between the two terms is how different strategies are explored to accomplish the same goal of operating a business respecting social and eco-friendly issues.
From Sustainability To ESG
Modern sustainability became more popular between the 19th and 20th centuries, predating the newer ESG concept. In 2004, the UN collaborated with major financial institutions to design a framework that integrates environmental, social, and governance values in business operations and asset management. Time has made ESG a broader indication of a company’s ecological footprint and social performance beyond environmental sustainability.
Globally, ESG and sustainability remain crucial considerations for all types of companies. ESG focuses on unmeasurable metrics like employee satisfaction, while sustainability focuses on quantitative metrics like the amount of carbon emission in the air. As the world transitions to uniform regulations and reporting standards, businesses and investors must be empowered to make decisions that build a sustainable society.