In the complex landscape of corporate decision-making, understanding the differences between ESG and sustainability is crucial, writes Dan Byrne
Corporate decision-making today involves a lot of talk about the environment, social and governance (ESG) and sustainability – precisely, how your company will fit into both movements. No one wants to discover they don’t know the difference between the two in the middle of a board meeting.
While the two ideas share a lot of overlapping principles, they are different. It is essential to understand these difference because, once you sit down with colleagues to oversee core strategic decisions, you must have robust knowledge about the relevant topics.
The difference between ESG and sustainability
Sustainability is a principle dictating that, while we must look after the needs of our current society, it cannot be to the detriment of future generations. The concept of sustainability is so broad that it inevitably means different things in different boardrooms.
The common thread in most organisations is that sustainability principles guide stakeholder expectations and, as a result, company strategy.
ESG isn’t a principle; it’s a framework for measuring specific impacts and risks. It is a tool that can help investors and stakeholders to understand where their money is going.
Why the confusion?
There is a lot of overlap between ESG and sustainability, so organisations often file them under the same heading.
In practice, companies embracing ESG will often commit to not harming the planet (environment), its people (social) or themselves (governance).
While this should always be approached with the understanding that ESG is an investment metric and tool for analysing risk, it can be easy to generalise to the point that ESG is instead viewed as a sustainability metric or simply another name for sustainability itself.
This is particularly true when companies focus on the “E” part of ESG. It’s popular across multiple industries and wins the backing of key stakeholder groups. An organisation’s focus on the environment creates a natural overlap with sustainability activities.
Avoiding confusion in the future
If you are in a board meeting and find yourself hovering around both topics, be sure not to hint that they’re the same with these tips:
- Remember that ESG is a collection of metrics; sustainability is a principle;
- If you’re talking about ESG, you will likely end up talking about numbers, quantities, reporting and investment opportunities. If you’re talking about sustainability, it’s expected more in the context of organisational goals, culture and policies; and
- Sustainability, in many respects, is the end goal. ESG is a pathway and a framework that will allow you to get there.
Dan Byrne is a writer with the Corporate Governance Institute
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