There is growing pressure and awareness of the need for businesses to adopt ESG practices. However, there is still some confusion about what ESG entails and how it differs from other sustainability or business frameworks like EHS. In this article, we will break down what EHS and ESG are, how they relate to each other, how they are different, the importance of ESG, and how to best integrate ESG into your organization.
What Is EHS?
EHS stands for Environment, Health, and Safety. This term encompasses a range of laws, regulations, programs, professions, and workplace initiatives meant to ensure the health and safety of employees and the public, while also protecting the environment from business-related hazards.
The Environment aspect of EHS involves complying with environmental regulations related to matters like:
- Carbon emissions
- Ambient air quality
- Energy conservation
- Ambient water quality
- Water conservation
- Waste management
- Noise pollution
- Contaminated land
- And more
The Health element of EHS concerns itself with preventing harm to people through the development of procedures, best practices, and monitoring activities that are safe and environmentally friendly. It can include topics like:
- Community water quality and availability
- Disease prevention
- Hazardous materials management
- And more
The Safety component of EHS focuses on identifying workplace hazards and reducing accidents and exposure to harmful situations and substances by creating organized efforts and procedures. This can include:
- Employee training
- Accident prevention and response
- Emergency readiness
- Proper use of protective clothing and equipment
- Fire safety
- Traffic safety
- General facility design and operation
- And more
What Is ESG?
ESG stands for Environmental, Social, and Governance. ESG is a methodology that helps corporations measure and report on their impact through three lenses.
The E or Environmental aspect of ESG covers the environmental impacts related to an organization’s operations including concerns like:
- Climate change
- Energy consumption
- Water stewardship
- Waste management
- Air quality
- And more
The S or Social element of ESG involves the impacts of a business on people including topics such as:
- Gender inclusivity
- Hiring practices
- Customer satisfaction
- Data protection
- Human rights
- Labor standards
- And more
The G or Governance component of ESG concerns itself with how an organization is being run including matters like:
- Board composition and membership selection
- Executive compensation
- Shareholder rights
- Accounting and auditing procedures
- Ethics, bribery, and corruption policies
- Political contributions
- And more
How are ESG and EHS Related?
As you can see above, ESG and EHS can overlap in some areas, particularly on the ‘E’ or environmental aspects. Here are a few key ways ESG and EHS are broadly related:
- They both deal with the effect of business activities on the environment and society.
- They both help businesses in identifying, mitigating, and managing risks in their operations.
- They both provide guidance on best practices for a business’s operations.
Both ESG and EHS are important for companies to consider in order to operate sustainably and responsibly.
What’s the Difference Between ESG and EHS?
Despite having some similarities, ESG and EHS are fundamentally different. ESG encompasses a broader range of sustainability topics and issues than EHS, which is primarily focused on compliance with environmental and employee health and safety regulations. ESG and EHS can be further differentiated by their respective intents, scopes, and impacts.
An EHS program’s primary focus is protecting the environment and maintaining health and safety at the workplace. It is driven by compliance with existing regulations like the US Environment Protection Agency’s (EPA) Clean Air Act and Clean Water Act, the US Occupational Safety and Health Administration’s (OSHA) Occupational Safety and Health (OSH) Act, Canada Labour Code’s Occupational Health and Safety Regulations, the European Framework Directive on Safety and Health at Work, and more.
An ESG program focuses on reducing the impacts of a business on a broader range of topics. It’s a financial concept that ultimately is intended to protect investors, drive better business evaluations, and quantify sustainability impacts. ESG was originally pushed by investors and stakeholder groups, but more governments around the world are proposing disclosure regulations on ESG performance like the U.S. SEC’s proposed climate disclosure rules, Canada’s proposed climate disclosures for Federally Regulated Institutions, and the EU’s Corporate Sustainability Reporting Directive (CSRD).
While both concepts address the environment, ESG’s reach is more expansive than EHS, going beyond a company’s workplace or local community.
This distinction is important because it means that ESG considerations can have a much broader impact on a company’s operations and bottom line. In recent years, investors have become increasingly interested in ESG factors as a way to assess a company’s long-term prospects, which has led to a growing demand for sustainability data and more involved reporting.
EHS is still important for businesses, especially for their employees and the communities in which they operate. It can be a component of a more comprehensive ESG program but ESG’s scope is more than most EHS programs typically cover. Topics like Diversity, Equity, and Inclusion (DEI), corporate philanthropy, board composition and compensation, hiring practices, and more can fall under ESG’s scope but not EHS.
Another way in which ESG and EHS differentiate from each other is the impacts of each program for an organization and its stakeholders. EHS focuses on the immediate health and safety concerns of a company’s employees and workplace as well as its direct impacts on the environment like pollution and waste.
ESG focuses on a broader range of impacts which overlap with EHS like tracking greenhouse gas (GHG) emissions but goes further to evaluate an organization’s impacts on areas like materials lifecycles, water usage and reuse, economic impacts on communities, community relations, ethical guidelines for employees, and much more.
Importance of ESG in Today’s World
More businesses, governments, investors, employees, and consumers are recognizing the value ESG offers and embracing it to help do their part for a more sustainable and socially responsible world. Here are a few reasons why it is so important in today’s world.
Address the Climate Crisis
As we experience the intensifying effects of climate change—extreme weather events, loss of biodiversity, water scarcity—more governments, investors, businesses, and individuals are recognizing the role ESG can play in helping reverse or prevent the worst of these global impacts. Under the ‘E’, ESG reporting provides a means by which businesses can start to track and reduce their carbon emissions to address the climate crisis and create positive change.
ESG is also used to manage risk, considering environmental factors and beyond to the ‘S’ and ‘G’. A strong ESG program can help organizations identify vulnerabilities and minimize a company’s exposure to different types of risks including:
- Transition Risks are risks related to the transition to a lower-carbon economy such as increased emissions reporting requirements, stakeholder concern, and exposure to lawsuits.
- Physical Risks are those related to the physical impacts of climate change as the frequency and severity of extreme weather events increase and sea levels rise.
- Supply Chain Risks are risks connected to your procurement and suppliers such as human rights and labor standards.
Organizations can leverage ESG reporting to predict and prepare for these risks, in addition to identifying opportunities for improvement. This ultimately helps leaders to future-proof and create more sustainable businesses by reducing environmental impacts, protecting workforces, and more.
Appeal to Investors
A comprehensive ESG reporting program shows potential investors that your company is committed to environmental responsibility, an equitable workplace, and transparent decision-making from the top down.
These and other ESG factors are attractive to investors because they help to identify companies that are well-managed and have a long-term focus on sustainability. Companies that prioritize ESG factors are more likely to have a positive impact on society and the environment, which can lead to better financial performance over the long term. Additionally, investors are increasingly interested in aligning their investments with their values and beliefs, and ESG provides a way to do this.
Organizations that utilize ESG are also more appealing to other stakeholder groups like employees and potential employees because it conveys a company’s commitment to making a positive impact on the world. When employees feel that their company is aligned with their values and making a difference, they feel more engaged, purpose-driven, and motivated in their work. Additionally, companies with strong ESG practices may be more likely to attract and retain top talent.
ESG is also attractive to communities at large because it promotes sustainable and ethical business practices that benefit both the environment and society. Companies that prioritize ESG factors tend to have better long-term financial performance, which can lead to increased job security and economic growth in the surrounding community. Additionally, ESG practices can improve the overall quality of life in the community by reducing pollution, promoting diversity and inclusion, and supporting responsible governance.
How To Integrate ESG Into Your Organization
Integrating ESG into your organizational strategy can be a great way to ensure that your company is taking a comprehensive and structured approach to sustainability.
Where To Start
The first step to integrating ESG into your organization involves identifying reporting requirements from relevant ESG frameworks and mandatory disclosures.
ESG frameworks and standards, like CDP, TCFD, or SASB, provide businesses with guidance on what to include in their ESG and sustainability reports. Utilizing the right frameworks and standards for your industry helps to take the guesswork out of your reporting and can help ensure your sustainability program is as comprehensive as possible.
Conducting an ESG materiality assessment also provides a strong starting point for organizations as it helps to determine which ESG topics or factors their stakeholders value most and are most relevant to their business.
Data Collection & Strategy
The next step to starting an ESG reporting program is to understand and identify where supporting ESG data resides within your organization, including people, systems, and offline sources.
To make this easier you can leverage a technology solution like the FigBytes Sustainability Platform, a comprehensive software that transforms complex ESG information into simple reporting and actionable insights by capturing data in a central, secure, cloud-based platform.
Finally, you’ll want to use the data, reporting framework guidance, and materiality assessment results to develop an ESG strategy aligned with both corporate and sustainability goals. This will ensure your new ESG program will meet reporting requirements as well as address material issues and stakeholder concerns.
Taking these steps to integrate ESG into your organization can help you identify and manage potential risks and opportunities related to sustainability issues, improve your reputation and brand value, attract and retain customers and employees who value sustainability, and enhance your long-term financial performance. By taking a comprehensive and structured approach to sustainability, your company can become more resilient and better positioned to thrive in a rapidly changing business environment.
If you’re just getting started building an ESG program, or if your company is looking for an easier way to streamline ESG or sustainability reporting, connect with a FigBytes advisor today to see how the FigBytes Sustainability Platform can transform your complex data into simple reporting and actionable insights.