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ESG vs. Sustainability: What’s the Difference?

FigBytes

Businesses have been talking about being environmentally friendly or going green for what feels like forever. Millennial business owners probably don’t remember a time before the mantra “reduce, reuse, recycle” was stamped into their consciousness. And even older generations can easily call to mind industrial spills and disasters that left a permanent mark on communities and the natural environment.

Believe it or not, the idea of reducing pollution in business goes back to the Victorian era. As the industrial world established itself, a new focus emerged to make workplaces safer for workers. 

These days, making sure employees aren’t exposed to hazardous materials and toxic chemicals aren’t released into nearby soil and watercourses isn’t even the minimum businesses need to do. From measuring the greenhouse gasses in their supply chain, to reporting on the success of environmental initiatives to investors, sustainable businesses today have to go far beyond reduce, reuse, recycle.

In fact, we’ve moved to a point where sustainability is no longer simply a trend. Rather, sustainability has become an imperative for business adaptability and growth. It’s become comprehensive in scope, and, in many cases, it’s expected to be ingrained in a company’s DNA and measured using detailed metrics.

Formalized methodologies like Environmental Social and Governance (ESG) help businesses standardize their approach to sustainability. While “ESG” and “sustainability” are often used synonymously, they aren’t the same thing. Companies who want to truly be at the forefront of responsible operations need to consider the many aspects of ESG and have a structured way to approach it.

What is Sustainability?

The term “sustainability” gets a lot of air time in the business community. You can see it referenced in mission statements and on “About Us” pages on company websites. There may be a sustainability committee at the office and voluntary sustainability reporting shared with the public.

Depending on the company and their operations, activities that fall under the sustainability umbrella could include:

  • GHG accounting
  • Waste auditing
  • Buying energy efficient office equipment
  • Going paperless
  • Offering paid volunteer days
  • Retaining a diversity, equity and inclusion (DEI) consultant to evaluate company practices
  • Hosting a community stream or highway clean up

Sustainability programs let companies get creative and find opportunities and activities that are a good fit for them and their employees. Some may take the opportunity to quantify targets and measure progress, while others will choose new initiatives every year.

What is ESG?

Environmental Social and Governance (ESG) is a methodology that helps corporations measure and report on their impact through three lenses. 

The Environmental heading includes:

  • Energy consumption
  • Water stewardship
  • Waste management
  • Air quality
  • Climate change
  • Biodiversity
  • Deforestation

The Social component includes:

  • Gender inclusivity
  • Diversity
  • Hiring practices
  • Customer satisfaction
  • Data protection
  • Human rights
  • Labor standards 

And Governance reporting includes:

  • Board composition and membership selection
  • Executive compensation
  • Shareholder rights
  • Accounting and auditing procedures
  • Ethics, bribery and corruption policies
  • Lobbying and political contributions

Businesses who complete ESG reporting may comply with internationally recognized standards and frameworks like CDP in order for communities, customers, investors, and other shareholders to accurately compare metrics and progress from one reporting organization to the next.

What is the Difference Between Sustainability and ESG?

At first glance, ESG and sustainability may seem synonymous, and there can certainly be some overlap in what these two concepts encompass. You may even hear them used in a combined term like “ESG Sustainability”. Both aim to improve a corporation’s impacts on the community at large and the world in general. 

In business settings, sustainability is a set of voluntary initiatives that may or may not have quantitative outcomes. ESG, on the other hand, should be a formalized program with published methodologies and requirements. It’s an evolution of sustainability. When done well, ESG efforts can reduce an organization’s ecological footprint, improve creativity and workflows, and unearth new market opportunities, all while reducing risk and building resiliency.

Any efforts made toward improving sustainability are admirable, but without a published framework to follow, a voluntary sustainability program can make it easy to reach for low-hanging fruit and quantify progress in any way that shows the organization in a positive light, while ignoring metrics that don’t.

By comparison, companies who implement an ESG program are more closely following a formalized approach. One of the key goals of ESG is to create consistent reporting so that stakeholders like investors and customers are able to compare impacts and results across companies. Accurate ESG reporting helps potential and existing investors better evaluate opportunities, efficiency, and risks.

What is SRI and Impact Investing?

These days, investment isn’t just about the bottom line. Increased transparency means investors can be more confident in their decisions around previously unmeasured issues – such as treatment of employees, the manufacturing of pollutants, supply chain factors, and other risk factors.

ESG can make up a critical component of Socially Responsible Investing (SRI) and impact investing. SRI goes beyond ESG to actively choose or eliminate investment opportunities based on specific values. The criteria for these choices will vary from investor to investor and could include considerations like religious beliefs or an ethical view on issues like firearms production, terrorism affiliations, or natural resource consumption.

SRI is ultimately a framework to make a go/no-go decision on investing. SRI functions in a more black and white mindset, where a company is either worth investing in or not, while ESG examines the nuances of running a business in a global marketplace.

Yet, ESG can be one of the building blocks to making SRI decisions. By reporting on factors like water stewardship, deforestation, child labor, and corporate ethics, the details in an ESG report can be used by all investors to make more informed choices. 

This documentation can be crucial for businesses looking to grow. A corporation that does not have a formally documented ESG program may find it difficult to make their case to socially responsible investors.

Why Do the UN SDGs Matter for ESG?

The United Nations Sustainable Development Goals were adopted in 2015. They include 17 goals for ending worldwide poverty and promoting peace by 2030. The SDGs are voluntary targets but multiple facets of society, including governments, corporations and non-profit organizations, are working toward achieving them.

The 17 SDGs fall under the following headings:

  • No poverty
  • Zero hunger
  • Good health and wellbeing
  • Quality education
  • Gender equality
  • Clean water and sanitation
  • Affordable and clean energy
  • Decent work and economic growth
  • Industry, innovation, and infrastructure
  • Reduced inequalities
  • Sustainable cities and communities
  • Responsible consumption and production
  • Climate action
  • Life below water
  • Life on land
  • Peace, justice & strong institutions
  • Partnerships for the goals

There’s clearly a lot of overlap between the SDGs and ESG. Elements like clean water and energy, decent work, climate action, and sustainable cities mean that companies working to help achieve the SDGs need some way of quantifying their impacts and documenting their accomplishments.

Since the SDGs are voluntary and meant to be adopted around the world and by businesses, governments, and individuals, the means for achieving them will vary everywhere. The SDGs are what is going to be achieved. ESG is how it will be accomplished. Using ESG programs helps corporations document progress and be confident that they are on track to achieve these goals.

The Shift from Sustainability to ESG

For an increasing number of businesses, a claim of sustainability is no longer enough. It makes a great website headline, but with so many sustainability initiatives being more qualitative than quantitative, it’s hard to move beyond the feel-good aspect.

ESG formalizes sustainability reporting and incorporates other important aspects of business operations to provide a comprehensive and consistent set of metrics to investors and shareholders. With so much focus on transparency, corporations need to move beyond the classic idea of sustainability and instead be able to present verifiable data.

How Can Sustainability Software Help?

Many businesses may be aware of, or might even be using, sustainability software platforms that help with tasks like carbon accounting. But just as ESG helps quantify measures of sustainability, more and more corporations need software solutions that extend beyond basic carbon emissions reporting.

ESG and sustainable development goals need to have meaningful data behind them, and compiling that data can be complex and time consuming. Businesses need to pull information from multiple locations and departments to compile reports on ESG frameworks and standards. And those reports need to be easily updated from year to year, and accessible in different formats to share with employees, leadership and investors.

FigBytes is a comprehensive ESG and sustainability software solution that provides companies with a centralized reporting platform. It not only uses published methodologies to estimate carbon emissions throughout a company’s operations and up and down the supply chain, it also offers a number of ESG-compatible features including:

  • Integration with internet of things and APIs to existing systems to facilitate data collection
  • Pre-programed frameworks to comply with ESG standards like GRI, CDP and SASB
  • Custom KPI dashboards
  • Integrated scorecards
  • Interactive microsites to share with employees and the public

FigBytes offers solutions for ESG reporting including financed emissions, water stewardship and diversity, equity and inclusion. It provides data and reporting in a way that can be used and understood by investors to make confident and impactful choices.

If you’re looking to go beyond sustainability and formalize your ESG reporting program, FigBytes can start you off on the right foot. Learn more by visiting our platform page.

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