Is it ESG sustainability or ESG and sustainability? The two terms often get thrown around together, but are they interchangeable?
It’s true that there are definite similarities. Both terms are used to convey a corporate commitment to a better, more environmentally friendly world. Beyond that, though, there are distinct differences. And organizations should know how to use the terms properly to set clear messages and quantifiable goals for the future.
ESG vs. Sustainability: What’s the difference?
In the past, sustainability initiatives largely fell under an organization’s Corporate Social Responsibility (CSR) program. Execution of “sustainability” or “green” initiatives were frequently passed around the organization like a game of hot potato, often landing in the lap of marketing as a branding exercise.
Sustainability spurs ideas of “doing good.” Though many organizations used it to springboard changes to lower their carbon footprint and conserve energy and resources, these changes were mostly internally focused – e.g., encouraging recycling, celebrating Earth Day, or installing LED lights. While these efforts have merit, they tend to fall into the check-the-box category rather than initiating real operational change.
ESG adds teeth to sustainability efforts. ESG sustainability is guided by standards, metrics, and frameworks (GRI, SASB, CDP, etc.). There is accountability for not just saying you are committed to sustainability, but demonstrating that commitment through consistently reported metrics that show progress over time.
High ESG sustainability scores typically mean easier access to capital, lower risks, higher returns, and greater resiliency in times of crisis. Investors use ESG reporting to assess company performance on environmental, social, and governance issues and make decisions about where to direct their money. And while most ESG disclosures are currently voluntary, a growing number of global governing bodies have proposed reporting regulations.
With ESG sustainability, the burden is on the organization to demonstrate the integrity of its values, ethics, statements, commitments, relationships, and transactions in a quantifiable way. Merely claiming sustainability without data to back it up is not enough anymore.
ESG Sustainability Goes Further Than Sustainability Alone
While the term sustainability can evoke vague ideas of going green, ESG’s three pillars – environmental, social, and governance – intersect to create a fuller, richer story that makes measurable change from every angle.
The governance pillar is particularly important to taking sustainability efforts to the next level. Governance ensures that the organization has internal controls, practices, and procedures to make effective decisions, remain compliant, provide transparency, and follow best practices.
Consider a company that touts its sustainability practices. Adding ESG to its sustainability promise is like moving from installing LED lighting in its manufacturing facilities to setting a goal of a completely carbon-neutral manufacturing facility that runs on renewable energy – and then reporting data to chart the progress.
ESG sustainability is about creating a sustainable business from operations to business practices to growth. It goes beyond vanity metrics and superficial claims. It holds companies accountable and carves precise paths to change. If efforts fall short, the business will suffer at the hands of its stakeholders.
What’s next for ESG sustainability?
For ESG sustainability efforts to be accurately accounted for, however, the standards must extend through the company’s products and services, including the entirety of its global supply chains.
Scope 3 emissions – emissions that a company is indirectly responsible for – can account for 70% or more, sometimes far more, of a company’s carbon footprint. This bucket includes everything from raw materials to a customer’s use of the finished product. The tricky part is that, while Scope 3 emissions are where the largest impact is, a company has the least control over performance.
Organizations looking to make serious inroads to ESG sustainability will commit to tackling Scope 3 emissions. Managing these supply-chain risks requires organizations to map their full scope of exposure and report on outcomes. Tracking outcomes and milestones helps businesses benchmark performance against external standards and provide transparent disclosures to investors.
This due diligence doesn’t stop at direct suppliers either. Companies will want to map to their suppliers’ suppliers to help identify weak points in their value chain and build resilience.
Companies committed to ESG sustainability need to zero in on measuring sustainability throughout the end-to-end value chain. And the amount of data that will take is enormous. Forward-thinking organizations are already putting the technology, people, and systems in place to collect, analyze, and report this data.
Establishing a solid governance structure for meeting ESG sustainability goals is good preparation for inevitable mandatory reporting requirements. Beyond that, though, taking a voluntary step toward transparency will earn trust from investors, customers, and employees alike. You’ll show the world that you are committed to making a difference – even when it’s not required.