Here at SustainIQ, we often talk interchangeably about ESG and sustainability and most of the time we think it’s ok, given that both are closely related and that ESG is increasingly being used by companies as an acronym for corporate sustainability.

It’s becoming apparent however that there is some degree of confusion and that the introduction of ESG into the mix is pushing sustainability towards being viewed as a ‘green’ issue rather than comprising three distinct pillars – environmental, social and economic.

Let’s explore what similarities the two share and try to understand the growing tendency towards using ESG even when it doesn’t relate to investment reporting.

The similarities between ESG & sustainability

Both ESG and Sustainability share the same broad goal to improve business practices while reducing any negative impacts on the world, and winning favour from investors, customers, and regulators in the process.

Both involve three pillars – they share a focus on environmental and social matters, while the G in ESG stands for governance and in sustainability the third pillar is economic. The problem, when it comes to sustainability, is that the definition has been hijacked, diluted and is frequently misused and applied only to environmental considerations.

In KPMG’s 2020 report ‘The Time has Come’ for example, only three aspects of sustainability reporting are focused on – biodiversity, carbon reduction and the SDGs – hardly a broad-based definition and potentially furthering companies’ confusion over what they should cover when addressing sustainability.

And then there’s the big consulting companies who use the two together as a kind of catch-all (which in fairness, we do ourselves), further feeding the idea that they’re interchangeable.

There are some key differences however, so let’s take a look at those.

Understanding ESG

ESG is a framework for both corporate governance and investing. It originates from the investor community and stems from a growing awareness of the need for broader accountability and a focus on non-financial reporting. The acronym itself was first mentioned in the 2006 United Nation’s Principles for Responsible Investment (PRI) report consisting of the Freshfield Report and “Who Cares Wins.”

Although some see ESG as an evolution of what companies previously might have called Corporate Responsibility (CR), it brings a level of rigour in the form of investor scrutiny and public reporting that CR lacked. It also requires companies to disclose their material impacts, where for many businesses, CR was more about a separate programme of activity carried out in addition to day-to-day operations.

ESG has more specific criteria regarding scope, benchmarking and the disclosure of data and it’s the term preferred and used by capital markets to assess and make responsible investments.

Understanding Sustainability

Sustainability, like we’ve said, has different definitions, but at its core, it’s about operating business in a way that meets present needs without putting the needs of future generations at risk. The version suggested by Newcastle University “Enough. For all. Forever” is one we particularly like for its simplicity.

Sustainability is connected to the concept of the triple bottom line, coined in 1994 by John Elkington, whereby a business should measure its success not just on financial or economic metrics, but also by taking account of its social and environmental impacts.

The concept of corporate sustainability has evolved in the intervening decades and managed to wrap itself in a degree of fuzzy uncertainty along the way. More recently, this had led to more companies embracing the clarity and structure that they believe ESG gives them, in favour of the term sustainability.

Fundamentally of course, the two are so clearly intertwined that whether or not it matters which term is used is a purely subjective call in many cases.

Which one is right for my business?

If you’re dealing with investors or your business is valued in capital markets, ESG is the approach to go for. That’s the language used by the investment community, so it makes sense to align with it. Be aware though that doing so raises the expectation that you will measure, report and be assessed against your material environmental, social and governance issues.

To some commentators, such as Forbes, the assumption is that in embracing sustainability as core to your business, you may then choose to report on it using the pillars of ESG. If that were truly the case, if achieving sustainability was at the heart of all ESG frameworks and reporting, it would be welcome news. Others however believe that the widespread use of the term ESG obscures its purpose and enables asset managers and the likes to appear to be committed to sustainability and stakeholder value when their interpretation of ESG may in fact be much more narrow.

At SustainIQ, we developed our data platform to help companies measure and report on their wider sustainability commitments, so we truly hope that a commitment to being sustainable underpins our clients’ efforts in this space, regardless of which term they prefer to use.

For us, the intention is more important than the words used, but of course using the right language is critical in communicating effectively with your stakeholders. To that end, we will continue to talk about ESG and sustainability as two sides of the same coin and we’ll use our expertise in this space to advise clients who want to be more definitive in their choice of words.

Regardless of what term you favour, our all-in-one reporting software can help you streamline reporting, saving you time & money all while improving ESG & sustainability data quality. Learn more about how SustainIQ could work for you here, or contact us today for an initial no-commitment chat.

Related blogs

• What is materiality?
• Carbon Neutral vs Net Zero
• 6 Steps to getting started with ESG