ARTICLE • 5 min

The intersection between ESG and Sustainability

Being “environmentally friendly” or “going green” is not a new phenomenon. Sustainability became a focus in the late nineteenth century as industries sought to become less polluting in response to industrialization.

The idea gained real momentum during an environmental awakening in the 1960s with organizations' rising awareness of the environmental consequences associated with their economic growth. They came under pressure to stop polluting, treat their employees better, and to help build communities. 

Since then the importance of sustainability has been recognized more and more and it is now a widely, but loosely, used term, often applied by organizations as a catch-all that highlights intentions to “do better” and deliver goods and services in a sustainable manner.

Ultimately, sustainability means different things to different companies; each selects their own initiatives — such as going paperless, offering staff paid volunteer days, or using greenhouse gas accounting — which may or may not result in quantitative results.

While it has the feel-good factor, sustainability lacks an exact definition and doesn’t have clearly set criteria. 

While it has become a broad umbrella term for a company’s efforts to look at it's business in 360 degrees, it generally falls under three pillars: 

  1. The environmental pillar: Environmental sustainability is about meeting the needs of the environment. Leaving natural ecosystems unharmed, supporting biodiversity, maintaining natural environments and resources, and restoring natural climatic cycles.
  2. The social pillar: Social sustainability is about meeting the needs of, and supporting communities, employees, consumers, and other stakeholders. This is everything from philanthropic charitable donations, to a healthy work-life balance for employees.
  3. The economic pillar: Economic sustainability is about meeting the needs of the business. If a business is not profitable, it cannot operate. 

However, simply claiming to be sustainable is not nearly enough and especially as investors increasingly value sustainability factors, measurable targets are needed. Recently in Australia, the Australian Competition and Consumer Commission announced that they will analyse 200 company websites, online reviews and third-party reviews to crackdown on greenwashing and making unsubstantiated sustainability claims.

Broadly, sustainability aims to maintain and grow a business over the long term without depleting the environment or adopting socially harmful practices.

Environmental, social and governance (ESG) is essentially an evolution of sustainability — a formal program with published methodologies and requirements. In other words, a metrics-driven approach to sustainability.

At first glance, ESG and sustainability might look synonymous and drawing comparisons can seem like semantics. But while sustainability is vague, ESG is specific and measurable. Sure, there is overlap between the two, but there are also crucial differences. 

Like corporate sustainability, ESG falls into three categories: 

  1. Environment: Includes corporate climate policies, energy use, waste, pollution, natural resource conservation. Addresses the environmental risks a company might face.
  2. Social: A company’s relationships with stakeholders, including employees, consumers, and investors. Considers donations and employee working conditions.
  3. Governance: How a company is managed and how well the executive management and board of directors attend to the interests of the company’s various stakeholders – employees, suppliers, shareholders, and customers. Includes transparent financial reports, and ethical and legal management.

ESG, however, is compared against a specific set of criteria in standardized frameworks that companies can measure and report against. 

ESG removes the ambiguity surrounding sustainability and being data-driven and specific allows for the direct comparison between companies on specific metrics.   

Stakeholders expect transparent and standardized progress reporting on sustainability factors, and we know that ESG performance is increasingly being scrutinized before investors award capital.

By reporting against standardized ESG frameworks, investors and other stakeholders can accurately compare metrics and progress from one reporting organization to the next.

Socialsuite has adopted the World Economic Forum’s Stakeholder Capitalism Metrics to help organizations’ ESG monitoring and reporting. This is a widely adopted ESG framework involving a comprehensive system of corporate ESG disclosures. 

Developed in conjunction with Deloitte, EY, KPMG and PwC, it provides a universal standard for ESG reporting with 21 core (and 34 expanded) metrics, allowing companies to use the disclosures to align their mainstream performance reporting against ESG indicators. Making ESG easier, more accessible and flexible.

Ann Luong
Chief Marketing Officer @ Socialsuite
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