Organisations around the world are changing their priorities. There has been a tidal wave of companies committed to “sustainability”. In conversations, we sometimes hear the terms: ESG (environmental social governance) and sustainability used interchangeably. Since the ‘E’ in ESG stands for “environmental,” it is common to think of sustainability as just one pillar or sub-component of overall ESG. In a sense this is true, but there are important differences between ESG and sustainability that affect corporate strategy, communication, prioritization and reporting.
What is corporate sustainability? Diluting the concept of sustainability
Corporate sustainability is based on the concept of “sustainable development”, which was coined in 1987. This simply means economic development which meets the needs of present generations without compromising the needs of future generations. Businesses are in the business of creating wealth, but they must do so without over-consuming natural resources.
In other words, corporate sustainability creates long-term value for stakeholders by implementing a sustainable business strategy. A sustainable business strategy addresses the needs of the environmental, social and financial systems in which the business operates. The goal is to keep these systems capable of existing indefinitely.
To achieve this, businesses must consider three key things in their operations: First, they must treat employees and communities well. Second, they must use natural resources responsibly. And last but not least, they must invest in the long term.
Here are three steps to get your company on the path to sustainability.
First, you need to look inside your company and get it in order. Include sustainability criteria in all your decisions and make them part of your culture. Second, work with your suppliers and customers to ensure they use and dispose of your products responsibly. Third, reach out to the local community and other key stakeholders to ensure you are a good corporate citizen.
One society alone cannot create sustainable development because problems like climate change and poverty are so big. Everyone has to get involved. Being green and good has real benefits for companies. It creates value and attracts investors and employees. Corporate sustainability can also create a world where everyone can flourish, on a planet that is resilient and rich in biodiversity.
The evolution of ESG
At its core, ESG is a corporate governance system and investment framework. In practice, this means that companies that adopt ESG principles consider, measure, report (and hopefully work to improve) the environmental, social and governance aspects of their business alongside the financial aspects (profit, expenses, growth, accounting). ESG evolved from business sustainability. Financial institutions have recognized the need to protect our environment and maintain high social morals for continued financial success. When you think ESG, think capital, operations, risk, reputation and reporting, which includes several things that go beyond environmental sustainability. It includes:
Starting with E, which stands for ‘Environmental’. This considers energy consumption, the environmental impact of companies as stewards of the planet, and how society uses resources in all areas. Now let’s discuss the S, which stands for ‘Social’. The social criterion examines how a company supports its people and culture and how this ripple effect affects the wider community. Factors considered are inclusivity, gender and racial diversity, employee engagement, customer satisfaction data, security, privacy, community service, respect for human rights and labour standards. G for ‘Governance’. Management takes into account the company’s internal system of control procedures and practices and the avoidance of violations. It ensures transparency and industry best practices and includes dialogue with regulators.
No ESG investor would invest in this company. And that in itself is increasingly becoming a risk for companies: with trillions of investment dollars shifting to ESG, many environmentally or socially damaging companies are finding it increasingly difficult to find investors to fund their businesses.
ESG & Sustainability: Two different ships with the same coast
ESG and sustainability are two different concepts, they share the same goal of creating businesses that take only what they need while leaving economic, environmental and social systems capable of unlimited existence. But the ultimate difference between the two is ESG looks at how the world affects a company or investment, while sustainability looks at how a company (or investment) affects the world. Without this understanding, businesses are blind.