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ESG vs Sustainability


ESG vs Sustainability

Recent years have seen a dramatic increase in corporate eco-consciousness — a trend that has been mirrored at virtually every level of society as well. The data supports this idea too.

According to an October 2021 study, 69% of respondents said they were actively doing everything within their control to minimize their carbon footprint. That figure represents a rise of over 63% in 2020. The change from 2019 is even more dramatic, as back then, just 35% of study participants said they routinely selected products with eco-friendly packaging in an effort to protect the environment.

What’s more, just over 80% of people surveyed said they expected companies to be environmentally-conscious in operations such as their communications and advertising campaigns.

The movement toward sustainability and eco-consciousness is clear and government initiatives are reflecting this trend. Developed by the U.S. Securities and Exchange Commission (SEC), Environmental, Social, and Governance (ESG) is an increasingly influential element of today’s business strategy. ESG reports are now becoming mandatory, with an SEC-appointed task force established to address non-compliance.

It doesn’t end with ESG, though. Corporate sustainability is another key concept that business leaders are grappling with as they plan a path forward. But how do ESG vs sustainability compare?

Comparing ESG vs Sustainability

Corporate sustainability and ESG are two distinct but closely-related concepts. In many ways, these ideas are largely intertwined, and many view sustainability as a key aspect of ESG. Yet there are some key differences that company leaders must understand as they work to develop eco-friendly strategies and plans for the future.

The key differential between ESG vs sustainability is the specificity, particularly as it relates to Environmental, Social, and Governance (ESG.) While corporate sustainability is a more general, nebulous term that is open to some degree of interpretation, ESG has very precise criteria that prospective investors can utilize to evaluate a company in an attempt to determine if its practices and philosophies align with their own personal values.

Additionally, ESG reporting is mandated and any compliance issues are addressed by the SEC task force. Conversely, in the case of corporate sustainability, there is no compliance requirement per se, nor are there any U.S.-based government organizations that require companies to perform sustainability-related reporting.

Corporate Sustainability and its Impact on the Business World

Despite the lack of any specific corporate sustainability requirements in the U.S., an increasing number of companies are implementing measures and policies that are intended to make operations more sustainable.

According to one report issued in 2020, 80% of “top companies” now release reports on the topic of corporate sustainability. These reports address issues such as climate change, carbon footprint reduction, biodiversity, and even the United Nations Sustainable Development Goals.

This sort of reporting, while not mandatory, can still bring benefits to a company. The very act of being transparent and up-front can be effective at instilling confidence in consumers and investors alike.

ESG Criteria and the Impact on Businesses

For publicly-traded companies seeking investors and even non-profits or startups seeking seed money, ESG factors are playing a critical role. According to November 2021 research by the Association of Investment Companies (AIC), 65% of private investors said they considered ESG factors. And they’re not alone. Consider these mid-2021 figures from Gartner:

  • 91% of banks monitor ESG criteria and 67% screen their loan portfolios for ESG-related risk factors.
  • 24 credit rating agencies worldwide monitor ESG factors.
  • 90% of insurers consider an organization’s ESG factors.

The three ESG factors encompass a variety of areas, making ESG strategy development a rather comprehensive proposition. The three criteria focus around the following areas.

Environment – The environmental ESG criteria focuses on conservation and protection of the environment or natural world. This criteria focuses on the company’s operations and policies as they relate to issues such as carbon footprint, carbon emissions, sustainable/renewable energy sources, climate change, pollution, animal and land conservation, along with virtually anything else that has an impact on the environment. This is perhaps the broadest of the three ESG factors. It can affect everything from the age and type of vehicles in a company’s fleet, to the source of the materials that a manufacturer uses in its operations, to the company’s use of eco-friendly cloud solutions for components of its IT infrastructure.

Society – The social ESG criteria centers around people, the community, and their relationships with the company. This criteria impacts everything from customer satisfaction and community relations to charitable involvement and even data privacy and protection measures.

Governance – Governance refers to a company’s standards, values, policies, and procedures. The impacts of this ESG factor are far-reaching, extending from company board member diversity and the company leaders’ publicly-discussed philosophies to business policies and operational standards.

As you can see, the three factors create a fairly precise formula that companies can follow in their efforts to achieve a favorable ESG score. Sustainability is far more nebulous in nature, without clearly-defined criteria. Even so, sustainability remains an important consideration both as part of an ESG strategy and as part of a company’s overall business strategy.

The Importance of Data and Transparency to Avoid the Appearance of Greenwash

When addressing issues surrounding corporate sustainability or ESG, one thing is certain: transparency and disclosure of key data points is crucial to avoid the appearance of “greenwashing.”

The term “greenwashing” refers to the practice of exaggerating or misrepresenting operations or policies in a way that makes the organization appear to be more sustainable and ESG-friendly than it really is. This is usually done in an attempt to gain the support of consumers, investors, and the community as a whole.

Avoiding the appearance of greenwashing is relatively simple: be transparent, honest, and accurate. Disclose hard data points when relevant to instill confidence that your organization is every bit as sustainable and ESG compliant as it claims to be. ESG software can be a very effective tool for making sense of data and reporting on that data in a clear, concise manner.

Corporate sustainability and ESG are complex concepts that affect a business in a multitude of ways. At iTech, our team has experience in the area of ESG compliance. We connect clients with the technology they need to achieve and maintain ESG compliance. Contact the iTech team today to learn more about our ESG management solutions.