Businesses have been talking about being ‘environmentally friendly’ or ‘going green’ for what feels like forever. In fact, millennial business owners probably don’t remember a time before the mantra “reduce, reuse, recycle” was stamped into their consciousness.
Today, however, businesses have to go far beyond reduce, reuse, recycle in order to succeed. Instead, they need to embrace sustainability. The goal is to have a positive impact on society and the environment, often with a formalized Environmental Social and Governance (ESG) plan to help standardize and measure their progress.
Against this backdrop, it’s little wonder that ‘sustainability’ and ‘ESG’ are often seen as interchangeable, when in fact they’re not the same thing. In this article, we explore key differences between the two and take a look at why the shift towards ESG is an important step.
what is sustainability?
The term “sustainability” gets a lot of air time in the business community. You can see it referenced in mission statements and on company websites. Many companies have a sustainability committee or undertake voluntary sustainability reporting, which is shared publicly.
Depending on the company and their operations, activities that fall under the sustainability umbrella could include:
- GHG accounting
- Waste auditing
- Buying energy efficient office equipment
- Going paperless
- Offering paid volunteer days
- Retaining a diversity, equity and inclusion (DEI) consultant to evaluate company practices
- Hosting a community stream or highway clean up
Sustainability programs let companies get creative and find opportunities and activities that are a good fit for them and their employees. Some may take the opportunity to quantify targets and measure progress, while others will choose new initiatives every year.
what is ESG?
Environmental Social and Governance (ESG) is a methodology that helps corporations measure and report on their impact through three lenses.
The Environmental heading includes:
- Energy consumption
- Water stewardship
- Waste management
- Air quality
- Climate change
- Biodiversity
- Deforestation
The Social component includes:
- Gender inclusivity
- Diversity
- Hiring practices
- Customer satisfaction
- Data protection
- Human rights
- Labor standards
And Governance reporting includes:
- Board composition and membership selection
- Executive compensation
- Shareholder rights
- Accounting and auditing procedures
- Ethics, bribery and corruption policies
- Lobbying and political contributions
Businesses who complete ESG reporting may comply with internationally recognized standards and frameworks like CDP in order for communities, customers, investors, and other shareholders to accurately compare metrics and progress from one reporting organization to the next.
what’s the difference between sustainability and ESG?
At first glance, ESG and sustainability may seem synonymous, and there can certainly be some overlap. Both aim to improve your corporation’s impacts on the community at large and the world in general.
Essentially, however, sustainability is a set of voluntary initiatives that may or may not have quantitative outcomes. ESG, on the other hand, should be a formalized program with published methodologies and requirements. When done well, ESG can reduce an organization’s ecological footprint, improve creativity and workflows, and unearth new market opportunities, all while reducing risk and building resilience.
Of course, any efforts toward improving sustainability are admirable, but without a published framework, a voluntary sustainability program can make it easy to reach for low-hanging fruit and quantify progress in any way that shows the organization in a positive light, while ignoring metrics that don’t.
By comparison, companies who implement an ESG program are following a formalized approach such that customers and investors are able to compare impacts across companies as well as evaluating opportunities, efficiency, and risks.
how can ESG support socially responsible investing?
These days, investment isn’t just about the bottom line. Rather, investors want to be confident in their decisions around previously unmeasured issues and therefore expect transparency on things like treatment of employees, the manufacturing of pollutants, and supply chain risk factors.
As such, ESG can make up a critical component of Socially Responsible Investing (SRI) and impact investing. It can help investors to choose or eliminate investment opportunities based on specific values, which will vary from investor to investor. This could include religious beliefs or an ethical view on firearms production, terrorism affiliations, or natural resource consumption.
In essence, SRI is a framework to make a go/no-go decision on investing, while ESG examines the nuances of running a business in a global marketplace. That means ESG can be one of the building blocks to making SRI decisions, but by reporting on factors like water stewardship, deforestation, child labor, and corporate ethics, the details of an ESG report can be used by all investors to make more informed choices.
In fact, ESG documentation can be crucial for businesses looking to grow since a corporation that does not have a formally documented ESG program may find it difficult to make their case to socially responsible investors.
how does ESG support UN sustainable development goals?
Despite being voluntary, the United Nations Sustainable Development Goals (SDG) represent another area where ESG strategy can prove useful. Many governments, corporations and non-profit organizations, are working toward achieving the these overarching goals by 2030 with a view to ending worldwide poverty and promoting peace. The 17 targets include:
No poverty
Zero hunger
Good health and wellbeing
Quality education
Gender equality
Clean water and sanitation
Affordable and clean energy
Decent work and economic growth
Industry, innovation, and infrastructure
Reduced inequalities
Sustainable cities and communities
Responsible consumption and production
Climate action
Life below water
Life on land
Peace, justice & strong institutions
Partnerships for the goals
Since the SDGs are voluntary and meant to be adopted around the world and by businesses, governments, and individuals, the means to achieve them will vary everywhere. However, companies working towards the SDGs will benefit from quantifying their impacts and documenting their accomplishments.
Using ESG programs can help your organization document progress and show investors and stakeholders exactly how you are working to participate in achieving these goals.
the shift from sustainability to ESG
For an increasing number of businesses, a claim of sustainability is no longer enough. It makes a great website headline, but with so many sustainability initiatives being more qualitative than quantitative, it’s hard to move beyond the feel-good aspect.
ESG formalizes sustainability reporting and incorporates other important aspects of business operations to provide a comprehensive and consistent set of metrics to investors and shareholders. With so much focus on transparency, corporations need to move beyond the classic idea of sustainability and instead be able to present verifiable data.
how can sustainability software help?
Many businesses may be aware of, or might even be using, sustainability software to help with tasks like carbon accounting. But just as ESG helps quantify diverse measures of sustainability, more and more corporations need software solutions that extend beyond basic carbon emissions reporting.
ESG and sustainable development goals need to have meaningful data behind them, and compiling that data can be complex and time consuming. Businesses need to pull information from multiple locations and departments to compile reports on ESG frameworks and standards. And those reports need to be easily updated from year to year, and accessible in different formats to share with employees, leadership and investors.
The AMCS Sustainability Platform is a comprehensive ESG and sustainability software solution that provides companies with a centralized reporting platform. It not only uses published methodologies to estimate carbon emissions throughout a company’s operations and up and down the supply chain, it also offers a number of ESG-compatible features including:
- Integration with internet of things and APIs to existing systems to facilitate data collection
- Pre-programed frameworks to comply with ESG standards like GRI, CDP and SASB
- Custom KPI dashboards
- Integrated scorecards
- Interactive microsites to share with employees and the public
AMCS offers solutions for ESG reporting including financed emissions, water stewardship and diversity, equity and inclusion. It provides data and reporting in a way that can be used and understood by investors to make confident and impactful choices.
So, if you’re looking to go beyond sustainability and formalize your ESG reporting program, AMCS can start you off on the right foot. You can learn more by visiting our website.