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July 15, 2021

The difference between ESG and sustainability

If you’ve heard of sustainability—environmental sustainability in particular—there’s a good chance ESG (environmental, social, and governance) has also entered your lexicon. 

But did you know that the two terms don’t mean the same thing?  

Both share the word “environmental,” but it doesn’t mean the two are interchangeable. The main difference? ESG centers around financial risk and returns. Environmental sustainability focuses on supporting the planet’s health for generations to come. 

What is ESG? 

Investors collect and score environmental, social, and governance data because it correlates to financial performance. The thesis is straightforward: Portfolios with solid ESG scores across the board tend to be resilient long-term performers. 

ESG criteria are a subset of sustainability metrics connected to financial performance. Asset managers, financial services providers, and even robo-advisors use ESG criteria in decision-making.

What comprises an ESG score? 

“E” includes environmental criteria like greenhouse gas emissions, energy use, and waste generation. “S” covers fair labor practices, diversity, and human rights. And “G” involves corporate governance like anti-bribery, anti-corruption efforts, and board diversity.  

Though there’s been a push for better ESG standards in recent years, so much is left to interpretation. For example, strict ESG investors will only consider the most environmentally responsible companies, while less scrupulous investors might only weed out, say, companies involved in coal production. 

According to the law firm, Sullivan & Cromwell, “[…] a number of ESG disclosure standards have been developed, and some have been incorporated into mandatory reporting regimes by non-U.S. regulators,” however, ESG disclosure by U.S. companies is still voluntary. 

ESG requirements vary. And while ESG scores are highly relevant for public companies, privately held and small organizations have yet to feel as much pressure to produce an excellent ESG rating.

What is environmental sustainability? 

Simply put: Environmental sustainability means operating within the planet’s limits. The 1987 United Brundtland Commission’s definition of sustainable development (now commonly referred to as just “sustainability”) still applies: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” 

Big picture, environmental sustainability includes minimizing carbon emissions—or even going carbon negative—to slow climate change. Specifically, that includes reducing resource use, doing more with less, investments in renewable energy or reforestation, water conservation, pollution prevention, waste reduction, protecting biodiverse areas, and technological developments that help solve environmental challenges, just to name a few.  

Depending on the organization, impact potential can vary based on any number of factors. For example, take a nut company that grows its product in California, then ships it to Chile for packaging, then back to the U.S. for distribution. You can imagine its opportunity to cut its emissions footprint by finding a way to package in the U.S. 

There’s also a growing emphasis on the link between environmental and social issues, like racial justice and income inequality. According to a Science Advances study, communities of color disproportionately deal with environmental repercussions like nearby highway pollution. The effects of climate change also cause a disproportionate amount of damage to communities with the fewest resources—monetary or otherwise. And they face more challenges when rebuilding and have fewer options to move away from areas affected by climate change. 

Sustainability is broad, intersectional, and complex—and environmental sustainability is just one part. For organizations, ESG ratings are narrow, quantifiable metrics that can predict future growth and profitability.

Does Sustain.Life support ESG or environmental sustainability? 

Sustain.Life focuses on environmental sustainability, including intersectional environmentalism. Companies, private or public, and governmental organizations use the software to build and execute a roadmap to improve their environmental impact.  

The tool also helps prepare organizations just starting their sustainability journey to report on the “E” of ESG down the road. Companies that aren’t ready to prepare a Task Force on Climate-related Financial Disclosures (TCFD) report, perform a climate scenario analysis, or develop a science-based target can get started with smaller actions first, then build up to more complex disclosures or analytics over time. 

Without a doubt, both ESG and environmental sustainability are important. Understanding their differences can help you decide how to move forward with—or launch—your sustainability journey. 

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