The difference between sustainability and ESG

What is sustainability?

Published 27th March 2023

Sustainability is a relatively new concept which was first captured in 1987 by the UN Brundtland Commission in its report ‘Our Common Future’. The report described sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. Since then, the terms ‘sustainability’ and ‘sustainable development’ have been used interchangeably. 

The definition of sustainability has been interpreted in many different ways, but at its core there are three pillars: environmental, social and economic sustainability. These three pillars of sustainability help us to understand how development interacts with other needs of the economy, the environment and society.  

Since the Brundtland Commission report, countries around the world have recognised the importance of sustainability in building a better future. In 2015 the UN member states adopted the 17 Sustainable Developments Goals (SDGs) as global goals to work towards by 2030. The SDGs tackle the global challenges of climate change, environmental degradation, poverty, inequality, peace and justice. The SDGs also recognise that development must balance social, economic and environmental factors and that these factors are integrated, meaning that action in one area will impact the outcome in others.  

Sustainability and ESG

Many people use the terms ‘sustainability’ and ‘ESG’ interchangeably, which has led to a lot of confusion since there are some key differences between the two.  

As described above, sustainability is a broader concept which looks at the bigger picture of sustainable development. However, from a business context, the concept of sustainability is vague and does not have measurable metrics to allow businesses to track how sustainability impacts their business. In order to do so, ESG metrics were created.  

ESG - which stands for Environmental, Social and Governance - is a specific set of criteria that helps companies identify and manage ESG risks that impact the company’s performance and long-term profitability. ESG information is usually published by the company in its sustainability report, where it can showcase its sustainability strategy, its progress in meeting key objectives and managing ESG risks and its roadmap to integrating sustainable practices for the future. All of this is important information since ESG factors impact the profitability and financial value of a business. As such, ESG reporting has become valuable information to potential investors and key stakeholders.  

ESG looks at sustainability from a business context and is only a piece of the wider umbrella of sustainability. ESG has been mainly designed to look at measuring the impact that ESG risks has on the company, it is not primarily designed to look at the risks and impact that the company has on the environment and society. That is why ESG is generally associated with how a company is affected by environmental and social issues and whether the company has good governance in place to manage those risks and pressure. (1) 

Investors that wish to increase their sustainability portfolio are able to look at sustainability reports and ESG ratings of companies when considering potential investments, giving them a clearer idea of what they are investing in. According to Harvard’s ESG Global Study 2022, ESG integration into investment processes is the most used implementation strategy, being cited by almost six in 10 (59%) global investors. 

There is a plethora of ESG reporting frameworks and standards that exist for sustainability reporting. Each framework and standard has a different scope of topics, from narrow (focusing on greenhouse gas emissions only) to broad (focusing on all ESG metrics and SDGs) and cater to different audiences, such as certain stakeholders, customers and society. Some of the well-known frameworks and standards include the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-related Financial Disclosures (TCFD).  

Since there is no standardised approach to ESG reporting and differing reporting frameworks, there are inconsistencies in how ESG reporting is conducted. Choosing the right reporting framework can therefore be confusing for many businesses. When choosing which frameworks to use, businesses need to ensure that they are reporting in accordance with their local requirements, as well as what is suitable for their particular industry and in a manner that meets their stakeholder’s material information needs. It is therefore important that you seek advice from specialists in sustainability reporting to understand the right reporting approaches and frameworks that suit your business best. 

(1) Measuring both impacts by a company and on a company is called double materiality, which is still a developing concept. See our article that discusses double materiality further.

How can we help you?

As sustainability is pushed to the top of the agenda. Corporates, investors and financial institutions require environmental, social and governance (ESG) plan and a path to achieve it. 

We help leaders put together these ESG plans and work with them to implement them. We diagnose their current sustainability issues, establish baselines, define their goals and design the execution plan. 

To find out more about how we can help with your sustainable finance strategy, get in touch. 

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