Sustainability VS ESG
Sustainability VS ESG
When defining sustainability, the United Nations World Commission on Environment & Development’s definition of sustainable development being “development which meets the needs of the present without compromising the ability of future generations to meet their own needs,” is the one most often quoted. Sustainability, within the business and policy contexts, refers to maintaining or supporting a process continuously over time, in a manner that prevents depletion of resources, so that they remain available in the long term. ESG, the acronym for Environmental, Social and Governance, refers to the criteria companies use for performance evaluation in terms of sustainability and ethical practices.
Neither term is new, although ESG may have a more interesting backstory. It began in 2004, when a group of investors, with the support of the UN, decided that environmental, social and governance factors were integral to company value, and represented a risk to investment capital. But stakeholders began to demand this kind of information, to know how sustainable and ethical organisations really were. Central banks and financial regulators were among the first to recognise the power and importance of ESG data.
Today, new regulations are emerging, in part due to environmental and market dynamics, and the need to address ESG. The focus will first be on climate change – a pressing issue – but will subsequently include other environmental issues like water consumption, biodiversity, recycling and renewable energy; and social issues like diversity, equity and inclusiveness. The emphasis is shifting towards instilling better organisational accountability, transparency and sustainability – which are governance issues – through appropriate ESG programmes. This global ‘tightening up’ of regulations is intended to improve the way business is done, so that there will still be a place – Earth – to do business on.
Essentially, the bottom line is ‘No planet, no business’ – which reflects the criticality of ESG within the context of sustainability. It is not just about the environment or how to conserve resources; it is
about changing attitudes and mindsets, and understanding how everything is interconnected. But while human well-being is first and foremost, it is also about finding ways to improve the manner in which business is done. It recognises the need for sustainable living and livelihoods while simultaneously mitigating the damage and destruction, both natural and human-made, that may cause disruption and uncertainty.
But “What will all this cost us?” is always in the orbit of consciousness of every business; the financial impact of ESG is a real concern. Organisations should consider these indicators: ESG- conscious firms are more likely to be a safer investment, according to analysts, especially attractive to socially-conscious investors who are careful about where they are putting their money. Businesses that recognise the need to engage more comprehensively with stakeholders will be at an
advantage as they heighten their profiles and strengthen their brands. Employees – major stakeholders – are likely to be more productive, and the company may attract better talent to help boost its competitiveness.