“ESG” and “sustainability”: The terms have become almost synonymous, but they’re not.
The former refers to “Environmental, Social, Governance” and is the preferred jargon of capital markets who use it as a filter for finding superior risk-adjusted returns. The market seems to suddenly chirp about “ESG” investment headlines (like this recent article from US News). While the shift has felt sudden to some, the emphasis placed on data in all three of these pillars, along with the time involved in planning and implementing the necessary changes, tells us the time is now.
“Sustainability,” on the other hand, can mean just about anything under the broad rubric of “doing well by doing good”. This makes it a convenient yet inaccurate substitute for other related but distinct terms like “Corporate Responsibility”, “Triple Bottom Line”, and good ‘ol “Green”. And, like “Green”, it’s a label we should transition away from.
Don’t fear; that’s a good thing. The transition to ESG performance instead of “sustainability” indicates a maturation of the business practices to a more precise art. And with this sophistication in the work we do, we need better tracking and metrics to build accordingly.
Now, sustainability managers often work on environmental programs whose impacts are measured in familiar metrics: carbon equivalents, energy intensities, or gallons of water consumed. They’ve had to engage stakeholders through surveys, campaigns, and marketing efforts in these initiatives. And, they craft sustainability targets which include more aggressive carbon-cutting or offset efforts involving all aspects of their organizations.
Common among these new initiatives is that they (a) fit into the precise rubric of ESG and (b) are measurable. While quantitative metrics like electricity are more easily monitored, there is an expanding scope of what is material and, therefore, increasing ways to track and manage ESG programs. Policies do or do not exist, and are implemented at a specific time with documentation to prove their enactment. Progress towards carbon targets can be tracked and reported against a baseline. All these things may add up to a more sustainable organization, but at the point of implementation are far better captured by the concept of ESG than the overly broad umbrella of sustainability.
All these things may add up to a more sustainable organization, but at the point of implementation are far better captured by the concept of ESG than the overly broad umbrella of sustainability.
A matter of semantics? Try visiting an orthopedist for skin cancer and then ponder that both are MDs. Sustainability absolutely encompasses ESG, yes, but it also encompasses the other terms, like Corporate Responsibility and Green… Be careful not to conflate them; ESG is only as broad as its three pillars and caters to a specific class of professional business managers and investors. Use it wisely, and try using it more often if that’s what you really mean!