For a long time in the investment field, sustainability and ESG have been used interchangeably because they are perceived to have similar functions with minimal differences. The challenge in differentiating them as far as investors are concerned is how to effectively tell the two apart.
Moreover, over the years, the business sector has incorporated activities that have to do with corporate sustainability and introduced new concepts called ESG, also known as Environmental, Social, and Governance.
However, for this concept to work and function properly, knowing the difference between sustainability vs ESG is essential for a suitable decision-making process.
1. Sustainability Vs. ESG
ESG refers to investors’ Environmental, Social, and Governance concepts to determine the consequences of investing issues towards the community, employees, and partners.
Sustainability is a term used to include the entire efforts of a company to build and develop value within a stakeholder on a long-term basis through a business system that is operating indefinitely. Additionally, this concept applies to various beneficial changes a company undergoes hence allowing the company to run for a long period without incurring problems.
2. Operational Difference
Sustainability vs. ESG operations differ in length as sustainability strategy focuses on being operational for the long-term; hence it enhances care for the Environment while ESG only puts effort into a specific issue relating to environment or government.
Furthermore, sustainability operates on the relationship between a business and the environment. At the same time, ESG is mainly concerned with the identity and decision-making of the company and the people involved in making these decisions, such as the CEO, board of directors, and stakeholders.
3. Standards and Reporting Metrics used
The sustainability Vs. ESG standards and metrics difference is also a separation factor between these concepts, for they are mostly designed by lawmakers, investors, and reporting organizations. These standards are numerous, and they enable the provision of challenging solutions.
ESG standards help the business product and provide conflicting scores while measuring the quantifying and comparable variables such as the satisfaction of the employees and the executive’s decisions. However, sustainability standards mostly focus on quantitative variables such as how much quantity of carbon has been emitted to the environment.
4. Risks Assessment
Sustainability Vs. ESG difference in performance and risk assessment: sustainability strategy is used to assess risks associated with internal capital investments such as energy efficiency measures. In contrast, ESG allows external business investors to assess the company’s performance and risk metrics.
ESG is relevant to big businesses under the public investment exchanges and those requiring external financing from institutional investors, unlike sustainability, which is most relevant to startups and small businesses.
However, as many large businesses adapt to the ESG principles and guidelines, this concept is also welcomed as an investment commodity in small businesses.
Generally, sustainability and ESG are important strategies incorporated in the business sector. Sustainability focuses on how the business affects and impacts the surrounding environment, while ESG focuses on how the environment impacts an investment.