There's a lot more to ESG than sustainability alone
The environment, social, and governance framework, also known as ESG , is a relatively new superstar in the corporate world. Enterprises have started hiring Chief ESG Officers as the focus shifts for organizations to make ESG part of their business strategy. In fact, according to Forrester , paying attention to ESG performance lead to reductions in supply chain, operational, and reputational risks.
Even so, there are common misconceptions about ESG. For instance, ESG and sustainability are sometimes used interchangeably. Although these terms have some similarities in that they address environmental and social facets, there are many differences between the two. Sustainability may bear different meanings to different entities whereas ESG considers a specific set of criteria defining environmental, social, and governance systems as sustainable.
To help break this down, we spoke to Jenny Herald , our VP of Product Evangelism, to tackle some ?of the most interesting questions from our recent webinar with the Financial Times on Improving the Accuracy of ESG Reporting . In this first article, we’ll be answering questions related to ESG and sustainability and will help you understand:
ESG and sustainability are sometimes used interchangeably. Are they the same thing?
The short answer is no, absolutely not. Sustainability has become a buzzword for climate change mitigation and social responsibility. Its roots lie in an organization’s impact — positive or negative — on people and the planet. ESG initially was a synonym for sustainability and was developed by the financial sector with investment considerations in mind. The term was coined in 2004 with the UN Global Compact Initiative’s “Who Cares Wins” report .
How can we address what appears to be the public perception that ESG is about environmental sustainability as opposed to the social and governance elements of ESG
We like to think about it this way:
It is not that the public perception is entirely focused on environmental sustainability, but rather there’s a sense of urgency around mitigating climate change. Scientists are saying the Earth's temperature is rising and we can keep it to 1.5 to 2o C on average by a certain time if pledges are met for climate action.
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And so, as a function of prioritization, it’s not the perception that ESG is environmental sustainability only, but rather we're starting with the environment as the first topic to attack. There are certain protocols, like GHG that are widely understood and establishes global standardized frameworks for measuring and managing greenhouse gas emissions from private and public sector operations.
The “S” and “G” parts of ESG tend to be more difficult to measure. That said, organizations are intensely scrutinized for not attending to aspects like socially responsible behaviors, data security, workplace safety, DE&I (diversity, equity, and inclusion), human rights at home and abroad, fair labor practices, the independence and diversity of their boards of directors, executive pay, and other issues. Companies must assess their operations with these in mind.
Are there universally recognized or accepted ESG reporting standards and frameworks?
While there isn’t one universally recognized or accepted ESG reporting framework there are quite a few types of ESG frameworks available. There are options such as:
Having multiple types of frameworks available does unearth some challenges, such as organizations using multiple frameworks to capture their data, the complexity of data management due to the nuances of each industry, as well as the considerable amount of overlap in terms of what these frameworks should cover.
At present, the most common ESG frameworks cater to one of three stakeholder communities: government, management, and investors.
ESG frameworks for government aid national and regional governments in providing sustainability-related services and support to their constituents by serving as guidelines.
ESG frameworks for management make sustainability related concepts tangible activities for operating organizations, enabling them to move towards meaningful business outcomes.
ESG frameworks for investors are geared towards financially visible activities and enable wise decision-making regarding the sustainability-related performance of an investment.
Each of the above-mentioned types of ESG reporting frameworks is built to cater to the needs of a specific segment of activity, which means that the same frameworks that can be used by investors won’t be fit for the needs of government. You can find more information on ESG reporting frameworks used by 80% of organizations from all the stakeholder communities.