The difference between ESG and sustainability and why PR teams need to get it right 

The difference between ESG and sustainability and why PR teams need to get it right 

The use of the terms ESG and business sustainability have become essential to business communication. While these terms are often used interchangeably, even by environmental experts, distinguishing between them couldn’t be more important. This is especially true of communications and marketing teams who may be creating content around sustainability claims. It’s also the case for business leaders, who may be getting to grips with the requirements of ESG reporting for potential investors.

The global context for ESG and sustainability

In 2015, the legally binding Paris Agreement was agreed upon by the 196 national parties. The Agreement states that global warming must be limited to no more than 1.5°C above pre-industrial levels. It also states that our greenhouse gas emissions must decline by 43% by 2030.

The United Nations’ Sustainable Development Goals also have a 2030 objective. This objective covers environmental, social and economic targets. It also covers priorities such as ending poverty, increasing access to education and conserving our oceans and forests. These two frameworks provide the context for national and international regulation and the increased drive for sustainable business practices.

Social movements such as Black Lives Matter have also put wider social and environmental issues at the top of agendas. The Ukraine War and the pandemic also induced dramatic company action, causing many corporations to reconsider their core business operations. These externalities have had a huge impact on how business is being conducted.

The business context for ESG and sustainability

Business leaders are feeling the pressure to change. Stakeholders now expect them to adhere to new regulations and prepare for how these regulations might evolve. As part of the United Nations ‘Race to Zero’ campaign, over 5,000 businesses have made net-zero commitments.

Equally, workers are now prioritising ethical business practices as their foundation for choosing whether to leave or stay with a company. Nearly two-thirds of staff will walk out on an employer if they don’t share their values. This is especially true of younger people, who place high value on an employer’s ethical practices.

Ethical consumerism is also a factor in determining business strategy and practices. Customers are more aware of environmental and social issues than ever before. They’re using this knowledge to shop more ethically. This dramatic shift in consumer behaviour is having a direct impact on business operations, reporting and communications.

With higher ESG performance correlating with lower risk, higher returns and long-term sustainability, socially responsible investing is becoming popular. Investors are more interested in examining factors such as environmental impact, corporate social responsibility, and sustainable development to evaluate potential investments.

Overlap between ESG and sustainability

Although ESG and sustainability are related and have been used interchangeably, they are two very distinct concepts. ESG is an acronym that stands for Environmental, Social and Governance. It has its origins in analysing investment risk and as such, is not always a suitable tool for assessing whether a business is “sustainable”.

Sustainability is a broader concept that is often encapsulated by the UN Sustainable Development Goals which cover environmental, social and economic sustainability. The concept of sustainable development is summarised as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

It’s clear that businesses have a role in achieving the above: but sustainability as a concept doesn’t provide a framework or roadmap. Meanwhile, ESG and its associated frameworks, standards and ratings, are becoming increasingly standardised. ESG factors are used to help investors and stakeholders assess the risks associated with social, environmental and governance factors, as well as the company’s impact on these areas.

Differences between ESG and sustainability

Despite the relatability of the two concepts, ESG and sustainability have several differences that should be considered by communications teams. ESG is about ‘outside-in’ risk and is primarily used as a screening approach to gauge corporate risk factors. ESG measures the performance of a company in specific areas using ESG metrics. These metrics can include factors such as carbon emissions, supply chain practices and impact on local communities.

Sustainability issues, on the other hand, are about more than risk management. An ability to operate long-term; in other words, be a sustainable business, is inevitably a key priority. Therefore, playing a role in real-world sustainability along economic, social and environmental lines, is fundamental to that long-term success. How businesses approach this will depend on their core activities and values; they may well choose to adopt an ESG framework to help them get there. From reducing waste or switching to environmentally friendly products all the way to remodelling a structure to align with planetary boundaries, acting sustainably as a business requires asking: does this action enable and work towards real-world sustainability?

Where does the confusion come from?

Sustainability and ESG are terms that are used interchangeably by business leaders, the media and even environmental experts. This is mainly because they both seek to improve a company’s business practices to respond to internal and external factors such as climate change, social pressure and the need to attract responsible investment.

Much like the terms ‘green’ or ‘eco,’ the word sustainability has become a widely used, and often misused, term with many different meanings. It is understandably difficult to always grasp where sustainability fits in in relation to concepts of global warming, climate change, the environment and ecology.

But to take one example: if a business decides to use renewable energy sources to work towards becoming a net zero organisation, this would be an example of ESG practices. However, this would also fall under the category of ‘environmental sustainability’. If a business also decides to promote inclusion and diversity in the workplace, this would directly fall under ESG criteria, and would not be termed a sustainability policy.

Why it matters to get it right

If you’re responsible for communicating your corporation’s sustainability or ESG practices, it’s important to use the terms correctly. As recent research has shown, many marketers are not confident about communicating sustainability and avoiding greenwashing harms.

As well as understanding what is being discussed, it is important to consider your audience when deciding which term is appropriate. Currently, ESG is not a familiar concept to many outside of the world of corporate sustainability.

So even if ESG is being discussed; it may not be appropriate to use the term outside of corporate governance contexts. Instead, focus on the sustainable practices that are being adopted and how these are making the business more transparent and resilient. Then, when speaking to environmentally and socially conscious investors, the specific ESG frameworks that have been adopted can show real value. Presenting evidence-backed benefits, instead of vague green initiatives, and referring back to ESG, will help demonstrate the value of focusing on these areas.

Another key reason why it matters to correctly refer to ESG or sustainability is to avoid inadvertent greenwashing. As regulations around ‘green’ terminology increase, firms will need to justify company claims around why a product has been labelled as sustainable. Adhering to ESG governance can provide businesses with concrete evidence of their practices. Therefore, they can make environmental claims about their practices, without fearing a backlash.

ESG and sustainability practices can have a dramatic and positive impact on a company’s trajectory. However, it’s important to understand the differences, so that you can get the messaging right and support the business’ journey to greater real-world sustainability.

 

If you need help with your ESG or sustainability communications and want a team who knows them right, get in touch to find out how we can transform your approach.