What is the Difference Between ESG and Sustainability?

Two identical concepts might utilize different measurement techniques to accomplish similar goals. For example, global consulting firms distinguish ESG from sustainability based on the stakeholders concerned with benchmarking the corresponding compliances. This post will describe the difference between ESG and sustainability.

What is ESG?

ESG means a statistical inquiry into a company’s environmental, social, and governance impact. ESG consulting firms rely on statistical modeling and mandatory reporting standards.

Worldwide databases developed by independent data services enable investors and business leaders to monitor their ESG compliance performance. The three pillars of ESG include the social metrics associated with maintaining a pleasant and inclusive work environment.

Meanwhile, the environmental pillar of ESG reporting describes an organization’s waste management practices, forest reservation, and biodiversity awareness. ESG consulting also guides corporations in analyzing data governance and accounting transparency for the governance pillar.

What is Sustainability?

Sustainability consulting firms discuss how an organization’s operations consume natural resources and build financial capacity to prolong its lifespan. They help companies reduce undesirable socio-economic outcomes by promoting safer business practices.

Investors interested in socially responsible investing (SRI) will refer to sustainability benchmarks. However, sustainability is a policy, whereas ESG data services

• provide mathematically quantifiable performance measurement tools.

For example, tree plantation programs, blood donation camps, and adopting underdeveloped rural areas are some of the corporate social responsibilities (CSRs). While they demonstrate a business’s commitment to sustainable development goals (SDGs), they require ESG consulting to report on how these activities impact stakeholders using statistical techniques.

The Difference Between ESG and Sustainability

1| Conceptual Origin

Each generation of the human species must peacefully coexist with biological, geological, and atmospheric realities like limited petroleum resources to ensure sustainability. Therefore, this concept primarily describes the impact of irresponsible consumption on the next generation. Sustainability, a normative term, has existed in literature and academic disciplines since 1972.

However, ESG data services emphasize the relationship between ethical business practices and sustainable development goals. This unique scope is a critical difference between ESG and sustainability consulting firms. Also, it is a relatively new concept as a result of advanced technological tools that efficiently process massive datasets.

After all, an ESG report will review how the company meets investor preferences and regional regulations. It concerns preventing pollution, workplace harassment, and data theft to enhance an organization’s financial efficiency and resilience against legal risks.

2| Stakeholders Involved

Stakeholder categories and their mode of participation often highlight the difference between ESG and sustainability. Sustainability consulting firms coordinate with non-governmental organizations (NGOs), financial institutions, public authorities, education systems, and media resources. They evaluate how each stakeholder contributes to sustainable development goals.

Simultaneously, ESG data services have a corporate applicability scope, focusing on different companies belonging to the same industry. They provide compliance rating insights to socially responsible investors or assist companies in disclosing sustainability accounting documents.

Consider the case of mitigating carbon risks. People planting trees, reducing the use of air conditioning, and driving electric vehicles are vital to sustainability. Nevertheless, ESG consulting will strategically concentrate all the data analytics resources to measure how a company decreases its greenhouse gas (GHG) emissions.

3| Financial Correlations

Conducting blood donation camps is beneficial to the long-term sustainability and health of different societal stakeholders. However, such campaigns are not the components of ESG reporting and consulting activities since their financial materiality is hard to quantify.

ESG metrics and peer benchmarks specific to an industry require data on business operations having a statistically significant impact on investor interests. So, doing good or integrating eco-friendly initiatives can be excellent in the eyes of sustainability consulting firms. Still, you want objectively measurable data on such programs to analyze how they affect the company’s revenue and liabilities.

Materiality in ESG data services is easy to calculate due to data filtering, validation, and relevance assessments. Professional ESG consultants conduct due diligence to verify every performance indicator before publishing an ESG score.

This approach differs from sustainability consulting, which advises industrial firms on activities with intangible materiality. Remember, socially beneficial initiatives can attract financial or legal risks. Therefore, there is a difference in materiality estimation or economic correlation between ESG and sustainability. 

Conclusion

Pollution, discrimination, and corruption make enterprises inefficient, so investors don’t want to invest in them. Additionally, consumers refuse to support companies that employ child labor or depend on non-renewable energy resources.

Sustainability consulting firms and related data services allow business leaders to develop compliance improvement strategies to increase ESG scores. Nonetheless, they differ in scope because sustainability is a broader concept, while ESG has a statistical basis driven by objectively quantifiable data.

Therefore, managers and investors require experienced professionals familiar with nuances like ESG and sustainability firms’ priorities exhibiting a difference.

A leader in ESG consulting, SG Analytics supports enterprises and portfolio managers in screening companies after evaluating them according to the latest sustainability accounting guidelines. Contact us today to tap into extensive business intelligence optimized for socially responsible growth.

SG Analytics is a leading global insight and data analytics research company facilitating tailor-made data-centric solutions to enterprises across the globe.