The Difference Between ESG and Sustainability and Why It Matters

Goals such as net-zero emissions, supply chain sustainability, and supplier diversity are no longer just good-to-have objectives for supply chain and procurement leaders.

They realize that adopting sustainable practices can help develop resilience throughout organizations and supply chains, reducing risk to a large extent and driving positive results.

Consider these numbers.

According to Sustainable Procurement Barometer 2021, 48% of respondents from mid-sized companies said sustainability would positively impact business finances while 47% felt a sustainable approach can improve operational efficiency and reduce costs. Also, about 69% respondents said they considered sustainability track records when choosing new suppliers and renewing contracts.

In fact, in a survey of retailers in Europe by the International Trade Centre, 85% said they had seen an increase in sales of sustainable products in the past 5 years, and 92% expected it to increase in the next five years.

Thus, more and more consumers are demanding sustainable products, pushing businesses to prioritize ESG goals and provide complete visibility of their supply chain activities.

But we should be careful not to confuse sustainability with ESG.

What Is the Difference Between Sustainability and ESG?

The terms, sustainability and environmental social and governance (ESG), although similar, mean different things too. Thus, they may not be used interchangeably. ESG is considered a part of the much larger umbrella of sustainability.

ESG is used by an enterprise for measuring the sustainability and ethical impact of an investment on a business, according to Market Business News (MBN).

• Environmental

This aspect focuses on how a company helps improve the environment and its performance.

• Social

This aspect examines how companies influence their stakeholders – personnel, customers, suppliers, partners, and investors and how they can better themselves.

• Governance

This aspect focuses on the company structure, leadership, policies, and compliance.

Also Read: What is Sustainable Procurement?

ESG vs. Sustainability: Three Differences

1. The main difference between sustainability and ESG is that ESG may be explicitly measured with defined environmental, social, sustainability, and governance metrics. ESG also has precise parameters that outline its reach, guidelines and disclosure of data.
   On the other hand, sustainability is a broad universal term for any company’s efforts to “do good”.
    
2. Another difference between ESG and sustainability is that sustainability is measured using the following metrics – carbon footprint, energy consumed or wasted, water consumed or conserved or wasted.
   ESG also uses some of the same metrics, although ESG records the data in a much more systematic way than the broader sustainability function.
   For example, in addition to adopting practices to help the environment, sustainability can also mean creating jobs or promoting gender equality and social inclusion.
   Sustainability has never been fully adopted by businesses due to its very nature – a broad term that is neither very clear about a direction to be followed by corporates nor clear about measuring performance and reporting.
   It is proven that businesses having high ESG performance have lower risk exposure and higher returns on investment, and are more resilient during disruptions, thus, becoming a yardstick for business performance in capital markets.
    
3. Another difference is in sustainable investing
   Socially responsible investing is sustainable investing wherein companies, based on certain parameters, are screened before investing. For example, investors will reject businesses dealing in armaments.
   On the other hand, ESG investing reviews a much more specific set of criteria that evaluates a business on how effective it has been in carrying out environmental, social, and governance projects and the impact these factors have had on the business.
   For instance, a chemical company working diligently to reduce pollutants in its supply chain operations and having a social inclusion project for its communities may be considered a good investment by investors.
   Thus, capital markets prefer ESG as the yardstick for making responsible investments.

Also read: What is Supply Chain Sustainability?

How Procurement can Spearhead ESG Improvements

The procurement teams in organizations are in an ideal position to spearhead the adoption of sustainability across the enterprise. Reimagining cost to focus on ESG-based value empowers procurement to drive the sustainability agenda and maximize value for the wider business, says this GEP white paper 6 Steps for Procurement to Drive ESG Excellence for the enterprise.

Here are eight benefits of ESG improvements:

1. Revenue growth
2. Competitive advantage
3. Cost reductions
4. Access to capital
5. Innovate with suppliers
6. Risk reduction and resilience
7. Enabler of corporate purpose
8. Impact beyond the business

Conclusion

The objective is to create businesses that only take what they need while leaving economic, environmental, and societal systems capable of indefinite existence. Hence, it’s crucial that a complete understanding of ESG and sustainability in all their different aspects is achieved, without which, businesses will just be groping in the dark.