ESG Versus Sustainability

Unless you’ve been living under a rock for the last year you’ll have noticed the buzzword of the moment: ESG. It stands for environmental, social and governance. And it’s everywhere! The term ESG is often used interchangeably with sustainability. But are they the same thing?

In our view, ESG and sustainability are two sides of the same coin, inextricably interlinked, but originating from different places and with different end goals.

Sustainability, as practiced in companies, is about managing the impacts a business has on people and the planet. It’s also about managing the impact of environmental and social megatrends on the business. A strong sustainability strategy should seek to transform a company’s business model so that the business ultimately operates in a way that is fair and equitable to people, and within planetary boundaries.

Over the last 20 years, companies have been sharing information on their economic, social and environmental impacts via sustainability reports. While this ‘non-financial’ information has always been scrutinised by NGOs such as Greenpeace or Human Rights Watch, it was historically of little interest to investors. This began to change in 2005, which is when the term ESG first started to appear, evolving from another three-letter acronym – SRI, or socially responsible investing. (Check out this excellent article for more details).

So where do ESG and sustainability meet? First off, it’s worth saying that ESG is on the agenda not just of investors but of all financial stakeholders – banks, insurers, financial regulators, financial policymakers and the analysts and ratings agencies that serve them. The topics that these financial stakeholders want to know about will be many of the same topics that a company is addressing in its sustainability strategy and reporting on in its sustainability report. However, typically there is a subset of topics that finance players are most interested in – the ones that they think could materially impact the financial performance of a company. Or, if you’re the Central Bank for example, the ones that could destabilise the financial system (e.g. climate change). Governments also need to steer private capital to fill the decarbonisation investment gap, so they are interested in the “greenness” of the economic activity of businesses.

From a company’s point of view, ESG is about providing relevant data and information on these financially material environmental, social and governance topics and showing that the business is managing them well from a risk/opportunity perspective.

In summary, ESG is the domain of the financial sector – investors, fund managers, banks and others. Its goal is risk management and stronger financial returns. If implemented well, ESG will channel money away from unsustainable businesses and industries and into sustainable ones. But the ESG agenda is, in our view, a sub-set of sustainability. Sustainability (in business) is the domain of CEOs and their employees. It’s goal is business transformation – fundamentally re-designing how a business works so that it has a place in a low carbon, circular, more equitable world. If implemented well, sustainability – as driver of transformation – will create companies that genuinely use business as a force for good, changing lives and improving society for the better, while also making money.

Our September Top 5

• ESG and funds in 2021: one for the ESG geeks out there, this academic article from Harvard Law School discusses how ESG trends that were predicted in 2020 have played out in 2021. It also looks ahead to what we’re likely to see in the future, with Board composition, greenwashing concerns and flexible working called out as ESG issues to watch. (Harvard Law)
• Unilever’s Supplier Climate Promise: with a huge supply chain of 56,000 suppliers, reducing emissions across the supply chain (scope 3) is vital for Unilever. The FMCG giant has launched a Climate Promise where it’s asking its suppliers (starting with the 300 suppliers that have the biggest climate impact) to set a public target to halve absolute GHG emissions by 2030. It has simultaneously launched the Unilever Climate Programme to support this high-impact group of suppliers with hands-on guidance plus tools and resources. (Unilever)
• Irish Times climate guide: a really informative explainer on key things coming up in relation to the climate agenda, including Ireland’s first carbon budget, the COP 26 conference, and the next IPCC verdict. (Irish Times)
• John Ruggie’s legacy: on 16th September the world lost a man who was a shining light and an influential leader on human rights. John Ruggie, best known as the author of the UN Guiding Principles on Business and Human Rights, leaves behind an enormous legacy that the world owes him a huge debt of gratitude for. (IHRB)
• Carbon literacy from Corrie to car ads: since it began in 2011 the Carbon Literacy Project has trained more than 21,000 people in workplaces, communities and schools to understand climate change and be able to talk about it. It’s a brilliant model that needs to be adopted and scaled all around the world. (Guardian)

Every Job is a Climate Job

We regularly share content from Project Drawdown because their work is so good! Their latest offering is an easy-to-flip-through guide called ‘Climate Solutions at Work: Unleashing your employee power.’ It’s designed to help climate-concerned employees assess whether or not their company is taking sufficient steps to address the climate crisis. It also gives suggestions for how employees can use their power and influence to push their company to go beyond net zero carbon. Check out the drawdown-aligned business framework on page 9.

The key message is this: every job can be a climate job. You don’t have to have sustainability or climate in your job title to make a difference.

Ireland’s National Development Plan

Hot off the press, the just launched National Development Plan (NDP) will see €165 billion spent on developing Ireland’s infrastructure between now and 2030. According to the government press release, the focus will be on solutions to strengthen housing, climate ambitions, transport, healthcare, and jobs growth in every region. With Ireland’s population expected to grow by 1 million over the next two decades just when we need to be slashing our carbon emissions to hit legally-binding reduction targets, the pressure will be on to ensure the carbon impact of every euro spent through the NDP is carefully considered. For a good summary of what’s in the plan, check out this Irish Times article.

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Sustainability Jobs

• Head of Climate Action – Department of transport
• Head of Sustainability – Mainstream Renewable Power
• Sustainable Finance & Investment Director- Grant Thornton
• Associate Director/Director, Regulatory & Public Policy – Sustainability, Resilience, Climate Change – EY
• Senior Executive, Climate Action – Enterprise Ireland
• ESG Corporate Adviser – Jaggaer
• Strategy Sustainability Manager – Accenture
• Sustainability Consultant: Sustainable Infrastructure – Jacobs Engineering