ESG Versus Sustainability

ESG Versus Sustainability

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).

ESG only really went mainstream a couple of years ago however. Now, ESG investing is a huge trend. It’s about the integration of environmental, social and governance factors into investment processes and decision-making. It has risen up the agenda because investors recognise that ESG factors, such as how a company is responding to climate change, how it is managing human rights in its supply chain, or how it treats its workers, can have a financially material effect on a company’s valuation. The previously irrelevant ‘non-financial’ information is now relevant because it’s been shown to affect the bottom line.

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.


Upcoming Events

There are lots of good events coming up over the next few weeks, including some that are happening right now! Check out our picks below:

Happening today and tomorrow: The Sustainability Revolution – a series of 3 webinars over 3 days from Business In the Community Ireland. Described as ‘revolutionary conversations on leadership, sustainability, diversity and inclusion, business & human rights and radical change’ there are some great speakers lined up. The first day was yesterday, but still two webinars left! Register here.

Happening this Thursday: Guaranteed Irish webinar: Climate Change and Decarbonisation – What Irish Business’s need to do now. Featuring Mike Hayes of KPMG and Eleanor McEvoy of GreenHaas in conversation with Guaranteed Irish CEO Brid O’ Connell. Register here.

Happening next week: Climate Finance Week 2021. A whole series of interesting events with world-class speakers, kicking off with AIB’s Sustainability Conference on Monday 11th October featuring Prof. Johan Rockström and film maker James Cameron amongst others. Not to be missed! Details here.

What We’re Listening To 

In response to climate week in New York, the MSCI ESG podcast (one of our favourite ESG listens) decided to throw a ‘climatepalooza’. In this episode they examine the climate plans of three companies in the most the most polluting industries and describe what to pay attention to when assessing a company’s emissions reduction plan. It’s a great easy listen on ESG.

What We’re Reading 

We’re not actually reading it yet but it’s going to be top of our Christmas list: Penguin’s “Green Ideas” box set featuring 20 classics from the environmental movement including must reads from Rachel Carson, Naomi Klein, Greta Thunberg, Michael Pollan and Bill McKibben.

Sustainability Jobs