Sustainability and ESG are increasingly important topics in today’s business world. Companies are now more than ever being judged on the sustainability of their operations and their commitment to ethical behavior and transparency. However, not all businesses have the same sustainability and ethical behavior standards, which can confuse those new to both terms. In this post, we’ll break down some differences between the different standards companies can meet to be considered sustainable or ethical businesses. You may be surprised by what you learn!
What is ESG?
ESG stands for environmental, social, and governance. These are three central factors in measuring a company’s sustainability and societal impact. Many investors use ESG data to decide where to allocate their money. A few organizations have created standards for what qualifies as an ESG or sustainable company. The most notable ones are the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), and the Task Force on Climate-related Financial Disclosures (TCFD). The GRI was founded in 1997 and is headquartered in Amsterdam. It is a non-profit organization that guides businesses and other organizations on how to report their sustainability performance. They also offer training courses, workshops, conferences, and tools. SASB is also a non-profit organization, but they are based out of London. They were formed to create standards that mainstream financial institutions and investors would adopt so they could provide more informed investment decisions.
Why do we care about ESG vs. Sustainability?
Investors care about sustainability and ESG because it is essential to know the company’s impact on society. There are a lot of variations between what sustainability is, what ESG stands for, and how they overlap. Sustainability means meeting current generations’ needs without compromising future generations’ ability to meet their own needs. It also means achieving a better quality of life while minimizing negative impacts on our environment. ESG refers to environmental, social, and governance factors affecting shareholder value in a company. They may also affect the company’s cost of capital requirements or its reputation among customers, suppliers, regulators, and other stakeholders.
The Paradigm Shift: Sustainability to ESG
The shift from the sustainability model to ESG is more than just a change in terminology. It’s a shift in mindset and approach that has far-reaching implications for investors, companies, and the world. The modern investor wants to know where their money is going, what it’s being used for, and how the money they’ve entrusted to the industry is being spent. That’s where ESG comes in. It provides information about investments and assets that goes beyond traditional financial metrics like returns on assets, return on equity, or earnings per share. This new focus on ESG means investors will pay more attention to companies’ environmental, social, and governance (ESG) practices and corporate governance structures.
We all want to do the best we can for the environment, our health, and our economy. But sometimes, it’s unclear what we can do to make changes in our lives that will have a significant impact on the future. The biggest challenge is making sustainable living more attainable—you don’t want to feel like you’re sacrificing your convenience or comfort as you give up your disposable habit. It all depends on what your investment goals are.