From sustainability and CSR to ESG

ESG and sustainability are often lumped together, but they are not the same. The transition from sustainability and CSR to ESG performance indicates a maturation of business practices to a more precise measurement of a portfolio’s performance, writes Dr Kaushik Sridhar.

ESG vs sustainability 

You’ll often hear environmental, social and governance (ESG) and sustainability in the same sentence – in some cases, you might even see them used interchangeably. But they are not the same thing. 

When it comes to disclosing and benchmarking data, there’s actually a remarkable difference between the two. Though the larger discussion among industry leaders began with sustainability, ESG’s scope, practices, and relevance to capital opportunities have led to a substantial shift in the way companies measure and disclose their performance. 

Read more: ESG – What does it mean?

ESG and sustainability have some similarities in that they address the environmental and social aspects. However, there are some differences; while sustainability may mean different things to different entities, ESG is about the specific set of criteria denoting environmental, social, and governance.

While sustainability keeps a business accountable, ESG helps make its efforts measurable.

ESG vs CSR

CSR, which stands for “corporate social responsibility,” has been on the business radar for decades and refers to “softer,” qualitative issues. As time’s gone by, social issues have come into focus and technology has advanced, it has become possible (and desirable) to quantify a company’s use of natural resources, conflict minerals, social composition and impact, and good governance. ESG data elevates these issues to the investor position, while technology has made it possible to gather more granular reporting data.

ESG is the quantifiable measure of a company’s sustainability and societal impact, using metrics that matter to investors. Advances in technology – both in data collection as well as analysing and reporting on that data – have made detailed ESG reporting easier.

In the past, CSR was about telling a story. Today, ESG offers analytical, actionable data.

Graduating from sustainability and CSR to ESG

ESG has become the preferred term for capital markets. That type of data is often used to identify superior risk-adjusted returns. But ESG has recently become a familiar acronym throughout many industries, including commercial real estate, and is frequently making headlines. 

This shift in vernacular has felt sudden to some. However, the emphasis placed on all three of these pillars along with the time involved in planning and implementing necessary changes tells us it’s time for companies to collect, report, and act on ESG data.

The transition from sustainability and CSR to ESG performance indicates a maturation of business practices to a more precise measurement of a portfolio’s performance. As the industry becomes more sophisticated, we need to improve the way we collect and track metrics to build ESG management accordingly.