ESG – which stands for Environmental, Social, and (corporate) Governance – is in the headlines right now. Some people love it, others hate it. Others think it’s well-meaning but falls short of making a difference to sustainability.
But wait… Aren’t ESG and sustainability the same? How can one fall short of making a difference to the other if they’re the same thing?
It’s a common area of confusion in our line of work because the terms ‘ESG’ and ‘sustainability’ are often used interchangeably. But they’re different concepts and it’s important that you’re careful how you use them when communicating with stakeholders.
Let’s take a look at what they mean, their differences and why you should keep them separated.
Although ESG has become a bit of a catch-all term for a range of well-meaning business practices, it started life with a very specific definition.
ESG is a set of criteria used to measure the risks related to the non-financial performance of an organisation, including factors like climate change, human rights, and corporate integrity, and how such factors impact the organisation’s performance.
That’s quite a mouthful, but the key things to remember about ESG are:
Sustainability is a broader, more holistic concept than ESG. But in many ways, it is also much simpler.
Sustainability means meeting our current needs while also prioritising the long-term environmental, social, and economic consequences of our actions so that future generations aren’t at risk. We shouldn’t use more resources than we need, so the thought goes, and we must ensure that future generations can access the resources they need too.
How can you test if something is sustainable? Greenpeace has a handy trick for you:
“When you see a product or policy being described as sustainable, ask yourself: could they keep doing this forever without causing any harm? If the answer is no, it’s probably not sustainable.”
The 17 United Nations Sustainable Development Goals (SDGs) are a primary example of this form of sustainability, and many consider them to be the gold-standard for sustainable action.
Like distant cousins, ESG and sustainability share a resemblance. They’re both concerned with the environmental, societal, and economic impacts of companies’ actions. But that’s where the similarities end.
Sustainability prioritises future generations and the long-term, whereas ESG prioritises the consequences for the firm (often over the short-to-medium-term). ESG is a way of measuring risk, not necessarily progress towards a beneficial goal. The audience of sustainability is everyone, whereas the audience of ESG is shareholders.
With all that being said, why does the difference matter and why is it important to use the terms carefully?
Well, there are several reasons…
Misusing the terminology can lead to companies accidentally greenwashing their brands by claiming their practices are sustainable when really, they just perform well on ESG metrics. Ask yourself Greenpeace’s question: could it go on forever? If the answer is ‘no’, then even if your ESG reports are good, you’re at risk of accidentally greenwashing your brand.
The other side of the greenwashing coin is ‘woke-washing’, which is where brands message heavily around social justice themes, like diversity and inclusion, to give themselves a positive image. When in reality those brands often aren’t performing well on metrics like diversity and inclusion. Woke-washing is a growing concern and can alienate a broad range of audiences.
By not being careful, brands can just as easily mistake their environmental credentials for social ones. Reducing emissions isn’t the same as promoting diversity and equality, and it’s important your messaging avoids blurring them together.
Knowing the differences between the two can also prevent companies from focusing on the wrong things and missing their targets. Focusing on simply meeting ESG criteria, rather than sustainable improvements, mistakes the rulebook for the results, and can lead companies into short-term thinking while overlooking the positive environmental actions they can make.
For instance, last year, research found that companies highly ranked on ESG criteria pollute just as much as low-ranking companies. When all stakeholders are aware of this risk, it helps to promote long-term change instead.
ESG and sustainability have different audiences with different levels of understanding. It is fair to say that sustainability is now a widely recognised term, while ESG is not. So, sustainability-focused messaging will appeal to a wider audience, whereas ESG messaging won’t.
ESG-focused messaging, however, will appeal to C-suite execs, financial controllers, and ESG coordinators who are responsible for ESG reporting within their organisations. So, it’s important to get your messaging around these concepts right based on who you’re appealing to.
Add to this the popularity of both terms. Currently, ESG is being criticised from all directions. At one end of the spectrum, people dislike ESG because it goes too far. There are around 20 US states that have passed ‘anti-woke capital’ laws banning the use of ESG criteria in investment decisions, while also forcing state entities to divest from ESG funds. At the other end, many believe that ESG is just hot air. As mentioned above, research has shown that when it comes to ESG criteria, high-ranking companies pollute just as much as low-ranking ones.
Given the politicised nature of ESG, it might be best to follow the lead of Blackrock boss Larry Fink who said, “I don’t use the word ESG anymore, because it’s been entirely weaponised.” Instead, you should maybe focus on using less polarising sustainability messaging – unless you are making targeted content for ESG coordinators or financial controllers, that is.
The long and the short of it is that mixing up ESG and sustainability can get your brand into hot water, while also failing to target the right messages at the right audiences. There are changing attitudes towards ESG, and unless you’re targeting C-suite execs or people with ‘ESG’ in their job titles, it might be better to avoid the term altogether – particularly if you’re operating in several markets.
We have many years’ experience creating messaging targeted at a wide range of audiences. Always sensitive to the latest development across the cleantech sector, we can ensure that you’re saying the right thing, to the right people. Book a call to learn how we can help you with your messaging.
