ESG vs. Sustainability: which are the differences and why they matter in business strategy

In the last few years, sustainability and ESG have become two key concepts within the entrepreneurial world. Although they are often used as synonyms, the truth is that they have different but complementary approaches, to integrate the environmental, social and ethical commitments in the strategy of a company. But what is the difference?

What is sustainability? What is ESG?

Let's start with sustainability. It is a broad concept that encompasses all actions taken by an organization to minimize its negative impact on the environment. It is based on the balance between three areas: social, economic, and environmental.

The ultimate purpose of sustainability is to ensure that current development does not compromise the capacity of future generations. Therefore, companies that adopt sustainable strategies seek to comply with environmental obligations, but also to generate a positive impact on society, which is increasingly aware.

But what about ESG? These acronyms stand for Environmental, Social, and Governance, which are the three pillars upon which it is built. Unlike sustainability, ESG is a more specific and quantifiable framework that allows measuring and demonstrating an organization's performance in these three dimensions:

• Environmental. Evaluates how the company manages its impact on the planet: greenhouse gas emissions, carbon footprint, energy efficiency, waste management, among others.
• Social. Analyzes the company's relationships with its employees, consumers, and the community in general. Manages actions such as workplace safety, diversity, equity, or customer satisfaction.
• Governance. Evaluates how the company is managed and led, for example, its ethics, transparency, structure, anti-corruption policies, etc.

What is the difference?

The main difference is that ESG is a more specific tool used in the context of investments and company evaluation, and sustainability has a more holistic approach.

As Desarrollo Circular, a company within the La Lonja de la Innovación ecosystem, explains, understanding the difference is essential for designing responsible and aligned strategies. Furthermore, they gives us an example to understand how they differ: a company may follow the values associated with sustainable development, but to access funds, it needs specific ESG metrics that objectively demonstrate it.

Not having these elements at the center of your strategy can expose your company to risks such as reputational damage, difficulty accessing investment, etc. Therefore, companies like Desarrollo Circular strive to accompany organizations every step of the way to comply with this and align with the European taxonomy.