The focus on social responsibility has given way to a modern understanding of ESG and sustainability. ESG is the environmental, social, and government-related concerns that interplay with companies. These terms can be used interchangeably at times, but they are separate concepts. Investors are interested in these issues, as our asset managers when considering options regarding their ethical investments.
Sustainability concerns the total efforts of a company to run as a long-term business. What makes long-term sustainability possible is the lack of consequences created because of positive changes. Investors do not want outcomes that lead to significant problems. From this lens, investors are looking at sustainability as a business framework. It just so happens that companies capable of long-term sustainability are those that do not cause harmful socio-environmental effects.
With sustainability as the main goal for investors, naturally, the companies that hurt the planet are not considered sustainable investments. Green companies become the focus of what is behind sustainable investing and ESG. If you are still perplexed about the differences and similarities regarding these two terms, continue reading for clarity.
Sustainable Investing And ESG Explained
- ESG is a term that guides sustainable investment decisions. It is a method of sustainable investing that investors use to compare the amount of benefit to harm that a company and its actions contribute to society and the world.
- Sustainability in the context of business is a business that prioritizes operating indefinitely and ideally for a very long time, so much so that it will not contribute to hurting the environment in significant ways.
- ESG is a specific method of sustainable investing, whereby a specific ESG issue is focused on to guide investment decisions. Sustainable investing, on its own, is the total sustainability present for the company and its actions.
ESG-centric vs. Sustainable Investment Perspective
- An ESG–centric business is concerned with its relationship to specific issues, making the relationship of sustainable investing and ESG inconsistent. For example, if a top energy-efficient retail clothing store was underpaying its staff which was made to deal with a hostile workplace dynamic, the two terms (ESG and sustainability) would look at the impact of the business in different ways. Looking at sustainable investing and ESG from an ESG perspective would require emphasizing the adverse effects on the workers.
- Suppose sustainability is only concerned with environmental sustainability. In that case, the retail store could be a sustainable business because it’s highly energy efficient. The lack of focus on worker treatment is one difference between sustainable investing and ESG here, because sustainability could pertain to any sustainable qualities the business maintains.
ESG Is A Type Of Sustainable Investing
There are many shortcomings to the definitions of sustainable investing and ESG. Within these two terms, ethics plays a role, and not everyone agrees on values about sustainability or the economy. It has been proposed that reforms be made to these terms. For now, ESG is understood as a type of sustainable investing that may not encompass all aspects of sustainability.