The term ‘ESG’
Different terminology is used to describe the area where business intersects with society. Two terms have become dominant in recent years: ESG (environmental, social, and governance) and sustainability. However, there are implications to be aware of when shifting semantics.
Terminology such as corporate social responsibility, green, sustainability, and ESG are used to describe the area overlapping business and society. While these terms look like synonyms, each implies a different call to action and level of responsibility.
For example, sustainability and ESG, the two most common terms, differ primarily based on 'sustainability's' outward-looking reporting and action, while 'ESG' focuses on inward-looking disclosures. A company's 'lingo' choice is extremely important, and we have recently seen a rise in the use of the term ESG.
The core reason for the increasing use of ESG is the investment community's arrival on the sustainability scene. ESG criteria are connected to financial performance and have become the language for investors to measure and distinguish investment funds and companies on sustainability performances and risks.
“Business leaders today must focus on what matters”
The main reason why investors are now 'all-in' is that the nature of the systemic risk that climate change poses has become more apparent. There is increased pressure from shareholders and other stakeholders and many economic opportunities. Big trends draw big money, and the shift to a carbon-free economy is as big of a movement as they come.
Meanwhile, there are some philosophical concerns with this finance-led language. Viewing sustainability through a market lens and maximising profit is, in large, what led to our current ecological collapse and the vast inequality in the first place. ESG is an acronym for categories of things companies should work on - but these areas need to be infused with meaning and science. Sustainable, circular, restorative, or ESG must be founded on credible scientific methods to quantify and qualify ambitions, targets and performance.
Including finance in the discussion is essential despite ESG lacking the tangibility of modern sustainability science. We cannot achieve momentum in corporate sustainability with investors on the sideline. Either way, business leaders today must focus on what matters: action at the speed and scale required to build a net-positive world.