The two most used acronyms in the sustainability arena; and ones you’ve most likely seen flying around the internet in recent years.
Industry heavyweights such as Genpact have said they “see ESG as a key transformation lever”, while Hilton Hotels is supporting sustainable cities and communities through its commitment to SDG 11.
But what does it all mean? And how can learning about these terms benefit your business?
They are both globally recognised, tangible aids used to re-frame development and guide businesses towards more ethical, sustainable, and socially engaged practices. Importantly, it allows companies to prove they are doing this by utilising a framework that is recognised by the business and political world.
ESG
ESG stands for Environmental, Social, and Governance factors.
These relate to consideration of the 'Three Pillars of Sustainability' outlined in 1987- Planet, People, Profit. Think of it as a sort of rating system to measure a business’ eco and social credentials.
The aim of ESG is to better your business and attract more investment, and since ESG assets are on course to exceed US$53tn by 2025, it’s definitely something to get knowledgeable about.
However, ESG does not simply mean financial investment; it includes the investment of time, money, and loyalty from customers, shareholders, and communities alike. More than ever brand image and reputation go a long way toward a business's success, and luckily the demands of the public are aligning more and more with the recovery of our natural environment.
Let’s break this term down further, looking at each component of ESG, and what they focus on.
E
Environmental factors include deforestation, biodiversity, waste management, energy performance, air & water quality, natural resource depletion, and carbon footprint, including greenhouse gas emissions.
S
Social factors include employee diversity, equity and inclusion, global & local community relations, customer satisfaction, human rights and labour standards, and engagement with projects or institutions to help under-served communities.
G
Governance: The corporate structures and processes by which companies are directed and controlled. These include board structure and diversity, ethical conduct, risk management, disclosure, and transparency.
Alongside the benefits of aligning yourself with these principles to attract a portion of the potential US $53 trillion from investors, legal framework is also being drawn up that means businesses will be legally required to have an ESG strategy.
This has already been implemented in the financial sector. As of April 2022, the European Commission adopted technical standards for financial corporations to follow when disclosing their sustainability reports. They cite that “compliance with sustainability-related disclosures will contribute to strengthening investor protection and reduce greenwashing.”
Take a look at Alphabet, one of the largest companies in the world- and one that businesses look to for cues on how to run a successful enterprise- and you can see the importance of sustainability for operating an enduring business model.
They have just assigned US$5.69 billion, raised through sustainability bonds, to environmental and social causes, and have outlined these clearly in an impact report accessible to the public.
It is evident that they are following ESG principles and being transparent about how they are doing this, staying ahead of the curve that will make this a requirement.
Though Alphabet and Google have had their fair share of controversies, there’s no denying that this recent pledge to what is essentially an ESG and SDG-focused plan is an excellent example of what businesses must be doing. It’s time to follow suit.
SDGs
The 17 goals set by the United Nations as “a call for action by all countries”, SDG stands for Sustainable Development Goals. Following the UN Sustainable Development Summit and the Paris Agreement in 2015, these 17 goals were outlined as a framework to be followed in order to “promote prosperity while protecting the planet.”
The UN website has many clear and informative resources, including what each of the 17 goals entails, as seen in this poster.
Furthermore, a host of different groups and organisations are working to provide financial investment and produce assistance material to help spur the implementation of the SDGs in more businesses.
Examples of this include the Global Investors for Sustainable Development (GISD) Alliance, who held their 4th annual meeting with the UN Secretary-General this month to discuss bridging the US $4.3 trillion gap to achieve SDGs in developing countries. Comprising of the heads of Standard Chartered and Citibank, amongst others, and led by the Chief Executive Officer of the Johannesburg Stock Exchange, this alliance holds gravitas within the global financial sector and is “launching a transformational blended finance platform that will allow for co-investment in sustainable infrastructure projects”.
Another supporting initiative, the European Green Deal, presented a package of proposals in March of this year. This included making sustainable products the norm and promoting circular business models, building on the already implemented Circular Economy Action Plan.
The Commission proposed enforcing the production of almost all manufactured goods to become more environmentally friendly, utilising SDG 9- Industry, Innovation, and Infrastructure. This in turn would positively raise responsible consumption and production- SDG 12- thus inherently bringing about climate action- SDG 13- bettering life on land- SDG 15- and life below water- SDG 14- and so on and so on.
In this way, you see the support, and interconnectivity between the UN’s SDGs, its supporting organisations, financial investment and backing, and global network. By aligning yourself with these 17 principles you become part of a greater network, attracting the attention of potential eco-centric investment and consumers, consequently growing your business and generating profit which you could then channel into further SDG, and ESG, focused work that can start the cycle again.
SDG this, Alliance that, etc, etc. While this may seem like a tangle of confusing acronyms, groups, and proposals, with new articles cross-referencing each other and making new announcements every day, the point is that these two terms- ESG and SDGs- are simply guidance for businesses, investors, and individuals to follow in order to better oneself for the sake of the planet.
Check out tools like the SDG Compass, attend sustainability-focused events such as the ones listed by Sustainability Mag, and connect with like-minded business owners. As mentioned above, think of ESG as a rating system that you and others can use to measure how eco-conscious your business is; if it needs a boost, hire a consultant to help you build a sustainability roadmap. They will help you integrate the principles of the SDGs while revitalising the Environmental, Social, and Governance aspects of your company.
Put the message behind these acronyms at the front burner of your business to become part of a cyclical economy that will help yourself, help others, and help heal the planet.