They both share the same goal of improving a company’s business practices so they can boost profits and create value for stakeholders, but that is where the similarities end.
The differences between mere sustainability and ESG are:
Sustainability is vague, whereas ESG is specific and measurable. While sustainability can mean different things to different companies, ESG provides a specific set of criteria companies can measure and report against.
Because sustainability is vague, sustainability initiatives are likely to be unprofitable and unsuccessful. Because ESG is specific and measurable, ESG-based initiatives are likely to be completed on time and successfully achieve their objectives.
ESG is a decision-making framework used by investors and other stakeholders that helps everyone assess company performance and risk, whereas sustainability is used only to make internal capital investment decisions (i.e., installing LED light bulbs or other energy efficiency measures, electrifying a transportation fleet, purchasing sustainability measurement software).
ESG includes more than only sustainability. Sustainability prioritizes correcting environmental externalities alone, while ESG addresses the complete environmental, social, and ethical externality framework.
An example of the difference:
ABC Inc. has a completely carbon-neutral, zero-waste, renewable-powered manufacturing facility. Based on that alone, ABC Inc. is considered a “highly sustainable” company. But their sustainable work facility is wildly dangerous for employees. Floor workers are getting injured on the job all the time, and the factory is a health and safety disaster. ABC Inc. is not meeting it’s ESG obligations, despite being a “highly sustainable” company.
ESG and sustainability are both important, strategic considerations for modern companies and executive teams. While they do have some overlap, there are also important fundamental distinctions around how a company approaches, prioritizes, and measures their ESG performance alongside their sustainability programs and initiatives.