ESG and sustainability: Same but different

For large corporations, reporting on sustainability efforts is no longer a nice-to-have but an essential shareholder and investor requirement. One study says that 86% of global asset owners are implementing sustainable investments in their strategies, a statistic that rises to 97% in the APAC region.¹

Sustainability officers in large corporations will be very familiar with the terms ESG and sustainability but knowing the difference is becoming important for wider teams as the pressure to reduce energy and raw material use creeps into more divisions.

Both ESG and sustainability reach a common goal, but the distinction lies in the methods of measuring and tracking.

ESG is a finance-driven framework that measures corporate achievements under a set of environmental, social and governance metrics. Frameworks such as the Sustainable Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI) set disclosure standards across all elements of ESG and allow for standardised comparisons of sustainability progress. This makes ESG the preferred measurement for stakeholders and investors.

Corporate sustainability, on the other hand, is defined by the individual corporation and measured using the metrics that are relevant to their region, sector and company. Shared publicly in the annual report, the goals are outcomes-driven and generally considered the path to true sustainability. Although ESG has a global standard, corporate sustainability claims must also be grounded in quantifiable truth as they are highly scrutinised.

Despite their differences, both ESG and sustainability require fluency in data collection, analysis and interpretation to navigate the reporting requirements, which puts tech-driven companies ahead of others. With an existing digital ecosystem, these companies can measure sustainability - both for ESG and corporate reporting - and prepare to improve efficiency with every reporting round.

Implementing digital-first improvements is where ESG intersects with sustainability. Using digital transformation, companies can have a sustainability approach that works best for their business while using ESG frameworks as the qualifier of their efforts.

Data points allow for improvement, and digital transformation creates more data points. This makes the push for measurable sustainability a natural alignment with the expansion of digital transformation.

Global ESG framework SASB requires companies to measure fossil fuel and renewable energy use. Digital transformation, particularly AI and IoT technologies, allows energy use to be measured and reduced. This primary metric will likely align with corporate sustainability goals, meaning companies can achieve ESG and sustainability goals using a singular tech adoption strategy.

For global companies, ESG is a profit-driven framework that is recognisable across regions, so it can be used to qualify investment in sustainable technologies that impact its global reach. It is for this reason that investors favour ESG frameworks. Whereas 60% of executives say digital transformation is the biggest driver of growth, 38% go as far as to say ESG is a key factor in deciding which digital initiatives to implement.²

ESG-first digital transformation is already happening. When Lenovo paired with The Nature Conservancy to add edge computing to a remote community project, they were able to process six months’ worth of data within just one week.³

Computer hardware manufacturer, Western Digital is also reaping the ESG benefits from digital transformation. To reduce distribution costs and overall carbon footprint, they focused on transformation in the supply chain using a custom-built logistics app that combined data integration, data quality and AI tools with other logistics applications. The resulting transformation provides both business and sustainability value with better supply chain consolidation, analysis of freight carriers and optimised routing.⁴

As a short-term, standardised and profit-driven framework, ESG is preferred by shareholders. As a long-term and nuanced set of reporting metrics, corporate sustainability acknowledges the difference in achieving sustainability between companies and sectors. Both can be enhanced by the progression to full digital transformation. The insights and efficiencies that digital transformation achieves allow companies to achieve their ESG and corporate sustainability goals in the same swoop.

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References:

1. Investor Daily, 2022, Sustainable investing now ‘truly mainstream’, global survey finds
2. PwC, 2022, ESG Digitisation
3. World Economic Forum, 2023, Why digital transformation and non-financial reporting go hand in hand
4. Tech Target, 2023, 10 key ESG and sustainability trends, ideas for companies