Over the last decade, there has been a significant increase in awareness of the importance of adopting responsible and sustainable business practices. In this context, the terms ESG, sustainability and social impact have become much more common. However, although these concepts are closely related, they are not synonymous and it is important to understand their differences and how they intertwine. In this article, we will explore what ESG is, and how it differs from sustainability and social impact.
What is ESG?
ESG is the acronym for Environmental, Social, and Governance. This term is used to describe the three central pillars in assessing the sustainability and ethical impact of an investment in a company or organization.
- Environmental: This pillar focuses on how a company manages and minimizes its impact on the environment. This includes actions such as waste management, reduction of greenhouse gas emissions, energy efficiency, sustainable use of natural resources, and how the company manages its carbon footprint.
- Social: The social aspect of ESG examines how a company treats employees, customers, suppliers and the community at large. This covers issues such as equity and diversity in the workplace, working conditions, protection of human rights, and the impact of business practices on local communities.
- Governance: Governance refers to how a company is managed and governed. It includes board structure, business ethics, transparency and accountability, board independence, and anti-corruption and anti-bribery practices.
Sustainability: A Broader Concept
Sustainability is a broad concept that refers to the ability of human societies to maintain or improve their quality of life without long-term degradation of the natural bases that sustain them. It involves a balance between three dimensions: social, economic and environmental.
While ESG is a more specific tool or framework often used in the context of investment and company evaluation, sustainability takes a broader and more holistic approach. Sustainability seeks to ensure that the needs of the present are met without compromising the ability of future generations to meet their own needs. It includes, in addition to ESG factors, considerations of sustainable business models, responsible consumption and production, and the long-term development of balanced societies.
Social Impact: Focus on the Community
Social impact is a component of sustainability that focuses specifically on the effects that an organization, project or activity has on people and societies. While the social pillar of ESG covers only certain aspects of social impact such as labor conditions and human rights, social impact in a broader sense can include a much wider range of effects and activities.
For example, social impact can encompass initiatives to improve education and health in local communities, reduce poverty and inequality, support social justice, and create sustainable economic opportunities for marginalized groups. Often, social impact is measured by specific community well-being metrics beyond what is typically covered in ESG assessments.
Conclusion
In summary, ESG (Environmental, Social, and Governance) is a framework used primarily in the investment arena to assess how companies manage risks and opportunities related to environmental, social, and governance factors. Sustainability is a broader concept that encompasses the balanced and responsible development of societies in general, considering the interconnection between the economy, the environment and society. Social impact, on the other hand, focuses on how business activities and projects affect people and communities directly.
Understanding these differences is crucial to adopting and promoting practices that truly contribute to a more sustainable and equitable future. By adopting and following ESG principles, companies can not only improve their long-term viability, but also play a key role in creating a better world for all. Sustainability and social impact are complementary concepts that reinforce the need for a comprehensive and responsible vision of global development and prosperity.
This holistic understanding enables companies not only to be sustainable in an environmental sense, but also to thrive as part of an inclusive and just society, ensuring a lasting positive impact on the world.
