ESG and Sustainability – What’s the Difference

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• ESG and Sustainability Whats the Difference?

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In recent months, more and more asset owners have
been asking whether they should
include environmental, social, and governance
(ESG) issues in the investment decision-making
process. This is because of the growing
sensitization on the need to incorporate ESG
criteria in the corporate environment. Well, the
first step for an investor is to differentiate
between the ESG practices and sustainability
goals.
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Understanding ESG
ESG is an abbreviation for environmental, social,
and governance issues. It refers to the factors
of companies' operations that are not financial
in nature but affect their long-term business
success.
The term "environmental" refers to climate change
mitigation or adaptation and other forms of
environmental degradation.
The term "social" refers to both labor standards
and the social relations in the supply chain
(e.g., exploitation, child labor) as well as
human rights, including gender equality and
access to essential services (healthcare, water,
etc.).
The term "governance" refers to the social and
environmental performance of companies and the
quality of governance structures that sit above
them.
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What is ESG, and how is it similar to
Sustainability?
ESG is closely related to the Sustainability of
business practices as they always go hand-in-hand
with each other. The more sustainable a company's
activities are, the higher its ESG rating.
Typically, "Sustainable" is defined by the UN
Global Compact as development that meets the
needs of the present without compromising the
ability of future generations to meet their own
needs.
Sustainability involves both environmental and
social issues as well as the company's long-term
financial health. A sustainable company delivers
value to society through ethical business
behavior and is one that will be around for the
long term. 
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- Both have a common goal to help companies and
their shareholders do well without harming
society or the environment.- They both offer a
solution to a problem in our lives ESG can raise
awareness about certain issues while
Sustainability is more focused on stopping the
problems from occurring rather than just making
sure it doesn't worsen.
Typically, ESG and Sustainability have the
following similarities?
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• The Difference Between ESG and Sustainability
• Now that we have defined ESG, let's look at the
  key differences between ESG and Sustainability
• First of all, ESG is an approach to investing
  that analyzes companies on environmental, social,
  and governance (ESG) factors which are not
  related to climate change or environmental
  issues. This puts the focus on responsible
  behavior, fairness, and integrity.
• ESG is about company identity, stakeholders, and
  decision-making whereas Sustainability focuses
  on the relationship between the company and the
  environment.
• ESG is a subset of Sustainability, but some
  companies would not be considered sustainable if
  they did not also have good ESG policies.

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• ESG is standardized it's quantifiable on an
  index or on a scale from 0 to 100. This means you
  can benchmark your performance against other
  companies and get a sense of how you compare.
• Sustainability is hard to measure and harder
  still to know if you're doing it well since
  this is highly subjective and there's no
  consensus on what good performance looks like.
• Sustainability focuses on the environment,
  climate change, and environmental issues which
  can all be costly for companies to manage.

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• Another difference is that sustainable companies
  can include those with poor or even terrible ESG
  scores, whereas an ESG investment will not
  include a company with poor financials this is
  often referred to as "the put" if you want to
  invest in the company, the ESG score must be
  in-line with your goals.
• Finally, ESG is still an emerging field for most
  investors, while Sustainability has been around
  for long. Sustainability investing also tends to
  look at different types of metrics than ESG (such
  as economic profit). However, many investors are
  looking at how to combine ESG with Sustainability
  for the best portfolio returns.

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• Why ESG is here to stay data-backed benefits
• As the issue of Sustainability grows in
  importance, more and more companies are employing
  sustainable practices to improve their
  attractiveness to investors. The result is that
  it's not only the financial analysts focusing on
  company fundamentals but also ESG rating
  agencies. If a business is environmentally or
  socially responsible, it will be financially
  successful.

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• But don't take our word for it let's look at
  the data
• According to Mercer, the US SIF Foundation, and
  Broadridge Financial Solutions study last
  year, ESG investment criteria can improve
  financial performance
• - 53 of respondents said their company's
  financial performance had improved since using
  ESG considerations in business strategies and
  capital allocation and
• - 52 reported that the market demand for
  sustainable investment products was increasing.

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• A 2016 study by the University of Cambridge and
  Boston Common Asset Management found that ESG
  considerations can improve a company's
  performance
• - Companies with good ESG ratings have higher
  valuations than those with poor ones
• - Companies with strong ESG practices have been
  more resilient to downturns in the market and
• - Companies with strong ESG ratings have lower
  costs of capital, suggesting that financial
  markets view them as being more valuable.

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• Further proof comes from the 2017 study by CFA
  Institute (Chartered Financial Analyst)
• -72 of surveyed investors said they would
  include ESG issues in their investment process
  within the following five years.
• Transition to ESG
• Integration of ESG factors in investment
  strategies is also considered by many as the
  shift towards sustainable investment. The main
  areas where investors seek to incorporate ESG
  include

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• (1) Companies' environmental practices
• ESG investors believe that irresponsible
  environmental practices may adversely affect the
  intrinsic value of a company's stock, and
  therefore seek to make investments in large
  companies with good environmental records.
• (2) Diversity and equality
• ESG investors believe that diversity and equality
  in the workplace can lead to a more productive
  workforce.

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• (3) Human rights?
• ESES investors believe that allowing employees to
  exercise their human rights freely increases the
  employee's level of satisfaction and
  thus productivity.?
• (4) Anti-corruption measures
• ESG investors believe that companies with
  anti-corruption measures have a competitive
  advantage over companies without.
• (5) Company's governance practices
• ESG investors believe that good corporate
  governance practices contribute to a company's
  stability, provide it with a competitive
  advantage, and increase its share price.

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