by George P. Nassos
There have been many articles about our environment with emphasis on sustainability and/or ESG. It seems that many of them imply that ESG is not really the same as sustainability. I think this issue needs to be resolved with a short history of these two terms.
In 1983, the United Nations convened the World Commission on Environment and Development, chaired by Dr. Gro Harlem Brundtland, the former prime minister of Norway. The agenda of this commission was concerned with the accelerating deterioration of the human environment and natural resources. The final report, Our Common Future, included a definition for sustainability, short for sustainable development, which is: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
Another definition for sustainability was provided by the Center for Sustainable Enterprise at the Illinois Institute of Technology Stuart School of Business:
“The practice of sustainable development assures that the natural resources and energy we use to provide today’s products and services will not deny future generations the resources necessary to meet their needs while building and preserving communities that are economically, socially and environmentally healthy.”
Ten years later, 1993, John Elkington coined the phrase “Triple Bottom Line” referring to environmental integrity, social equity, and economic profitability. It has also been referred to planet, people and profit, or even sometimes referred to earth, equity and economy. For a company to be truly sustainable, it must meet all three pillars of the triple bottom line (TBL). But there needs to be a measurement to understand achieving the TBL.
The Global Reporting Initiative (GRI), developed in 1997, became the internationally accepted standard for TBL reporting. The GRI was created to bring consistency to the TBL reporting process by enhancing the quality, thoroughness, and value of sustainability reporting.
Companies that really adapted to the TBL were not only truly sustainable but were also very profitable, outperforming most other companies. There were even mutual funds created for companies that were truly sustainable because of their economic performance and data show they outperform the Dow Jones Index and the Fortune 500 Some non-sustainable companies were missing out on the investors, so they started marketing their company as one following the TBL. This led to some greenwashing and consequently not all sustainable companies were performing as expected.
The key factor in operating as a sustainable company is the overall management to ensure that environmental and social issues are being carried out appropriately along with regular operations. This means that the corporate officers, the department managers, the board of directors as well as the employees themselves, must be cognizant of the various objectives and be sure they are carried out. It is the overall governance of the company employees that really matters. If all of this is carried out as expected, the company will also achieve the profitability that is planned.
The importance of proper governance to meet the environmental, social, and economic issues led to the development of the Environmental, Social, and Governance (ESG) concept. To be sure a company is following the ESG concept, metrics have been developed that require measurement. And these metrics are submitted as reports to organizations such the Global Reporting Initiative. Investors can then assess the performance of a company to determine if it is truly following the ESG.
If one follows ESG criteria for a company and how it performs based on the metrics being reported, it is a true indication of how well the company is meeting the sustainability criteria. Basically, ESG is the current indication of a truly sustainable company.