Defining Sustainable Strategies
Creating a Clear Sustainability Lexicon
We know that sustainability is no longer a nice to have, it is a business imperative. Yet there is still a lack of clarity around what the terms actually mean and their role.
With increasing regulation investor demand and consumer awareness the correct usage of the terminology is vital. The lexicon of sustainability is increasingly complex so we will keep it brief.
Does ESG mean sustainability, CSR or SDG’s?
ESG specifically refers to the environmental, social and governance performance of a company. It is all encompassing and doesn’t simply focus on the sustainability efforts or environmental impact of the firm. These are used as a measurement tool.
The UN SDGs are much broader on the other hand. They are a set of 17 goals adopted by the United Nations in 2015 to end poverty, protect the planet, and ensure prosperity for all. ESG factors are a part of this and used to measure the sustainability and responsible practices of companies.
The SDGs and ESG factors are closely related. Many of the SDGs can be achieved through ESG practices, such as reducing carbon emissions, improving working conditions, and promoting diversity and inclusion. In turn, ESG investing can help to accelerate the achievement of the SDGs.
Corporate Social Responsibility is more focused on the strategies carried out by the company to carry out its business in an ethical way. These include environmental, philanthropic, ethical, and economic responsibility.
The role, focus and purpose of the above are clear but indeed there is overlap. These needs to be in balance else the strategy is not sustainable, in the truest sense of the word. The opaqueness can lead to confusion at best, and heavy fines and consumer distrust at worst.
So do you actually need to care?
Well, yes. Aside from a companies image and reputation there are huge fines for not adhering to the principles. Studies show that over 50 per cent of environmental claims are vague, misleading or unfounded. Under new EU rules, companies would have their green claims verified before using them in advertising — with fines of up to 4% of annual turnover for those that fail to comply
The EU Green Claims Directive means that companies have to seriously consider how they advertise products as sustainable. Terms such as “biodegradable”, “less polluting”, “water saving” for instance would have to be supported with evidence that verifies claims.
This is building on current regulation European Green Deal & ‘Fit for 55’ package and up and coming EU Corporate Sustainability Reporting Directive (CSRD). The Directives aim to ensure that large EU companies are more open about their sustainability information and efforts.
Companies that are proactive about environmental mandates and clearly communicate their goals, strategies and measurement tools not only secure their future but also open the door to potential new growth opportunities, attracting consumers, partners and investors.
The latest round of EU regulation means offers the opportunity to spark a conversation in businesses and educate stakeholders on sustainable claims. There is a lot of opportunity for companies that get it right.
