What does ESG actually mean?

I’ve been involved in sustainability professionally for over a quarter of a century now and over that time I have seen many terms come, some stay and others disappear. Currently, the term environmental, social and governance, commonly known as ESG, is very popular. But what does this term mean and how does it apply to organisations? Read the rest of this post to find out!

The whole story

ESG to me is just a shortened version of the triple bottom line, where environmental (planet), social (people) and economic (profit) issues are considered when determining the level of sustainability of an entity such as an organisation or project. Basically, ESG is the lumping together with environmental and social issues. They are closely linked and are often managed by the same person/ team of people in an organisation. Economic issues tend to be seen as somewhat separate and such issues will be dealt with by a different part of an organisation, such as an accountancy team. ‘Governance’ on the other hand, tends to be a term used for the rules and regulations under which an organisation operates. Now to explore these terms in a little more detail.

Environment

Well, where do we start with this one, a huge subject! If you look at ISO 14001:2015, the term environment is defined as being something along the lines of the surroundings in which an organisation operates, including air, water, land, natural resources, plants, animals, humans (humans are animals, but we will let that pass!) and their interrelationships. Therefore, any issues which meet these criteria could potentially be an issue covered by ESG. It really depends on what an organisation does and sometimes where it is located as to what will be covered by ‘environment’.

Environmental issues can roughly be classed as pollution (the release of harmful substances from an organisation’s activities) and the use of resources needed to operate, covering issues such as how these are extracted, processed and transported. There are a few issues that sit outside the definition, such as land use change, however.

Social

Social generally means along the lines of relating to society or the way that society is organised, with ‘society’ being defined as a large, organised group. We are therefore looking at issues that are directly associated with humans. As with environmental issues, the social issues that are important to an organisation will vary but common issues include occupational health and safety, training and education, impacts on local communities (although there is a fair bit of crossover with environment for this one), the fight against child labour, modern day slavery, and workplace diversity and inclusion. As with environmental issues, these issues should be looked at along the full life cycle, from cradle to grave.

Governance

Governance is one of those terms that you sort of know what it means, but it is difficult to put into text! Anyway, I will give it a go. This one, in general terms, is how the organisation is managed. In the context of ESG it tends to be more specifically related to how environmental and social issues are managed. It is about how decisions are made in an organisation and the rules in place that guide those decisions, such as policies and procedures. It is generally about control of Environmental and Sustainability issues through commitment, accountability, transparency and meeting the needs of key stakeholders etc. Common ways to show good governance are to implement management systems to a standard such as ISO 14001:2015 (environmental management) and ISO 45001:2018 (occupational health and safety) and sign up to the requirements of other voluntary standards such as the UN Global Compact etc.

Final Note

In a nutshell then, the term ESG is the way that an organisation controls relevant environmental and social issues. The specific E and S issues will vary between organisation, but they are managed by policies, procedures and voluntary standards.

John Binns BSc (Hons) MSc MIEMA is an experienced environmental tutor and consultant.