SDG vs ESG: Do You Know The Difference?
Sustainable development is easier said than done. Many companies would like to integrate sustainable business practices; however, according to a Bain and Company survey, 98% of companies surveyed failed to meet the expectations or goals that they set. A large part of the issue is that companies feel lost at sea and don't understand the difference between SDG vs ESG.
Even though the intention to protect the environment may be present, many companies lack the skills and know-how to realise their sustainability goals.
A step forward in the right direction would be for companies to understand existing sustainability frameworks and how they relate to their business operations.
In this article, we compare and contrast the United Nations' Sustainable Development Goals (SDG) and Environmental Social Governance (ESG) frameworks within a business context to help you progress towards meeting your compliance needs and moral imperatives.
What are the sustainable development goals?
The UN's Sustainable Development Goals (SDGs) provide a broad framework for countries to eliminate global poverty, protect the environment, and promote peace and prosperity for all humans worldwide. The member states of the United Nations adopted the SDGs in 2015.
While the framework includes more than 17 separate goals, they are all interrelated. Progress in one sphere will help progress in another sphere and vice versa.
A core aspect of the SDG framework is that countries have agreed to prioritise progress for those countries that are the furthest behind.
Member states have repeatedly reaffirmed their commitment to meeting the SDGs by 2030. Unfortunately, in 2024, member states recognised that “the achievement of the SDGs is in peril” but also reiterated that countries will continue to do their best to meet the goals in the agreed-upon timeframe.
While all member states adopted the SDGs with great hope, progress towards the enshrined goals remains a significant hurdle for all countries, with only an average of 17% progress made as of 2024.
The SDG framework has had a considerable impact on national policy for numerous countries around the world. Some countries that have made the most progress towards achieving their goals include Finland, Denmark, Germany, and Croatia while Malaysia is also ahead of the curve by attaining an impressive 43% progress on the indicators.
Despite significant challenges, the Sustainable Development Report 2024 has noted that “corporate sustainability practice” is one of the few areas where we are on track to meet our sustainability goals. This shows that businesses around the globe are committed to shouldering their corporate responsibility towards the environment.
What are the environmental, social, governance metrics?
The ESG framework assesses corporations using three primary metrics: environmental, social, governance, and the resulting impact of these aspects.
This framework has become highly popular because it is more quantifiable and measurable than buzzwords such as “sustainable development” and “corporate responsibility”. It helps companies and investors make better decisions that align with ESG goals.
Countries worldwide are introducing regulations requiring corporations to comply with ESG metrics. These “ESG regulations” can involve regular disclosures about performance and practices, using ESG as a guiding light while making investment decisions, and auditing and managing internal operations and supply chains while considering the environmental and social impacts.
Over time, ESG regulations are only becoming more intricate as governments try to reign in the negative impact of industrial operations. Within this context, the haphazard corporate response has proven insufficient. Companies that holistically adopt ESG as a part of their operations will likely be more effective.
SDG vs ESG: The Key Differences
While SDG and ESG sound quite similar, they are two distinct frameworks. SDG is part of a holistic global movement towards sustainable development, while ESG helps corporations reduce their negative impact on the larger ecosystem.
ESG is a quantifiable way for corporations to ensure that they are helping with SDGs. Governments and investors have introduced ESG criteria to evaluate corporations to help them meet their SDG responsibilities. SDG is the global policy, while ESG helps with corporate implementation.
As the world progresses, governments and investors are not only concerned with how well a corporation performs financially. They are also growing concerned about a corporation's overall impact on the ecosystem (both natural and economic). This is where ESG norms come into the picture. They provide a quantifiable way for stakeholders to ascertain and accept accountability.
For example, Microsoft has reduced its carbon footprint, lowered its waste generation, and improved its energy efficiency as a direct result of its ESG efforts. Similarly, Accenture has reported a 20% increase in employee engagement and a 17% increase in customer satisfaction by implementing ESG metrics.
The importance of sustainability metrics
While setting sustainability goals is crucial, there must also be a way to track progress towards them. This is where sustainability metrics can help. They are a relatively new area of inquiry with great potential to help you meet your company's SDG and ESG responsibilities.
Measuring and quantifying the amount of energy, water, and material used and the impact on biodiversity and air quality is part of the ESG reporting requirements. Increasingly sophisticated ways of measuring greenhouse gas emissions are also in development.
These metrics can help your company meet its ESG goals, which in turn can help you develop strategic advantages such as reduced operational expenses, better risk management, and improved brand loyalty.
Doing well on ESG metrics can also improve your company’s ability to attract investments. Globally, more than $94 billion was invested in sustainability-focused mutual funds and ETFs in 2023 alone, which shows that investors are increasingly looking to create a positive impact with a broader perspective.
Future-proofing businesses with SDG and ESG integration
Corporations with an eye towards the future can significantly benefit from SDG and ESG integrations. But remember, it shouldn't be an SDG vs ESG situation. By approaching it from the ESG perspective, you embrace regulatory compliance, which helps create a sustainable business with lasting brand loyalty and employee satisfaction while working towards the UN Sustainable Development Goals.
Such an approach helps to reduce risk and can serve as a guide for future investments.
Companies can follow a roadmap towards ESG integration that includes:
- Conducting an ESG audit
- Formulating an ESG strategy and action plan
- Executing action plan
- Monitoring and reporting
A study by ESG Book found that companies that successfully integrate ESG norms into their operations average equity returns of 10.1% compared to 7.4% of those that don’t. The benefits of Sustainable Development Goals and embracing Environmental Social Governance are clear, not just for the environment and society as a whole but also for individual companies.
Companies can start their ESG journey by consulting experts such as MyGreenlight.
Navigating ESG reporting with MyGreenlight
ESG disclosure requirements are now a part of doing business in numerous parts of the world. In Malaysia, all publicly listed companies must submit comprehensive ESG reports for 2024 by March 2025.
However, navigating these disclosures can be complex and frustrating. Currently, there is no standard way to approach ESG disclosures. It is up to each company to choose a framework that works for them and make the relevant disclosures. This lack of uniformity can increase confusion and reduce efficiency.
As a solution, MyGreenlight offers a software platform tailored to help companies meet their ESG disclosure requirements.
Our platform can streamline the disclosure process by providing step-by-step guidance to companies. MyGreenlight is suitable for businesses of all sizes and offers customised services.
With the MyGreenlight software, you can create ESG reports using either the Capital Market Malaysia SEDG or GRI frameworks, whichever works best for your company.
Who should you call if you need help with your ESG reporting? MyGreenlight, of course! Contact us today to learn more.
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