ESG and SDG: What's the Difference? Which is the best?

Most likely we have heard the terms SDG and ESG for a long time. This is because the business community is starting to realize the importance of sustainable development goals (SDGs) and environmental, social, and corporate governance (ESG). Two concepts that organizations implement into their businesses to improve their operations. To stay ahead of the competition and succeed in any industry, it is important for businesses to implement these concepts. In this article, we will take a closer look at SDGs and ESG. We’ll learn what it means, how organizations use it to support sustainability strategies, its benefits, and more.

What is ESG?

ESG is an abbreviation for Environmental, Social, and Governance. ESG is a concept that prioritizes sustainable development, investment, and business activities in accordance with these three criteria, namely environmental, social and governance. ESG also includes the standards used to manage investments based on company policy with full responsibility.

Companies that apply ESG principles are obliged to implement the principles of environmental conservation, social responsibility, and appropriate governance. The birth of ESG was based on investor awareness regarding the importance of managing a business with integrity and sustainability. In essence, ESG exists to support companies to maintain a healthy business balance for the long term.

What are the SDGs?

Sustainable Development Goals (SDGs) or Sustainable Development Goals are a 2030 agenda that was jointly agreed upon by all Member States of the United Nations (UN) in 2015. This agenda provides a common blueprint for peace and prosperity for humans and the environment, today and in the future.

There are 17 SDGs which are an urgent call to action by all developed and developing countries in global partnership. This step is a form of awareness that ending poverty and other disadvantages must go hand in hand with strategies to improve health and education, reduce inequality, and spur economic growth accompanied by efforts to overcome climate change and work to preserve the ocean and the environment.

The SDGs goals cover various aspects of sustainability, from economic, social, to environmental. SDGs consist of 17 goals, namely as follows:

1. Not poor: End poverty in all forms and in all places.

2. Zero Hunger: End hunger to achieve food security and good nutrition, and support sustainable agriculture.

3. Good Health and Well-Being: Ensure good health and well-being for all people of every age.

4. Quality Education: Ensure universal access to quality education that is equitable and inclusive and increases lifelong educational opportunities for everyone.

5. Gender Equality: Achieve gender equality and provide equal opportunities for everyone without discrimination.

6. Clean Water and Sanitation: Ensure adequate and sustainable access to clean water and sanitation for everyone.

7. Clean and Affordable Energy: Ensure access to clean, affordable, and reliable energy for everyone.

8. Decent Work and Economic Growth: Promote inclusive and sustainable economic growth, and create decent and productive work for everyone.

9. Industry, Innovation, and Infrastructure: Encourage sustainable and inclusive development of industry, innovation and infrastructure.

10. Reduction of Inequalities: Reduce economic, social and regional inequalities and promote social and economic inclusion.

11. Sustainable Cities and Communities: Making cities and human settlements inclusive, safe, and sustainable.

12. Responsible Consumption and Production: Managing consumption and production sustainably.

13. Action on Climate Change: Take immediate action to combat climate change and its impacts.

14. Life Below Water: Preserving and sustainably using the resources of seas, oceans, and coastal ecosystems for sustainable development.

15. Life on Land: Promote sustainable development and sustainable management of natural resources, including reforestation and protection of terrestrial ecosystems.

16. Peace, Justice and Strong Institutions: Ensure peace, justice and strong institutions, as well as reducing violence, corruption and other crimes.

17. Partnerships for Goals: Enhance global partnerships in achieving sustainable development goals.

What is the difference between ESG and SDGs?

The main differences are as follows:

• SDGs are global goals set by the UN, while ESG is a ranking system used by companies to measure their environmental and social credibility.

• ESG measures how well a company performs in terms of social and environmental responsibility across its supply chain and operations – rather than looking at the broader human rights context.

• SDGs have a time limit, namely they must be achieved by 2030. Meanwhile, ESG focuses on long-term solutions and is more high-level. The Sustainable Development Goals focus on specific targets around the world.

Why are the SDGs not enough?

SDGs alone are not enough to achieve sustainable development. There are many problems that we need to solve, including:

• Working conditions in the supply chain – working hours, wages, etc.

• Corruption and bribery issues – Workers' rights can be suppressed by corrupt governments or other organizations.

• The problem of child labor.

• Water shortage – due to drought, climate change, or other factors.

• Corruption in the management of natural resources – such as forests, minerals, etc.

Without solving these problems, it will be impossible for any company to achieve the Sustainable Development Goals. For example, if a company purchases from a supplier that uses child labor, then the company is complicit in child exploitation. ESG aims to solve these problems by holding companies accountable for their actions and ensuring that they adhere to best practices.

How does ESG work with the SDGs?

ESG is a rating system used by companies to measure their environmental and social credibility. This means that businesses can assess themselves based on criteria such as:

E: Their environmental policies and practices.

S: Their social policies and practices.

G: Their governance policies and practices.

The goal of ESG is to encourage the business world to improve its environmental and social credibility in order to attract investment. And when we say investment, this includes stakeholders that include not only shareholders but also employees, customers, suppliers and the communities in which they operate. The success of a company is not only measured by its financial performance but also by the way the company treats its people and the environment.

• Environmental footprint: greenhouse gas emissions, wastewater, and energy use

• Social impact: labor standards, equal pay, and diversity in the workforce

• Financial performance: financial stability, shareholder profits, etc.

• Community contributions: charitable activities, local employment, and local environmental projects

• Governance: Board structure, leadership, risk management, and internal controls

Stakeholders and investors look for these factors in companies that have strong social and environmental policies. Companies with good ESG scores can be rewarded with investment, improved reputation and access to new markets. But the data also provides benchmarks that can be used to measure progress. This will help identify companies that are not making sustainable efforts and bringing about change or something more permanent.

How do ESG and SDGs work together?

ESG and SDGs work together to determine how any company or business can achieve sustainable development. There are currently 17 SDGs that have been established by the UN to help guide companies and organizations in achieving sustainable development practices.

ESG factors are guidelines to help determine whether a product makes a positive contribution (positive production externality) to the environment, society, and governance of an organization. These factors are also used to measure general results in the organization.

SDGs work together with ESG factors by providing guidance on how an organization can achieve sustainable development goals in its companies, products, and services.