ESG vs Sustainability

In today's business world, Environmental, Social, and Governance (ESG) and sustainability have become crucial. Companies are under pressure to integrate these principles to meet stakeholder expectations, making them essential for sustainable investing and ethical business practices.

 

What is ESG and sustainability?

ESG (Environmental, Social, and Governance) standards are used by socially conscious investors to evaluate companies. These criteria help identify firms that are financially stable and committed to ethical practices and societal impact.

Sustainability focuses on meeting current needs without hindering future generations. It balances economic growth, environmental care, and social well-being to create long-term value by considering an organisation's impact on the ecological, social, and economic environment.

 

Three Pillars of Sustainability and ESG

Sustainability involves three key pillars: economic, environmental, and social.

1. The economic pillar emphasises on practices that support long-term economic growth without negatively impacting the community's social, environmental, and cultural aspects. It includes efficient resource use, innovation, and responsible financial policies.
2. Environmental sustainability focuses on the importance of protecting the natural environment. It involves reducing carbon footprints, managing waste, conserving water, and protecting biodiversity.
3. The social pillar addresses the impact of business on people and society. It includes fair labour practices, community engagement, human rights, and ensuring equitable opportunities for all.

ESG stands for environmental, social, and governance, each representing a crucial aspect of a company's operations.

1. The environmental pillar evaluates how a company’s activities affect the natural world. It encompasses considerations like energy use, waste management, pollution, and climate-related financial disclosures and mitigation efforts.
2. The social pillar examines how a company manages its relationships with stakeholders, including employees, customers, suppliers, and the broader community. This includes labour practices, diversity and inclusion initiatives, and community development efforts.
3. The governance pillar focuses on the internal systems and controls that guide a company’s operations. Key elements include board diversity, executive compensation, shareholder rights, and the transparency of corporate policies and practices.

 

Difference Between ESG and Sustainability

ESG vs sustainability are closely related concepts, but they serve different purposes and are applied in distinct ways within the business and investment landscapes.

Investors primarily use ESG criteria to evaluate the ethical impact and sustainability practices of potential investments. These standards help investors identify companies that are financially robust and committed to positive environmental, social, and governance practices.

The role of ESG in investment decisions includes risk management, value creation, and corporate strategy.

• ESG factors help investors assess risks impacting a company’s long-term ESG performance. For example, companies with poor environmental practices may face regulatory fines or reputational damage.
• Companies that score well on ESG criteria are often seen as more innovative and better managed, which can lead to superior long-term financial performance.
• Integrating ESG into corporate sustainability strategy helps companies align their operations with broader societal values, attract socially conscious investors, and enhance their reputation. This can lead to improved stakeholder relationships and access to capital.

While sustainability is a broader concept that focuses on meeting present needs without compromising the ability of future generations to meet theirs. It encompasses long-term goals, resource conservation, and societal impact, relating to everyone in significant ways.

• Sustainability emphasises the importance of long-term planning and pursuing goals that ensure future generations' well-being. This includes sustainable development practices that balance economic growth, environmental protection, and social equity.
• A key aspect of sustainability is the efficient use of resources to minimise waste and reduce environmental impact. This involves adopting recycling, renewable energy use, and sustainable sourcing practices.
• Sustainability also considers the broader impact of business activities on society. This includes promoting social equity, improving community well-being, and ensuring fair labour practices. Sustainable practices benefit everyone by creating healthier environments, stronger communities, and more resilient economies.

 

How do sustainability and ESG fit together?

ESG practices are instrumental in achieving sustainability goals by providing a structured framework for companies to follow. Each component of ESG contributes to this framework.

In terms of environmental factors, ESG criteria encourage companies to adopt sustainable business practices such as reducing greenhouse gas emissions, managing waste, and conserving natural resources by minimising environmental impact and promoting the health of ecosystems.

The social component of ESG emphasises the importance of social responsibility, including fair labour practices, community engagement, and diversity and inclusion. By addressing social issues, companies contribute to societal well-being, which is a core aspect of sustainability.

Governance practices, on the other hand, ensure transparency, accountability, and ethical decision-making within companies. Strong governance supports supply chain sustainability by fostering trust and integrity, essential for long-term success and societal trust.

 

ESG and Sustainability Initiatives by Ajinomoto Malaysia

Ajinomoto Malaysia has made significant strides in integrating ESG and sustainability into its operations. The company focused on building a strong foundation for its sustainability initiatives, establishing essential policies and sustainable manner to guide future efforts.

Ajinomoto Malaysia has been actively enhancing sustainability and empowering its workforce since 2020, focusing on reducing environmental impact, fostering innovation, and optimising operations to embrace circular economy principles.

We expanded our existing ESG roadmap, which details our aspirations, goals and targets to be achieved by 2030. Further to this, we have enhanced our climate reporting by conducting a qualitative scenario analysis and initiated our Scope 3 greenhouse gas emissions ("GHG") reporting to include emissions from employee commutes. 

Overall, its ESG metrics highlight significant reductions in greenhouse gas emissions, plastic use, and food waste, alongside strong employee training and zero product recalls. Ajinomoto Malaysia aligns with ISSB standards, ensuring transparency and accountability in its sustainability efforts.