What is the difference between ESG and SDG?

ESG differs from the Sustainable Development Goals (SDGs) in two fundamental respects: ‘operational alignment’ and ‘reporting utility’. The SDGs are a set of political ambitions conceived by the United Nations in 2015.

They are a blueprint for countries to achieve a more sustainable future, including ending poverty and hunger, improving health and education, combating climate change and protecting oceans and forests. There are 17 goals, 169 targets and 231 unique indicators.

Operational Gap

The SDGs have been described as a network of targets that are difficult to directly align with company objectives, strategy and responsibilities – restricting their operability at a micro, firm-level. This difficulty can be characterised as an ‘operational gap’.

In short, it is misleading for a food manufacturer to claim that they are contributing to Goal #2 just because they produce food. It is virtually impossible to know the net effect of the company’s production methods on world hunger – there are too many variables between the cause (firm activity) and claimed effect (zero hunger). It may be that the company’s production methods actually increase hunger.

In contrast to the SDGs, ESG is a framework (also developed by the UN) to assess the environmental, social and economic impact and double materiality of individual company activity.

Utility Gap

The second difference lies in ‘reporting utility’. Essentially this is the difference in the purpose of SDG and ESG reporting and its subsequent utility to different stakeholder groups. The SDGs are designed to report in aggregate at a global, national and regional (macro) level. In contrast, ESG is designed to report at a (micro) firm-level.

For example, Gross Domestic Product (GDP) measures national output but has little value for company managers and investors. The SDGs are used in some companies’ consumer marketing in much the same way as Organic, Fair-Trade or B Corp marks. But for managers and investors seeking to make decisions on resource allocation for example they are of limited use in determining investment (cause) and likely return (effect).

Complementary

In summary, ESG differs from the SDGs in operational and reporting terms. Both concepts may be regarded as complementary in that ESG acts as a firm-level bridge to the aggregate macroeconomic ambitions of the SDGs.