ESG and SDGs – what’s the difference?
Often mentioned together
ESG and SDGs are increasingly appearing side by side. How do they differ and what do they have in common? An approach to help specify and understand.
Focusing on the 17 United Nations Sustainable Development Goals
(Photo credit: Jamie Street auf Unsplash)
It's about sustainability
"Environment", "Social" and "Governance" - short "ESG” are most frequently used in the corporate environment and in media contributions, sourced from the financial and investment sectors. The United Nations' sustainability goals, the Sustainable Development Goals, or SDGs for short, are less part of the public debate. However, this does not mean that they are less important. Both are becoming more decisive, which definitively is a positive development!
Here's a leaflet to provide a quick overview:
ESG – in the context of the financial world
In the period after World War II, investors on the stock markets – at least on the New York Stock Exchange – are said to have held their stocks for an average of six years. By 2017, the average investment period decreased to about seven months only. When including high-frequency trading – a computer-powered trade – the average today is just a few dozen seconds, while high frequency trading by its own accounts for half of the total transaction volume (1). Within one year alone, the volume of sustainable investments in Switzerland rose by 62 percent from 2018 to 2019 to almost CHF 1.2 trillion. For comparison: Ten years earlier, in 2009, the amount was CHF 32.4 billion (2).
I am not a financial expert. The rapid investment interval, however, and the great interest in sustainable investments show very clearly that, on the one hand and depending on the perspective, the pressure or urge respectively to maximize profits is constantly increasing. While on the other hand, the awareness for our planet in its overall context fortunately is becoming more pronounced. But can the two perspectives be combined? Let's dive a little deeper!
Means confused with needs
In the 1980s, economic and social pressure on companies began mainly in the oversaturated Western markets. Price and quality were no longer the unique means for differentiation. In addition to the production and provision of products and services, the brand image began taking center stage. The time for a conscious and strategic approach for corporate responsibility took off. The angle of vision got broader. While the focus then used to be on "Environment, Health and Safety" (EHS), today’s approach has become more comprehensive and complex too, including topics such as market environment, supply chain risks, environmental effects, respect for life-support conditions for the producers involved and the establishment of industry-specific guidelines.
Nevertheless, according to Marcos Athias Neto, head of the UNDP Sustainable Finance Hub, our economic system has moved in a direction that is primarily about maximizing financial value. The funds were confused with the purpose. Financial activities with the needs of society.
From 2020 onwards, the ESG understanding has become more prominent. By 2025, assets invested in accordance with ESG criteria are expected to exceed 53 trillion US dollars worldwide, accounting for at least one third of total assets. Hence, interest, demand, and the need for responsible management are growing. And this on the part of investors, companies, and consumers.
We have it in hand
This is indeed the most motivating factor: As consumers and investors, we play an active and decisive role. We can shape and promote this development. Nevertheless, we need to take a critical view on so-called sustainable developments and keep an eye on the overall context. The current boom on e-cars shows this exemplarily:
A differentiated approach is always right. I therefore consider it equally important on this subject to make the best use of the range of different energy sources, rather than relying on just one form. The two examples should illustrate this on a topic which probably is on everybody's mind at the moment:
Combustion or battery powered motors
The LCA perspective is relevant because, while no pollutants are emitted from the exhaust in battery and fuel cell cars, the environmental impact in the production of vehicles, of electricity and hydrogen can be considerable. In its factsheet "Environmental impacts of passenger cars – today and tomorrow" (available in German and French), the Paul Scherrer Institute in this sense points out that they included the entire life cycle of cars in their analysis when comparing the different drive technologies: from production to operation and to disposal, including the provision of fuels petrol, diesel, gas, electricity, and hydrogen.
Example calculation of emission and energy consumption
It is calculated that a passenger car with an internal combustion engine causes an average emission of about 400 g CO2 per 100 km. However, the numbers vary depending on the source: 122.1 g CO2/km according to Eurostat and EFA (3), 19.3 kg CO2/100 km for a gasoline/medium-sized car or 17.3 kg CO2 /100 km for a diesel/medium-sized car in accordance with CO2 climate protection (4).
A passenger car with a battery-powered engine consumes an average of 15 kWh per 100 km.
The Electricity Maps app tracks the proportions of power sources and the associated CO2 emissions on a daily basis and practically per hour. Here is the status of specific CO2 emissions in grams per kilowatt hour of electricity generated on March 14, 2023, 09:00 CET:
| Switzerland 96 g CO₂eq/kWh | France 53 g CO₂eq/kWh | Germany 270 g CO₂eq/kWh | Poland 557 g CO₂eq/kWh |
| Main sources of energy: Nuclear, biomass, solar energy, hydropower, pumped storage, unknown | Main sources of energy: Nuclear, biomass, coal, wind, solar energy, hydropower, pumped storage, natural gas, oil | Main sources of energy: Biomass, coal, wind, solar energy, pumped storage, natural gas, unknown | Main sources of energy: Coal |
This means that for every 100 kilometers of electricity generated for an electric car, emissions amount to:
| Switzerland | France | Germany | Poland | |
| 1 440 g CO2 | 705 g CO2 | 4 050 g CO2 | 8 355 g CO2 | |
Since the emissions of electric vehicles vary depending on the type of electricity generation, the CO2 content of the electricity is decisive for the carbon footprint of battery vehicles. Consequently, the eco-balance would have to vary per company and country if, for example, it switches to e-mobility for its field service. However, the question is also to what extent its anticipatory action in future renewable energies will be evaluated.
Cobalt from oppressed countries
Hence, tunnel vision on one energy source and one form of mobility, literally, does not bring us any further. Reports on the extraction of cobalt make this even clearer. Here, too, the LCA should consistently list the energy input and emissions under which working conditions and with which social and ecological consequences are associated with this.
Neuchâtel-based lawyer Brigitte Lembwadio Kanyama, president and co-founder of the JeSuisRDCongolaise association, drew attention to the situation in the Democratic Republic of the Congo by "Les guerres oubliées" (The Forgotten Wars) in the radio broadcast Tribu on RTS of 21 April 2023. Because of the rebel wars going on there, the state would have to be compensated more for the cobalt extracted from Congolese mines to make batteries for e-mobility. Instead, the money goes to the warring parties.
An article in January 2022 already of the prestigious German weekly newspaper DIE ZEIT ("The Dark Side of the Transport Transition") stated that a large proportion of cobalt production in the Congo is controlled by China. Reporting obligations and transparency standards would keep many Western companies away from the precarious working conditions of cobalt mining, unlike Chinese companies.
SDGs - United Nations Sustainable Development Goals are aimed at us all
The United Nations Agenda 2030 for Sustainable Development comprises 17 objectives, which are divided into a total of 169 sub-objectives. They all cover economic, social, and environmental areas that need to be developed sustainably around the world. The global plan is designed to promote sustainable peace and prosperity and to protect our planet.
Since 2016, all countries have been working to translate this common vision of fighting poverty and reducing inequalities into national development plans. All states are therefore equally called upon to solve the world's pressing challenges together.
Switzerland is working to implement these goals on a national level. To this end, the Sustainable Development Strategy (SDS) was developed. It contains guidelines for federal policy, strategic approaches for domestic and foreign policy as well as national objectives. Priorities have been defined with three pillars, which have a particular need for action and coordination between different policy areas:
- Sustainable consumption and production
- Climate, energy, and biodiversity
- Equal opportunities and social cohesion
Which is more important: ESG or SDGs?
ESG is primarily present in the financial environment and is increasingly a decision-making criterion for investors. The United Nations' sustainability goals are more comprehensive and are aimed at institutions and at all of us as individuals.
The key data for both are set out in this leaflet:
Let me give a small slide-in here from a communicative point of view: It is sobering, but not surprising, because of the current development in Europe that in 2022 managing directors interpreted their leading role differently due to the geopolitical, humanitarian and economic crisis according to the latest CEO LinkedIn Index. The complexity of the crisis situation meant that CEOs tended to communicate many other major strategic topics with restraint or not at all. This is particularly evident in ESG communication, which declined compared to 2021.
ESG and SDGs ultimately pursue the same goals: The well-being of the planet and of the human beings. The best way to take advantage of this opportunity is to focus as soon as possible - whether under the ESG or SDG label - on those substantive topics and strategically important long-term initiatives that will take us all forward. This should be done with the broadest possible view and with consideration for the resources that are not finitely available to us.
The two illustrations show the combination of ESG and SDGs. All 17 objectives can be assigned to the three ESG areas:
(1) Marcos Athias Neto, Director, UNDP Sustainable Finance Hub, 2023:
"Why ESG is failing sustainable development ¦ SDG finance (undp.org)
(2) PWC «Sustainable Finance Schweiz – Quo vadis ? ». Figures are based on a PWC publication, entitled "Insights - Sustainability Finance Switzerland Quo Vadis", provided in 2020 (not available online anymore)
(3) European Parliament: CO2 emissions from passenger cars: Facts and Figures, 23.03.2023: CO₂-Emissionen von Pkw: Zahlen und Fakten (Infografik) | Aktuelles | Europäisches Parlament (europa.eu)
(4) CO2 Climate change mitigation: Auto: CO2-Ausstoss im Überblick | co2online