Businesses today must think about more than just profits. They must protect the planet, care for people, and lead with honesty. That is why ESG and sustainability have become very important in the modern world. These two ideas go hand in hand. ESG gives companies a way to measure how they perform in key non-financial areas. Sustainability ensures that companies can grow while keeping the planet and people safe for the future.Companies that follow ESG and sustainability goals can reduce risk, attract better talent, and gain trust. They also perform better in the long run. Many companies now report their ESG progress and set clear goals to be sustainable. Schools, governments, and global groups support this move toward better business.
What is ESG and Sustainability?
The term ESG stands for Environmental, Social, and Governance. Sustainability means creating value over time without harming nature or society. Together, ESG and sustainability help companies make smart and ethical decisions. Investors, customers, and workers now want businesses to show care for more than just money. They look at how companies treat their workers, how they cut pollution, and how fair their leaders are.
ESG and sustainability are tools that help people and companies build a better world. While they focus on different parts, they work together to make business more responsible and helpful to society.
Meaning of ESG
ESG stands for
- Environmental: How a company handles its impact on nature.
- Social: How a company treats people—workers, customers, and the community.
- Governance: How a company is managed and led.
These three areas show how ethical and responsible a business is. ESG helps people check if a company cares about doing the right thing.
Meaning of Sustainability
Sustainability means growing without using up the Earth’s resources or harming people. It asks companies to think long term. Can a company still do well in 10 or 50 years without polluting air or water? Will its workers be treated fairly?
Sustainability covers three areas:
- Environmental protection
- Social equity
- Economic growth that lasts
So, while ESG measures how a company does things, sustainability asks why and for how long those things should be done.
Why ESG and Sustainability Work Together?
Both ESG and sustainability help companies
- Build long-term value
- Earn trust
- Cut harmful practices
- Meet laws and global rules
They also help students and future leaders understand how to build better companies.
Environmental Pillar of ESG and Its Role in Sustainability
The environmental pillar is the first part of ESG. It focuses on how businesses affect nature. This is also a major part of sustainability because the Earth cannot support endless pollution and waste.
What is Environmental Responsibility?
Environmental responsibility refers to the duty of individuals, businesses, and governments to protect the natural environment through sustainable practices. It involves making decisions that reduce harm to the earth’s ecosystems and promote the conservation of resources for future generations. Companies must look at their
- Carbon emissions
- Waste management
- Energy use
- Water use
- Air pollution
They should ask, How can we make less harm to nature? Can we use clean energy or recycle more?
Why This Matters?
Climate change is one of the biggest risks for everyone. Companies that pollute more may face big fines or lose their customers. Many governments now have rules that ask companies to lower emissions. People also care more about clean brands. If a company shows it cuts waste and saves energy, customers support it more.
How to Be Environmentally Responsible
- Use solar or wind power instead of coal
- Reduce plastic and recycle materials
- Build offices and factories that save energy
- Track and report carbon footprint
Sustainable companies set yearly goals. They also share their progress in reports.
Social Pillar of ESG and Its Role in Sustainability
The social pillar deals with people. It includes workers, customers, and local communities. For sustainability, treating people right is just as important as protecting nature.
What is Social Responsibility?
Social responsibility means doing business in a fair and caring way. Companies should:
- Pay fair wages
- Ensure safety at work
- Support diversity and inclusion
- Respect human rights
- Give back to the community
Good social values help companies keep happy workers and loyal customers.
Why This Matters?
When people feel safe and valued, they do better work. Companies that mistreat people face bad media and even legal issues. On the other hand, strong social care builds a brand that lasts.
In many countries, laws now protect workers’ rights and demand equal treatment. ESG helps businesses stay on the right side of these rules.
How to Improve the Social Side
- Offer training and health programs
- Support mental health and work-life balance
- Give donations and help in disasters
- Hire from all backgrounds
Social sustainability means companies must grow with people, not at their cost.
Governance Pillar of ESG and Its Role in Sustainability
Governance is how companies are managed. Good governance ensures a company follows rules, treats shareholders fairly, and avoids cheating.
What is Good Governance?
This part includes:
- Transparent reporting
- Honest leadership
- Fair executive pay
- Board diversity
- No corruption
Governance also covers internal audits, policies, and how decisions are made.
Why This Matters
Bad governance leads to scandals, fraud, and huge losses. Investors lose trust, employees quit, and the public avoids such companies.
On the other hand, companies with strong governance are more stable. They make better decisions and avoid legal trouble.
Governance supports sustainability by making sure good values and systems last across years.
How to Improve Governance
- Build strong audit and ethics teams
- Make policies easy to understand
- Involve all departments in decision-making
- Set clear goals and track performance
In short, governance makes sure the E and S parts of ESG are followed with full honesty.
How Companies Report ESG and Sustainability Efforts?
Many companies now share their ESG and sustainability actions in yearly reports. These reports show what they did, what worked, and what needs more work.
Key Elements of ESG Reporting
| Element | Example |
| Environmental Impact | CO₂ emissions, energy usage, recycling levels |
| Social Impact | Employee safety, training, community support |
| Governance Standards | Board structure, anti-corruption steps, audit results |
Good reporting helps:
- Build trust with investors
- Meet global standards (like GRI or SASB)
- Set clear goals for improvement
- Encourage other companies to do better
Benefits of ESG and Sustainability for Businesses
Embracing ESG and sustainability is no longer just about ethical choices—it’s a strategic business decision. Indian and global companies now view ESG (Environmental, Social, and Governance) practices and sustainability as key drivers of long-term success, not just compliance or public relations tools.
These principles help businesses gain competitive advantage, manage risks, and enhance financial performance.
- Lower risks: Clean and fair businesses avoid legal problems.
- Better investment: Investors look for green and ethical firms.
- Customer loyalty: People support brands that care for the planet and people.
- Happy workers: Good social practices attract top talent.
- Long-term growth: Sustainable firms last longer and perform better.
Even small businesses can follow ESG steps and grow responsibly.
Relevance to ACCA Syllabus
ESG and sustainability are core concepts in Strategic Business Leader (SBL) and Strategic Business Reporting (SBR). ACCA expects students to understand how ESG disclosures affect stakeholders, decision-making, and reporting. Topics such as corporate social responsibility, ethical leadership, and integrated reporting are covered under ESG.
ESG and Sustainability ACCA Questions
Q1: In ACCA’s integrated reporting, ESG and sustainability are included to:
A) Boost product sales
B) Improve short-term profits
C) Support long-term value creation
D) Reduce financial reporting standards
Answer: C) Support long-term value creation
Q2: Which of the following is a social indicator under ESG reporting?
A) Carbon footprint
B) Executive compensation
C) Board independence
D) Workforce diversity
Answer: D) Workforce diversity
Q3: What does sustainability reporting aim to show in ACCA’s view?
A) Marketing strategies
B) Impact on environmental, social, and governance factors
C) Product inventory levels
D) Tax avoidance measures
Answer: B) Impact on environmental, social, and governance factors
Relevance to US CMA Syllabus
ESG and sustainability fall under enterprise risk management, performance evaluation, and decision analysis in the US CMA syllabus. CMAs assess how ESG metrics affect budgeting, planning, and financial risk in business models. Strategic planning also includes ESG impact on long-term cost structures.
ESG and Sustainability US CMA Questions
Q1: ESG performance helps a management accountant mainly by:
A) Ignoring cash flow
B) Focusing on short-term profits
C) Supporting strategic goals through risk reduction
D) Avoiding financial forecasting
Answer: C) Supporting strategic goals through risk reduction
Q2: A firm switches to biodegradable packaging. Under ESG, this reflects:
A) Financial control
B) Social improvement
C) Environmental responsibility
D) Corporate governance
Answer: C) Environmental responsibility
Q3: Sustainability-linked KPIs help CMAs by:
A) Limiting pricing decisions
B) Tracking regulatory fines
C) Aligning business targets with ESG goals
D) Avoiding cost analysis
Answer: C) Aligning business targets with ESG goals
Relevance to CFA Syllabus
CFA emphasizes ESG and sustainability under Ethical and Professional Standards, Portfolio Management, and Equity Valuation. CFA candidates must assess how ESG risks affect investment strategies and valuation. ESG also ties into fiduciary duty and ethical investment.
ESG and Sustainability CFA Questions
Q1: Which factor is most likely considered in ESG-focused investing?
A) Dividend yield only
B) Company’s lobbying activities
C) Return on capital employed
D) Beta coefficient
Answer: B) Company’s lobbying activities
Q2: Why is ESG data important in investment decision-making?
A) It reduces share capital
B) It affects market volatility
C) It supports sustainable, long-term investment performance
D) It simplifies valuation methods
Answer: C) It supports sustainable, long-term investment performance
Q3: Governance issues that concern ESG investors include:
A) Currency fluctuations
B) Equity dilution
C) Board independence and ethical practices
D) Inflation rate
Answer: C) Board independence and ethical practices
Relevance to US CPA Syllabus
In the US CPA syllabus, ESG and sustainability topics appear in Audit and Attestation (AUD), Business Environment and Concepts (BEC), and Regulation (REG). CPAs assess ESG risks, audit ESG disclosures, and ensure companies meet ethical governance and compliance requirements.
ESG and Sustainability US CPA Questions
Q1: In an ESG audit, which of the following would an auditor most likely assess?
A) Tax refund claims
B) Sustainability KPIs and reporting controls
C) Product pricing decisions
D) Payroll transaction frequency
Answer: B) Sustainability KPIs and reporting controls
Q2: ESG-related fraud risk may occur if:
A) Cash receipts are delayed
B) Environmental disclosures are overstated
C) Sales tax is underpaid
D) Inventory shrinkage is reported
Answer: B) Environmental disclosures are overstated
Q3: CPAs consider ESG information because:
A) It does not relate to audit scope
B) It increases inventory turnover
C) It may affect financial reporting and audit opinion
D) It avoids disclosure responsibilities
Answer: C) It may affect financial reporting and audit opinion
