ESG and the SDGs: The Circle of Life

Professor Kevin Haines
October 2021

In this briefing note I want to address the relationship between ESG and the SDGs – and the current state of play. I have tried to set out the basic high level relationships between the partners in this venture in the diagram below – which I have called ‘The Circle of Life’, it could just as easily have been called ‘The Gordian Knot’ or ‘The Pool of Greenwashing’.

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Why pick this specific topic for a briefing note? 

Well, it seems to me that ESG and SDG are the two most important three letter acronyms in the World right now (and possibly the just the most important acronyms ever), yet each is redolent with confusion and depths of interpretation. 

Moreover, for businesses, investors and, indeed, for all of us and the planet we live on, making sense of ESG and the SDGs, achieving the reductions in global warming that are necessary to stabilise our climate whilst, at the same time, achieving a much greater level of social justice are absolutely critical for business success, environmental harmony and social well-being. This, it seems to me, is an important topic.

The problem is we have an alphabetti spaghetti of ESG and SDGs at present that is growing ever larger by the hour, is creating the spaces which allows greenwashing to proliferate and is challenging, if not impossible, for businesses and investors to understand and succeed in (even if they really want to).

The SDGs are a child of the United Nations. They are 17 goals (accompanied by 167 specific targets) designed to bring about a higher level of global social justice. As a product of the United Nations, the SDGs are aimed at national governments – as targets of national social policies. Many businesses, however, particularly but not exclusively SMEs, have adopted the SDGs as the basis of their strategies for achieving ESG-related objectives. In our experience this is because the SDGs are digestible by businesses (and the staff they employ), they are concrete (certainly more concrete than the nebulous ESG) and they can be translated into measurable impacts – that have real meaning in whatever context the business is operating in.

This does not mean, of course, that the SDGs are unproblematic. Translating governmental social policy goals into meaningful actions at a business level is far from straightforward and there are gaps; for example, the SDGs are relatively silent on matters of governance (yet without good governance it is hard to see how achieving the SDGs becomes possible). Moreover, the SDGs were not designed for financial markets which does make them a slightly ill-fitting jacket.

ESG, on the other hand, has three progenitors: the financial sector itself, the European Union and national governments (within the EU but also globally). 

Born of the financial crash of 2008 and the consequences for businesses and people of the coronavirus pandemic of 2020 – present, ESG has burgeoned into much more than just (just!) a concern with limiting climate change into a concept that embraces the entire physical, natural and social world. Achieving the objectives of ESG, it is becoming increasingly clear, is essential for humanity to prosper. Defining those objectives, operationalising them and mobilising to achieve them is, however, proving to be quite a challenge.

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The scope and depth of this challenge is probably why we have an ever-increasing number of frameworks, emanating from the European Union and national governments (within the EU and globally), which are attempts to regulate (encourage?) businesses to be more ESG conscious, compliant and conscientious. Ranged against the relative simplicity of the SDGs we currently have up to 14 different frameworks against which businesses can or must (not all are yet compulsory) report their ESG performance in the EU.

It is a huge challenge for large businesses to understand and comply with existing regulation; it is virtually impossible for SMEs with fewer staff and resources to do so. First of all, the 14 reporting frameworks are not all the same; requiring different (levels of) understanding, data/information and reporting. Reporting effectively is made more complex, of course, when different compulsory frameworks exist across jurisdictional boundaries. 

To make things easier for businesses and investors there are a burgeoning number of ESG ratings agencies (and specialist ratings agencies for green and/or sustainable bonds). 

The problem here, as we all know, is that the ratings from different agencies do not always match and rather than making it easier for businesses and investors they actually make the situation less clear and more complex. Possibly of even greater significance, however, is that the disparities between ratings (and we must accept that this is a challenging activity) is actually hampering the achievement of ESG objectives.

There have, of course, been efforts to link or synchronise the SDGs with ESG criteria (e.g., but, for me, these attempts just muddy the waters and add a further layer of confusion. 

Whilst the SDGs focus on achieving future oriented change, the focus of ESG efforts remain mixed (or even possibly confused): 

  • is it about doing no harm?
  • Or carbon reduction? 
  • Or social transformation? 
  • Or sustainability? 
  • Or materiality? 
  • Or double materiality? 
  • Or impact? 
  • Or simply just compliance with whatever framework is in operation? 

The potential foci of ESG efforts are all quite distinct from one another and distinct from the SDGs. This is a very confusing (and confused) state of affairs.

What we face is a serious problem and a huge challenge. We must limit climate change whilst enhancing biodiversity and promoting social justice (to name just three headline objectives) whilst facilitating the sustainability of businesses globally. It is becoming increasingly clear that our current efforts are failing. Those in the business and financial worlds must be conscientious, good humans: to do no more harm and make every effort to do good. 

The up-coming COP26 provides what is possibly the last real opportunity for those in the United Nations, the European Union and national governments around the World to respond constructively to the challenges we all face. It’s time to prove yourselves fit for purpose.

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