As demands for transparency and accountability increase, concepts such as ESG and sustainability are becoming increasingly important for companies, investors, and the public. However, ESG and sustainability are not the same and misunderstandings can have serious consequences. Incorrect use of ESG data in communication can not only damage reputation but also lead to legal liability, including claims for misleading marketing.
In this document, you will find a clear introduction to what ESG is, how it differs from sustainability, why it is crucial to understand the distinction and how companies can avoid greenwashing and legal pitfalls.
What does ESG mean?
ESG stands for Environmental, Social, and Governance. It is a framework used to assess how a company works with and performs within:
Environmental: e.g. CO₂ emissions, energy, resources, waste, pollution.
Social: e.g. working conditions, human rights, equality, diversity, employee well-being.
Governance: e.g. transparency, board composition, anti-corruption, compliance, risk management.
ESG is not a measure of morality, ethics, or sustainability. It is a method for identifying and assessing risks and opportunities – primarily developed for investors and analysts.
The origin of ESG: the financial sector’s need for transparency
The concept of ESG was introduced in the UN report “Who Cares Wins” in 2004, following collaboration between the UN and 20 global financial institutions.
The purpose was not to assess how green or ethical a company is, but to evaluate financial risks such as environmental scandals, social unrest, or weak governance.
Sustainability: a value-based worldview
Sustainability was defined in the UN’s Brundtland Report from 1987 as:
“Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Sustainability is not about data-driven reporting, but about an ethical obligation to balance:
- Environmental considerations (climate, biodiversity, resource use)
- Social considerations (equality, well-being, human rights)
- Economic considerations (long-term growth and responsible distribution)
Why ESG and sustainability are not the same – but should work together
- ESG is a tool: a method to identify, measure, and document risks.
- Sustainability is a purpose: an ethical ambition for responsible development.
Where does greenwashing enter the picture?
Greenwashing occurs when:
- ESG data is used as proof of sustainability
- ESG reporting is interpreted as ethics rather than compliance
- ESG activities are marketed without documentation
What about CSRD – isn’t that sustainability reporting?
CSRD is EU legislation requiring large companies to report on ESG matters under fixed ESRS standards.
Storytelling or reporting?
ESG is not a story. It is a tool to identify risks, document actions, and create strategic direction.
What does the law say about ESG and greenwashing?
Companies must not use environmental claims without concrete documentation.