What do we mean by some key terms in our sustainability risk guide for European risk managers?
Since sustainability and ESG tend to be used inter-changeably.
Ideally, the definition will be principles-based and not try to cover every eventuality.
Sustainability: encouraging businesses to frame decisions in terms of financial, environmental (including climate, biodiversity), social and human effects ensuring resilience and long-term value creation. – FERMA Sustainability Committee(1).
Sustainability risk: uncertain social or environmental event or condition that, if it occurs, can cause significant negative impact on the company. It also includes the opportunity that may be available to an organisation because of changing social or environmental factors (wbcsd and COSO).
ESG-related risks: Environmental, social and governance risks and/or opportunities that may impact an entity are commonly referred to as sustainability, non-financial or extra-financial risks (wbcsd and COSO).
As a broad term, sustainability has different implications for different companies.
The risks associated with it will relate to the ESG practices of the business, its strategy and the sector and territories in which it operates. By saying that, we consider that ‘ESG’ belongs to sustainability—i.e., that sustainability is the broader concept.
To illustrate what we consider as ESG,we provide the following classification agreed by the FERMA Sustainability Committee: