Sustainability, ESG, net zero: What’s the difference? Your business explainer

Demand from consumers and professional boards alike is driving change in how businesses approach sustainability. However, with growing terminology and compliance frameworks, understanding key terms like ‘sustainability,’ ‘net zero,’ and ‘ESG’ is crucial. In this explainer, we break down what they mean and how they impact your business.

Sustainability explained

Sustainability is a broad term that covers environmental, social, and economic responsibility. As defined by the United Nations, sustainability means “meeting the needs of the present without compromising the ability of future generations to meet their own needs.”

In practice, this means ensuring that current actions — from energy use to waste disposal — do not undermine future generations’ ability to thrive. For example:

• Overusing water resources risks future water security.
• Relying heavily on finite energy sources limits options for future energy needs.
• Poor waste management threatens ecosystems for generations to come.

Key differentiators:

• Sustainability is a broad concept that includes carbon reduction, biodiversity, social equity, and more.
• It’s often integrated into corporate strategies but can lack precise accountability metrics.
• Frameworks like the UN Sustainable Development Goals help businesses measure and manage progress.

Sustainability frameworks and reporting mechanisms

The UN Sustainable Development Goals (SDGs) provide a structured framework that aligns closely with the principles of sustainability. SDGs outline 17 clear objectives, giving businesses a tangible way to measure progress and align their strategies.

By integrating SDGs into their sustainability efforts, organisations can meet growing stakeholder expectations, address regulatory requirements, and demonstrate meaningful action on climate, equity, and resource management. Aligning with SDGs not only strengthens a company’s environmental and social credentials but also supports long-term resilience, investor confidence, and competitive advantage.

Net Zero explained

If sustainability is the broader goal, net zero is a specific target within that. As defined by the Science-based Targets Initiative, net zero emissions are achieved when human-caused GHG emissions are balanced by removing the same quantity of emissions from the atmosphere over a specified period of time.

The term carbon neutrality is often used interchangeably with net zero, but they have separate meanings. The SBTi states that the term carbon neutral is generally used when counting the use of carbon offsets. In other words, carbon neutral does not necessarily mean that direct emission reductions have taken place.

Achieving net zero involves:

• Reducing emissions through energy efficiency, renewable energy, and operational changes.
• Offsetting unavoidable emissions using carbon removal strategies such as reforestation or carbon capture.

(See our full net zero guide here.)

Key net zero differentiators:

• Net zero targets focus heavily on carbon emissions but may include other greenhouse gases like methane.
• Strategies must prioritise emissions reductions first, with offsets only addressing residual emissions.
• The Science-Based Targets initiative (SBTi) provides a clear framework for credible net zero pathways.

Relevant frameworks and reporting mechanisms

SBTi is an internationally recognised, science-based framework that demonstrates to organisations how much/quickly they need to reduce greenhouse gases to prevent irreversible climate change.

Science-based targets provide companies with a clearly-defined path to reduce emissions in line with the Paris Agreement goals. Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to 1.5°C above pre-industrial levels. More than 4,000 businesses around the world are currently working with the SBTi.

ESG explained

Environmental, Social, and Governance (ESG) refers to a set of standards that assess a company’s environmental impact, social responsibility, and governance practices. Unlike sustainability, ESG is primarily investment-driven and helps investors evaluate business risks and ethical practices.

ESG performance is measured using both qualitative and quantitative indicators, such as:

• Greenhouse gas emissions
• Employee wellbeing and diversity
• Board structure and executive accountability

Key ESG differentiators

• ESG is data-driven and designed for financial decision-making.
• Regulatory scrutiny is increasing, with frameworks like the UK FCA’s anti-greenwashing rule ensuring accurate sustainability claims.
• ESG ratings vary across agencies, meaning businesses must adopt transparent reporting practices.

Relevant frameworks and reporting mechanisms

There is a plethora of ESG frameworks and reporting requirements based on your location and company size. Because ESG covers three different areas, there are also many different aspects of reporting. For example, the UK FCA’s Anti-greenwashing Rule, which came into play on 22 March 2024. This refers to communicating your sustainability references in a way that is:

• Correct and capable of being substantiated
• Clear and presented in a way that can be understood
• Complete – they should not omit or hide important information and should consider the full life cycle of the product or service
• Comparisons to other products or services are fair and meaningful

From a wider perspective, the EU Corporate Sustainability Reporting Directive (CSRD), effective from January 1st, 2025, aims to enhance corporate accountability and improve the transparency of ESG reporting. Replacing the Non-Financial Reporting Directive (NFRD), the CSRD introduces stricter requirements, expanding its scope to nearly 50,000 companies, including some non-EU businesses with significant European operations.

The directive mandates detailed reporting on ESG impacts using European Sustainability Reporting Standards (ESRS), which include 13 specific metrics covering climate, biodiversity, workforce wellbeing, and governance. By setting higher disclosure standards, the CSRD aligns ESG reporting with financial reporting, reducing greenwashing risks and driving more robust sustainability practices. Businesses are advised to prepare early, particularly in gathering supply chain data, to meet compliance deadlines.

In summary

• Sustainability is the overarching concept that addresses environmental, social, and economic resilience.
• Net zero is a specific emissions-reduction target, essential for climate action.
• ESG is a data-driven framework focused on business accountability and investment decisions.

By understanding these key terms and frameworks, businesses can build stronger strategies, meet regulatory expectations, and demonstrate authentic environmental leadership.