Understanding the nuances of the Es in EHS and ESG
An examination of the similarities and differences between EHS and ESG in relation to environmental issues
Clients often ask us about the distinction between EHS and ESG, specifically regarding the environmental (E) elements. The answer is that while they support each other, they are far from identical. The E in EHS is more narrowly focused on detailed specifics, whereas the E in ESG has a much more inclusive strategic scope.
In this article, we’ll explore these issues and definitions, highlighting key differences and points of similarity.
Defining EHS
EHS stands for environment, health, and safety. The term is typically used to encompass the full set of obligations and restrictions applied to companies in the areas of environmental issues, occupational health, and employee safety. These obligations and restrictions are set out in regulations and are legally enforceable. They generally apply at the facility level and are related to the company’s operations. Requirements vary across jurisdictions, although there are often some common features.
The E in EHS
On the environmental side, the issues covered include:
- Environmental authorizations, licenses and permits
- Air emissions management
- Water use and discharge management
- Waste management
- The generation/handling of hazardous substances or chemicals
Defining ESG
ESG stands for environmental, social, and governance issues, and is fundamentally related to the sustainability of the organization and its operations. ESG reporting requirements therefore cover the environmental and social impact of company operations, both within and beyond the organization itself — as well as how the company is governed from a sustainability point of view. The term arose from stakeholders’ and investors’ desire to understand more about how companies carry out operations in addition to their financial position. Reporting requirements are therefore often seen as complimentary to financial reporting obligations but covering non-financial issues.
As with EHS, the requirements for ESG reporting can be jurisdiction specific. However, there are also several sets of international standards that may be applied to companies meeting certain conditions. These standards include the European Sustainability Reporting Standards (ESRS) and the IFRS Sustainability Disclosure Standards (ISSB standards). Additionally, companies may choose to voluntarily report using the guidance and disclosure recommendations of the Global Reporting Initiative (GRI), among others.
The E in ESG
The environmental topics covered by these standards — and others — include disclosures related to:
- Climate change
- Pollution
- Water and marine resources
- Biodiversity and ecosystems
- Products and materials
- Waste
These topics are therefore similar to those covered by EHS compliance but extend beyond jurisdictionally focused legal requirements to cover the environmental impacts, risks, and opportunities of the company’s whole value chain, operations, supply chain, and products or services.
The focus of the E in ESG reporting standards is to encourage companies to implement more environmentally sustainable strategic practices at the corporate level, make positive changes, and inform relevant stakeholders of these practices. Adhering to and disclosing on these standards — many of which are rooted in existing regulations — is essential for any business committed to sustainability.
Case study: Air emissions
It’s recognized that a company with a robust, transparent, and embedded EHS compliance system has a strong foundation which can support their ESG disclosure reporting. However, the difference in scope should always be kept in focus.
Let’s take a look at one particular topic: air emissions.
In relation to sustainability reporting and ESG topics, European and internationally recognized sustainability and ESG reporting standards include disclosure requirements for companies on their air emissions. For companies to disclose their air emissions, they must check the data they already have — and EHS data is the foundation for that. In Germany, this requirement is interpreted legally as, “If the company operates an installation that requires an operating permit according to the Federal Emission Control Act (BImSchG) and emits air pollutants, it measures its emissions and submits the records to the competent authority.”
The obligations to monitor and report on air emissions are compiled from several pieces of legislation and .In response to this issue, more recent corporate sustainability directives are beginning to standardize some of the expectations for what and how companies should measure and report.
Under EHS law, the requirements are much more granular. For example, they set out how measurements on the type and quantity of emissions must be carried out, where reports must be submitted, and how long the company must keep records of the emissions from each installation. In other words, there’s considerably more detail about the ‘how’ of compliance, rather than the ‘what’ of reporting.
Unravelling the environmental distinctions
So in summary, the environmental aspects of EHS and ESG complement each other despite their notable differences. For instance, as shown above, European EHS regulations include greenhouse gas emissions under Air Emissions, whereas ESG regulatory compliance and reporting treats climate change as a wider and more encompassing distinct category. The requirements also vary in detail, with ESG regulatory compliance and reporting encompassing a broader scope. ESG reporting standards also place a greater emphasis on biodiversity and ecosystems — areas that are somewhat tangentially addressed in EHS regulations across jurisdictions.
In practical terms, as our CEO Peter Schramme has said, “EHS compliance is the foundation of ESG reporting”. The requirements for ESG may go wider, but the E in EHS compliance can provide a significant proportion of the data and metrics required to support the reporting of the E in ESG. We can also say that compliance is the foundation of good governance. A company must be compliant with all of the necessary EHS regulatory requirements to demonstrate the G of ESG as a basic precept.
Peter has also stated that EHS regulations (and therefore compliance) represent the public opinion of the past about what was and is still important. ESG reporting, however, reflects the current public opinion about why it now matters even more to businesses. It can also be used to enable predictions regarding future regulatory requirements — in relation to topics such as biodiversity and ecosystems, for example. Companies who invest now to get ahead on ESG reporting could therefore be saving themselves valuable costs and effort related to future compliance requirements, as well as highlighting their sustainability and ESG credentials.
Embracing the differences
When applied to the regulatory and compliance requirements for businesses, it’s important to factor in both the EHS and ESG perspective regarding environmental issues and — in many cases — as both become compliance driven, companies will no longer have a choice. it will be soon be mandatory to comply with both EHS and ESG regulations for large numbers of businesses in multiple jurisdictions.
You can see this reflected in the solutions that Enhesa offers. For example, climate change and waste management are primary topics in both our EHS Intelligence solutions and our ESG Corporate Sustainability solutions, but that doesn’t mean the detail of these offerings is the same. While both Enhesa solutions are based upon standardized and structured scopes, bringing order to the chaos of two huge regulatory landscapes, the topic headings for each reflect different drivers. In fact, when
Enhesa’s Chief Intelligence Officer, Yves Marteau summarizes it as such:
“EHS is about ensuring site-level day-to-day compliance with all the applicable requirements so that the operation conforms to the environmental, health, and safety norms society expects in the jurisdiction — and can prove it.
“ESG, on the other hand, is all about corporate strategizing and implementing the most material initiatives — including ESG and sustainability regulatory compliance — to maximize performance in the field and report consistently improving results in different reporting frameworks. It therefore naturally focuses on the most impactful requirements for the topics covered by such frameworks.”
Simply put, the E of EHS focuses on site-level obligations and restrictions regarding the environmental matters companies must comply with in a given jurisdiction, while the E of ESG addresses corporate-level sustainability strategy and reporting requirements on a global scale.
The continuing development of corporate sustainability related regulations and compliance requirements means that businesses need to not only understand where pre-existing EHS metrics can help with ESG reporting, but also acknowledge and accommodate the discrepancies between the two. Having a holistic overview, while understanding their similarities and differences, allows organizations to truly get ahead of EHS and ESG regulatory requirements in order to achieve greater compliance and meet the needs of their respective stakeholders.
What other differences are there between EHS and ESG?
Of all the areas under EHS and ESG, the “E” of environment is perhaps the most clearly linked, but the others — the health and safety of EHS and the social and governance of ESG — are equally nuanced in their similarities and differences.
One of the biggest distinctions between EHS and ESG is the “G” for governance in ESG. Another major difference lies in the social (S) aspects. While EHS focuses on employee health and safety, ESG’s social elements encompass a broader scope. ESG compliance and reporting address a company’s social impact on local communities and employees, incorporating critical issues like diversity and inclusion, human rights, and forced labor throughout the value chain.
We’ll need to dive a little deeper to understand where there’s cohesion and disparity between EHS and ESG in these other areas — so stay tuned for more insights in future articles.
In the meantime, find out more about how EHS and ESG converge — and where they differ — with these additional resources…
