What role do environmental, social, and governance (ESG) criteria play in sustainability accounting?

The role of environmental, social, and governance (ESG) criteria in sustainability accounting is fundamentally about assessing risk and performance that is relevant to sustainability. ESG criteria provide a framework for organizations to evaluate how well they are managing risks and opportunities related to environmental protection, social justice, and corporate governance.

By using ESG metrics, companies can gain insights into their performance on sustainability issues, which can impact their long-term viability and profitability. Investors and stakeholders increasingly look to these criteria as indicators of a company's overall health and resilience in the face of social and environmental challenges. This assessment helps organizations identify areas for improvement, align their strategies with broader sustainability goals, and enhance transparency with stakeholders.

The emphasis on assessing risk and performance also underscores the proactive approach organizations can take to mitigate potential future liabilities or crises linked to unsustainable practices. In contrast to the other options, ESG criteria are not solely about compliance or tax benefits, nor are they limited to environmental considerations, but rather provide a holistic approach to sustainability accounting that encompasses multiple dimensions of corporate responsibility.