TL;DR

• Sustainability report vs ESG report comes down to perspective: a sustainability report captures how a company impacts the world — environmentally, socially, and economically. An ESG report evaluates how the world (environmental, social, and governance risks) impacts the company’s financial performance.
• Sustainability reports serve a broad audience, including employees, customers, and communities. ESG reports are primarily investor-facing, designed for financial decision-making and risk assessment.
• ESG reporting is increasingly regulated: the EU’s CSRD, ISSB frameworks (IFRS S1/S2), and California’s SB 253/261 are making ESG disclosure mandatory for thousands of companies worldwide.
• Sustainability reports typically follow GRI standards and use narrative storytelling. ESG reports follow frameworks like SASB, TCFD, and ISSB with structured, quantitative metrics.
• Many organizations now need both: a sustainability report for stakeholder engagement and an ESG report for regulatory compliance and investor relations.
• For procurement leaders, supply chain ESG data — particularly Scope 3 emissions and supplier governance — is becoming central to both report types.

If you have been following corporate reporting trends, you have probably noticed that “sustainability report” and “ESG report” are often used as though they mean the same thing. They do not. And the distinction matters more in 2026 than it ever has, because getting the terminology wrong can lead to the wrong framework, the wrong data, and the wrong audience — at a time when regulators, investors, and customers are all paying closer attention.

Read more: Lead the Way in Sustainability: Integrating ESG in Source-to-Pay

The confusion is understandable. Both reports cover environmental impact, social responsibility, and governance practices. Both draw from overlapping data sets. And both have become critical for companies aiming to demonstrate responsible business practices. But as McKinsey’s research on ESG metrics highlights, large companies now track a median of 100 ESG-related KPIs — a 30% increase since 2018 — and the rapid proliferation of metrics has made knowing where business and societal goals align increasingly difficult.

This blog breaks down the real differences between a sustainability report and an ESG report, explains when you need one or both, and maps how the rapidly shifting regulatory landscape — from the EU’s CSRD to the ISSB’s global standards — is reshaping what companies must disclose and to whom.

Read more: Sustainable Supply Chain Orchestration: A Procurement Perspective

What is a Sustainability Report?

A sustainability report is a comprehensive disclosure of a company’s environmental, social, and economic impacts — both positive and negative. It tells the story of how an organization affects the world around it: how it uses natural resources, how it treats its workforce, how it contributes to or detracts from the communities where it operates.

Sustainability reporting has roots going back to the 1980s, when companies began voluntarily disclosing environmental performance. The practice matured significantly with the launch of the Global Reporting Initiative (GRI) in 1997, which remains the most widely used sustainability reporting framework globally. GRI’s approach is built around the concept of “impact materiality” — meaning it focuses on how the company impacts the environment and society, not primarily on how those issues affect the company’s bottom line.

Sustainability reports are designed for a broad audience: employees, customers, suppliers, NGOs, regulators, and communities. They tend to be narrative-rich, combining quantitative sustainability metrics (carbon emissions, water usage, waste reduction, diversity statistics) with qualitative storytelling about corporate values, initiatives, and long-term goals. According to Deloitte’s sustainability reporting trends analysis, thorough materiality analysis helps organizations understand sustainability risks, opportunities, and time horizons for accountability, and governance and capacity building strengthen adaptability in the face of evolving market expectations.

What is an ESG Report?

An ESG report evaluates a company’s performance and risk exposure across three specific dimensions: Environmental, Social, and Governance. While those categories overlap with sustainability, the lens is fundamentally different. ESG reporting asks: how do environmental, social, and governance factors affect the company’s financial performance, risk profile, and long-term value?

Read more: Strategic Intake Management: How ESG Principles Propel Business Excellence

The term ESG gained traction following the 2005 United Nations report “Who Cares Wins,” which demonstrated that integrating ESG criteria into investment decisions makes good business sense. Since then, ESG-focused institutional investment has soared — PwC projects ESG-mandated assets will reach $33.9 trillion by 2026, representing 21.5% of all assets under management. This investor-first orientation is what distinguishes ESG reporting from sustainability reporting.

ESG reports follow structured, quantitative frameworks designed for comparability and financial materiality. The most widely used include SASB for industry-specific metrics, TCFD for climate risk, and the ISSB’s IFRS S1 and S2 standards which are rapidly becoming the global baseline for investor-grade sustainability disclosure. As Gartner’s 2025 sustainability strategy research notes, environmental sustainability remains a top-10 CEO priority, and 60% of large enterprises are expected to adopt AI-driven ESG tools by 2026 to enhance reporting accuracy and efficiency.

Sustainability Report vs ESG Report: Key Differences at a Glance

While sustainability reports and ESG reports share common data points, they differ significantly in purpose, audience, and structure. The table below summarizes the core distinctions.

The Simplest Way to Understand the Difference

If you need a single mental model, here it is: a sustainability report looks outward (how does our company impact the world?), while an ESG report looks inward (how do environmental, social, and governance risks impact our company’s value?).

Download Research Report: 2025 Tail Spend Management Study

This distinction — sometimes described as “inside-out” versus “outside-in” materiality — has real implications for what data you collect, how you structure your report, and who you design it for. A sustainability report might highlight community investment programs and biodiversity initiatives. An ESG report will quantify how climate transition risk affects asset valuations and whether your board has adequate oversight of environmental liabilities.

The EU’s CSRD framework has introduced the concept of “double materiality,” which requires companies to report from both perspectives simultaneously — essentially merging the sustainability and ESG lenses into a single, comprehensive disclosure. Deloitte’s double materiality explainer describes this as assessing both the “outbound” impact on environment and society and the “inbound” financial effect on the company — offering a more sophisticated view of an organization’s ESG profile. This regulatory shift is one reason the boundaries between the two report types are blurring, even as their underlying purposes remain distinct.

Why the Distinction Matters More in 2026

The regulatory environment for corporate sustainability disclosure has shifted dramatically. What was voluntary is rapidly becoming mandatory, and the frameworks governing ESG compliance are multiplying across jurisdictions. As the Harvard Law Forum’s 2025 ESG Wrap-Up and 2026 Outlook observes, the EU’s Omnibus simplification package significantly reduced reporting burdens and narrowed compliance scope, but ESG reporting obligations remain expansive for large companies and those with global supply chains.

Sources: Deloitte Sustainability Spotlight 2025, Harvard Law Forum 2026, BCG Sustainability Reporting Reset 2026

BCG’s analysis of Europe’s sustainability reporting reset puts it plainly: the EU’s simplified ESRS Set 2 cuts the number of required data points by around 60%, but this is not deregulation — it is a shift from collecting data to acting on it. Companies that use this transition period to sharpen priorities and strengthen the link between sustainability reporting and business strategy will be best positioned.

For procurement and sustainability leaders, the practical implication is clear: you likely need elements of both report types. A sustainability report communicates your company’s values and long-term vision to the broadest stakeholder base. An ESG report satisfies the increasingly specific demands of investors, regulators, and rating agencies for structured, comparable, and auditable data.

What this Means for Procurement and Supply Chain Leaders

Both sustainability reports and ESG reports increasingly depend on supply chain data — and that puts procurement at the center of the reporting challenge. Scope 3 emissions (indirect emissions across the value chain) typically account for 70–90% of a company’s total carbon footprint according to the Carbon Disclosure Project, yet they remain the hardest category to measure and verify. Similarly, supplier labor practices, diversity metrics, conflict minerals, and governance standards all feed into ESG disclosures.

CSRD regulations now require visibility into upstream and downstream supply chain impacts, and California’s SB 253 mandates Scope 3 reporting for large companies. As Gartner’s research highlights, the scarcity of low-carbon inputs is already driving competition, with early movers securing preferential pricing, reputational gains, and supply chain resilience. This means procurement teams must collect, validate, and maintain auditable ESG data from their supplier base — a task that manual processes and spreadsheets simply cannot scale.

Organizations that connect their procurement systems to their sustainability and ESG reporting workflows gain a significant advantage. Deloitte’s 2024 Sustainability Action Report found that 81% of business leaders are transforming their business model or embedding sustainability throughout their organizations, and 65% are already seeing returns on those actions. When spend data, supplier performance, contract terms, and carbon accounting live in a unified platform, both sustainability and ESG reports become more accurate, more efficient to produce, and more defensible under audit.

Do You Need Both Reports?

For most mid-to-large enterprises, the answer is increasingly yes — but the two reports do not need to be separate documents. Many organizations are moving toward integrated reporting that combines the narrative breadth of a sustainability report with the structured, comparable data of an ESG report. The EU’s double materiality requirement under CSRD essentially mandates this integrated approach for in-scope companies.

The key is to build a single, robust data infrastructure that can serve both purposes. As McKinsey’s research argues, ESG compliance can prevent societal harm, but historically, companies have had the most impact through targeted innovation — applying their unique capabilities to address the specific societal issues where they can make the greatest difference. This suggests that the most effective approach is to collect sustainability metrics centrally, map them to multiple frameworks (GRI for sustainability, SASB/ISSB for ESG), and use technology platforms that automate the crosswalk between standards — freeing teams to focus on strategic action rather than compliance firefighting.

Build a Reporting-Ready Procurement Foundation with Zycus

Whether your organization is preparing a sustainability report, an ESG report, or both, the data starts in procurement. Zycus’s AI-powered Source-to-Pay platform — integrated with Lythouse, the Maximum ESG Platform — enables procurement teams to automate Scope 3 emissions tracking with AI-powered spend classification, monitor supplier ESG performance across the entire supply chain, generate audit-ready sustainability metrics mapped to GRI, SASB, TCFD, and CSRD/ESRS, and connect procurement data directly to corporate sustainability and ESG reporting workflows.

Request a demo to see how Zycus and Lythouse help you turn procurement data into compliance-ready sustainability and ESG disclosures.

FAQs

Q1. Can a sustainability report replace an ESG report?
Not in most regulatory contexts. A sustainability report provides broad impact disclosure but may not satisfy the structured, financially material, and framework-specific requirements of ESG compliance. If your organization is subject to CSRD, ISSB, or state-level climate disclosure mandates, you will need ESG-aligned reporting that meets those specific standards. However, a well-designed sustainability report can serve as the foundation for ESG disclosures if built on consistent, auditable data.

Q2. What is double materiality, and how does it affect reporting?
Double materiality is a reporting concept introduced by the EU’s CSRD that requires companies to assess and disclose both how sustainability issues affect their business (financial materiality, the ESG lens) and how their business affects people and the environment (impact materiality, the sustainability lens). It effectively combines the perspectives of both sustainability and ESG reporting into a single disclosure requirement. For a detailed walkthrough, see Deloitte’s guide on applying double materiality.

Q3. Which frameworks are used for sustainability reports vs ESG reports?
Sustainability reports most commonly follow GRI Standards, the UN Sustainable Development Goals (SDGs), and CDP questionnaires. ESG reports typically use SASB standards for industry-specific metrics, TCFD recommendations for climate-related financial risk, and the ISSB’s IFRS S1 and S2 for investor-grade global disclosure. The EU’s ESRS standards under CSRD bridge both approaches by requiring double materiality. For a comprehensive side-by-side comparison of all major frameworks, see Deloitte’s sustainability reporting requirements comparison.

Q4. Is ESG reporting mandatory in 2026?
Yes, for many companies. The EU’s CSRD already applies to large EU public companies (first wave reported in 2025), with the next wave now scheduled for FY 2027. Approximately 40 jurisdictions globally are adopting ISSB-aligned disclosure requirements. In the United States, California’s SB 253 and SB 261 mandate climate-related disclosures for large companies. For a full regulatory timeline, the Harvard Law Forum’s 2025 ESG Wrap-Up provides a detailed overview of current and upcoming obligations.

Q5. How does procurement data feed into sustainability and ESG reports?
Procurement data is essential for both report types, particularly for Scope 3 emissions (which represent 70–90% of most companies’ total carbon footprint), supplier diversity and labor practices, conflict mineral sourcing, and supply chain governance. Organizations with integrated Source-to-Pay platforms can automate the collection and classification of spend-based emissions data, track supplier ESG performance, and generate audit-ready reports aligned with multiple frameworks — significantly reducing the manual effort and error risk involved in sustainability and ESG disclosures.

Q6. What is the difference between ESG compliance and sustainability strategy?
ESG compliance is about meeting specific regulatory and disclosure requirements — filing structured data to satisfy frameworks like CSRD, ISSB, or SASB. Sustainability strategy is the broader organizational commitment to reducing environmental impact, improving social outcomes, and operating responsibly over the long term. As BCG’s sustainability research emphasizes, simplified reporting standards are designed to shift company effort from collecting data to acting on it. The strongest organizations treat compliance as a byproduct of a well-executed sustainability strategy, not as the end goal.

Related Reads:

1. Sustainable Procurement 2026: Using AI to Balance ESG Goals and Cost Optimization
2. Research Report: Unlock the Hackett Group 2025 Tail Spend Management Study
3. Autonomous sourcing: Unlocking speed, savings and strategic advantage in Procurement
4. Sustainable Supply Chain Orchestration: A Procurement Perspective
5. Lead the Way in Sustainability: Integrating ESG in Source-to-Pay
6. Supplier Risk Management Framework: A Comprehensive Approach to Mitigating Supplier Risks