Three Sustainabilities, Not One
"Sustainability" has become a catch-all term that obscures more than it clarifies. Damodaran's useful unpacking identifies three distinct meanings:
- Planet sustainability — how business activity affects environmental and collective welfare
- Product sustainability — how efficiently products or services are used before becoming waste
- Corporate sustainability — the longevity of the business entity itself and actions that extend or shorten its life
Conflating the three is where most debates go off the rails. A razor company that makes blades so durable they never need replacing is maximizing product sustainability while undermining corporate sustainability. Most current corporate usage defaults to planet sustainability as the operative meaning.
How Different Actors Define It
The definitional drift across the field is striking:
- Academic institutions emphasize a holistic blend of environmental, social, and economic dimensions
- Companies frame sustainability as serving stakeholder needs while preserving long-term viability
- Governments describe integrating social, environmental, ethical, consumer, and human rights concerns into business strategy
All three definitions cluster around planet sustainability but diverge on motivation — "doing the right thing" versus "improving profitability and value."
The Rise of Corporate Sustainability
Over the last two decades, the Chief Sustainability Officer (CSO) role has proliferated inside large companies. Damodaran's framework for the range of CSO archetypes is sharp:
- CSO as Yoda — vision-setter and long-term advisor
- CSO as Jiminy Cricket — corporate conscience, reminding executives of social impact
- CSO as PR Genius — marketing existing practices as sustainability wins
- CSO as Embalmer — focused on extending corporate life indefinitely
There is no consensus on which version the role should be, which is itself part of the problem.
Sustainability and ESG
Damodaran rejects the common attempt to separate sustainability from ESG investing. In his framing:
"ESG took the concept of corporate sustainability, converted it into a scoring mechanism, and drove its widespread adoption."
The link between ESG scoring, sustainability practice, and the broader stakeholder-capitalism movement is direct and intentional. All three rest on the premise that companies have obligations to constituents beyond equity holders.
Shared Characteristics — and Shared Problems
ESG and sustainability frameworks share several structural issues:
- Opacity. Scoring methodologies are rarely transparent or replicable.
- Roots in virtue. The frameworks trade on moral legitimacy rather than measurable outcomes.
- Focus on disclosures. Measurement defaults to what companies say, not what they do.
- Underplayed costs. Who bears the cost of sustainability goals is rarely discussed honestly.
These aren't fatal flaws, but they explain why institutional skepticism of the frameworks has risen in step with their adoption.
A Path Forward
Damodaran's prescription for rebuilding credibility:
- Be specific about what is actually achievable at the individual business level
- Discuss the real costs of meeting sustainability goals openly
- Name who bears those costs — consumers, shareholders, employees — and whether the allocation is fair
- Remove individuals who have profited personally from sustainability rhetoric without delivering outcomes
- Rebuild institutional trust through transparency, humility, and incremental wins
Implications for Valuation Work
When incorporating ESG or sustainability factors into cost of capital or cash flow assumptions, practitioners should:
- Distinguish which of the three sustainabilities the adjustment is targeting
- Model the cost of the initiative explicitly, not just the disclosure
- Avoid treating ESG score improvements as automatic value creation
Bottom Line
Sustainability is three concepts in a trenchcoat. Separating them is the precondition for productive corporate sustainability discussions, honest ESG integration, and defensible valuation work that accounts for real environmental and governance exposures.