What Is the Difference between a PEST and PESTLE Analysis?

Esther Ejim

Political, Economic, Social, Technological (PEST) analysis and Political, Economic, Socio-cultural, Technological, Legal, Environmental (PESTLE) analysis are both economic analysis tools that are used to evaluate certain aspects of a business environment. The main difference between the PEST and PESTLE analysis is the addition of two other factors to the PESTLE analysis. Other than the legal and environmental factors, both tools perform essentially the same functions.

Companies use PEST analysis factors to determine how external government forces may alter operational plans.
Companies use PEST analysis factors to determine how external government forces may alter operational plans.

One of the differentiating factors between the PEST and PESTLE analysis is the legal factors in the operating environment of a business. These are determined by the scope of the business environment. For instance, a business located in Maryland within the US, would have to contend with local legislation like county laws, state legislation and other laws that may apply to the business as a consequence of its location. These laws may include Employment Laws, Employee Laws, and laws guiding such aspects as competition.

If the business is an international corporation then it would have to study international laws regarding trade, competition, foreign market and international labor. The company would also have to study other factors like legislation and laws guiding the export and import of goods. An example of such laws may include the analysis of import quotas and the imposition of custom duties on trade items. Other legal factors that differentiate these two analyses include various taxation laws and their application to the company.

Environmental considerations also differentiate a PEST and PESTLE analysis. This includes legislation that is related to the environment and the impact of such legislation on the business. For instance, the Environmental Protection Agency (EPA) regulates the way industrial production affects the environment in the United States. This includes laws guiding permissible emission levels from different production plants and also the manner in which companies may discharge their wastes. Failure to abide by these regulations and laws may lead to serious fines, lawsuits or outright closure of a company.

Another environmental-related consideration that demarcates the PEST and PESTLE analysis includes regulations relating to the manner in which companies may be held responsible for the effect their actions have on the environment. Some countries may legally require companies to invest in the environment so as to offset the negative effect of their activities. Such mandatory acts may include the planting of a pre-determined number of trees to make up for greenhouse gas emissions and other related factors.

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