Batteries play a crucial role in the domain of energy storage systems and electric vehicles by enabling energy resilience, promoting renewable integration, and driving the advancement of eco-friendly mobility. However, the degradation of batteries over time remains a significant challenge. This paper presents a comprehensive review aimed at investigating the intricate phenomenon of battery degradation within the realm of sustainable energy storage systems and electric vehicles (EVs). This review consolidates current knowledge on the diverse array of factors influencing battery degradation mechanisms, encompassing thermal stresses, cycling patterns, chemical reactions, and environmental conditions. The key degradation factors of lithium-ion batteries such as electrolyte breakdown, cycling, temperature, calendar aging, and depth of discharge are thoroughly discussed. Along with the key degradation factor, the impacts of these factors on lithium-ion batteries including capacity fade, reduction in energy density, increase in internal resistance, and reduction in overall efficiency have also been highlighted throughout the paper. Additionally, the data-driven approaches of battery degradation estimation have taken into consideration. Furthermore, this paper delves into the multifaceted impacts of battery degradation on the performance, longevity, and overall sustainability of energy storage systems and EVs. Finally, the main drawbacks, issues and challenges related to the lifespan of batteries are addressed. Recommendations, best practices, and future directions are also provided to overcome the battery degradation issues towards sustainable energy storage system.