On the surface, these increasingly common terms sound interchangeable. They’re not though. So, what’s the difference between CSR and ESG?
Corporate Social Responsibility and Environmental, Social, and Governance certainly do have some overlap.
They both relate to environmental and sustainability practices. The use of both terms is certainly on the rise as consumer purchase decisions become more motivated by sustainability factors.
Yet if you want your business to talk the talk as well as walk the walk on sustainability, it’s important to understand the differences between ESG and CSR:
Why is understanding CSR and ESG important?
Awareness of the risks of climate change, biodiversity loss, and extreme weather is reaching a peak. Action, however, is still in short supply.
Many businesses are acting on their own or as part of groups, such as the B Corp movement. Although this can take work, it is work that is often well rewarded.
This is because consumers are increasingly motivated to engage with businesses that put sustainability at the heart of what they do.
Sometimes called “ethical consumerism” or “conscious consumerism”, this trend is driving businesses in every industry to improve and be more transparent about their sustainability practices.
What is sustainability?
Sustainability generally refers to the ability to continue a process over time.
In business – sometimes called “corporate sustainability” – it is often used to refer to being responsible and ethical while ensuring success can be achieved long into the future.
You’ll sometimes see this referred to as the “triple bottom line” of profit, people, and planet.
What is CSR (Corporate Social Responsibility)?
Corporate Social Responsibility is a loose framework for socially responsible business.
There is an ISO standard (ISO 26000) that defines and suggests guidelines. But as a whole, CSR practices are loosely defined and qualitative rather than quantitative.
Despite this, a reputation for good CSR can provide a brand with huge image boosts (on top of being good for the business itself, local communities, and the world in general).
Some of the most common CSR practices include things like:
- Switching to renewable energy
- Ethical treatment of employees, consumers, and all stakeholders
- Voluntary work in local communities
- Charitable donations
- Reducing pollution, waste, and energy usage
What is ESG (Environmental, Social, and Governance)?
Environmental, Social, and Governance includes setting quantifiable metrics for corporate sustainability factors and assessing how a brand performs over time.
Unlike CSR, ESG should include systems for assessing and even auditing a company’s performance in set areas:
- Environmental – things like policies and measurement of energy usage, energy supply, and waste management.
- Social – such as ethical and sustainable supply chains, ethical products and services, diversity and inclusion in the workforce, and many others.
- Governance – including ethical and transparent accounting and financial practices, fair executive pay and compensation practices, ethical business policies and practice.
For example, a company may track its Diversity, Equity, and Inclusion (DEI) performance by counting the number or percentage of its employees from different backgrounds.
High ESG scores are becoming highly sought after by many investors and stakeholders. Certain regulatory bodies have required standards for transparency and compliance.
This means good ESG performance can make a company more profitable and help attract investment. Partly because good ESG scores demonstrate a business is aware of risk.
What is the difference between CSR and ESG?
1) ESG is quantitative, CSR is qualitative
Environmental, Social, and Governance scores are often tracked and measured. Although some ESG factors are qualitative, they are more likely to be numbers that can be compared – and checked before investments are made.
Corporate Social Responsibility can be more focused on brand reputation and employee engagement. It does not tend to be tracked in quite the same way as ESG.
2) ESG is standardised, CSR has only the loosest framework
Each company can handle its CSR reporting and practices however it would like to. There aren’t really any set standards or structures in place.
ESG reporting, on the other hand, has numerous national and international frameworks, many of which are standardised. Reporting some standardised ESG metrics has become mandatory in certain countries.
3) ESG is risk-focused, CSR is value-focused
Good CSR practices might help a company and its team feel like they are acting in line with their values.
Proper ESG reporting includes assessment of risks and opportunities related to Environmental, Social, and Governance factors that can help improve how a business operates across the board.
Improving your business IT is a powerful way to boost your CSR and ESG performance.
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