In a world where the word ‘sustainability’ looms large over our choices, corporate culture cannot afford to escape the buzz. Companies are now expected to incorporate CSR and ESG standards into their day-to-day operation and business structure to go in line with a more conscious consumer choice.
Yet, rapid mainstreaming of sustainability left many business owners confused. With 4 in 5 institutions looking to make a shift towards sustainable operation, many still use CSR and ESG acronyms interchangeably. To successfully implement these practices, let’s dig deeper to understand the main differences between the two.
What is CSR?
Corporate Social Responsibility (CSR), or ‘corporate citizenship’ as many know it, refers to the actions that the company takes in order to partake in its wider environment. It is primarily concerned with an institution’s good will to address economic, environmental and social issues.
Adopting CSR is critical for effective brand management, employee retention and sales. Amongst the most common practices you’ll typically find:
What is ESG?
ESG, on the other hand, has shifted the focus towards defined and measurable pillars based on the economic, social and governance criteria that make up its acronym. Its original purpose was to help asset owners reduce the risk and enhance their long-term investment strategy.
However, today individual companies also actively adopt ESG practices to assess their internal risks that arise from the global sustainability challenges. With volatile changes including global warming, demographic crisis, political calamities, these pillars help determine desirable standards, and evaluate current business performance gaps.
Is CSR and ESG Different?
To cut to the chase, the short answer is yes.
Despite ESG and CSR sharing similar principles and both falling under the same umbrella of sustainability, they have grown to occupy their own individual spaces. When it comes down to business strategy and operation, there are three key differences you must consider:
Unlike CSR, ESG is measurable. The ESG matrix is used to determine a company's performance based on the pillars it’s made out of. Every company gets an annual score that determines how well they adhere to the criteria. This isn’t only useful for self-assessment, but also drastically simplifies competitor analysis and due diligence.
To no surprise, lack of quantitative assessment has become CSR’s main pain point over the years. Despite its open to interpretation ‘do good’ philosophy, CSR received a ton of bad press for its inconsistent implementation, dubious intentions and immeasurable results. Until today, it remains difficult to understand the value of tightly focused projects and selective social responsibility beyond its scope as a marketing tool.
The way the two strategies are activated is also drastically different. CSR implementation begins with turning inward to the company culture to better understand the importance of individual social issues and consumer values. Since this isn’t a one-size-fits-all endeavour, businesses are required to hand-pick the projects that will make their stakeholders ‘tick’.
In contrast, implementing ESG starts with a close analysis of companies’ performance based on a predefined criteria instead. This also includes stakeholder input and trackable KPIs that fit the company’s roadmap. As a result, it becomes a lot more engraved in business operation and provides a long-term strategy to achieve the set goals.
Lastly, while CSR is entirely self-regulated, ESG faces external pressures, guidelines and regulations. For instance, in 2008 ISO (International Organization for Standardization) published ISO 26000, a document outlining how businesses should approach their sustainable operation and reporting. In the aftermath of Covid-19, these regulations are only expected to pick up the pace to provide additional structure and guidance.
CSR, however, still retains a lot more leeway when it comes down to reporting. Since it includes predominantly qualitative data outlining successes up to date, mission statement, future initiatives etc. - it is difficult, if not impossible, to impose a rigid structure. This deviation is a result of the contrasting goals these terms entail. While CSR is more focused on boosting business’ value internally, ESG is more focused on quantifying it externally.
To Wrap Up
Despite ESG offering more workable data to business owners and stakeholders, it can only overshadow CSR’s popularity, but not entirely eliminate it. It fails to address the freedom, creativity and self-agency the latter offers in its approach to sustainability.
Good news? The two terms are not mutually exclusive and arguably neither should they be. Ultimately, every business should create their unique combination of the two to best address the needs of their stakeholders, industry, and find the perfect balance between internal and external validation. If you are struggling with putting theory into practice, contact us at Purpose Communications to receive personalised advice or check out our wide range of services to support your ESG strategy today.