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What is the difference between CSR and ESG?

by Sean O'Neill on Jul 6, 2022

difference between CSR and ESG

There has been an increasing focus on corporate sustainability and reporting and a question often asked is what is the difference between CSR and ESG?

CSR and ESG are different frameworks that companies use, to assess sustainability.

In short, CSR may be used as an internal framework, while ESG provides a measure of assessment for investors.

It could be argued that ESG is currently overtaking CSR as a measure of sustainability in the corporate world.

Key points of this guide include:

  • CSR focuses on corporate volunteering, lowering carbon footprint, and engaging with charities
  • ESG provides a more quantitative measure of sustainability
  • ESG considers environmental, social, and governance factors
  • ESG improves the valuation of the business
  • CSR helps inform others about the values and goals of the business
  • To incorporate CSR think about the culture of the business
  • To incorporate ESG, conduct audits, and set measurable goals

What is CSR?

People today are more socially conscious than ever, and buyers are prepared to pay more for sustainable products. Companies can report their efforts to buyers and other stakeholders by developing a CSR model. Promoting CSR has become a critical part of brand management. 

The activities in a CSR strategy include lowering the business’s carbon footprint, corporate volunteering, improving labour practices, and engaging in charity. For example, Microsoft aims to reduce its carbon footprint and help customers do the same. Verizon has provided school children with technology to help them engage in virtual learning, thus reducing the digital divide. 

Since ESG is more quantifiable, this may win out as a more popular measure. 

What is ESG?

ESG stands for environment, social, and governance. Rating agencies can round up performance in these areas as a score similar to CSR but more measurable. ESG improves the valuation of the business, and more capital becomes available. Investors can use ESG as a measure of how sustainable the company is. 

The pandemic has increased awareness of such practices. Without some such measures in place, it is likely to become more challenging to maintain corporate reputation and financial success in the future. Since ESG is more quantifiable, this may win out as a more popular measure. 

CSR can be excellent for driving awareness of initiatives, but ESG can provide solid numbers behind them. 

CSR vs ESG

Such policies help inform the public about the values and goals of the business. CSR practices are usually self-regulated and can have a lot of variation. It is a more qualitative measure and can be challenging to define. ESG, on the other hand, provides investors with a measure they can use to decide which companies to invest in. 

Both CSR and ESG could be used by a business simultaneously. CSR may provide an internal framework for the company to communicate with employees, while ESG provides measurable goals. So, CSR can be excellent for driving awareness of initiatives, but ESG can provide solid numbers behind them. 

To incorporate ESG, the business can conduct a materiality assessment.

How can businesses incorporate these approaches?

To incorporate CSR practices, businesses can consider the company culture, its impact on the environment, and its relationship with the local community and can educate employees on how they can be part of the solution.

To incorporate ESG, the business can conduct a materiality assessment, collect insights from stakeholders, set goals and conduct a gap analysis, develop a measurable roadmap and KPIs, and report on progress. 

ESG programs can even lead to cost savings by reducing waste and helping to attract better talent. 

Why do ESG and CSR matter?

CSR is not just about the external impact of company policies but also the internal, as it can help employees feel empowered to do good and embrace diversity. This can further boost employee morale and retention. 

ESG helps to highlight the ethics of the business to the external world. Companies who signal that they are using actionable ESG criteria show that they have a long-term vision and are viable opportunities for investors. 

ESG programs can even lead to cost savings by reducing waste and helping to attract better talent. 

Essentially, ESG considers the ethics of the business in terms of people and the planet, and while in the past, the focus might have been on profits, this has now been swapped out with governance. CSR can be good for building accountability within the organisation itself. Still, ideally, you would want to have this and a strong ESG rating, demonstrating to the outside world that your business is sustainable. 

Some might say that ESG is an advancement on CSR as it is more measurable. 

Which approach is better – ESG or CSR?

ESG might consider specific things, including carbon emissions, deforestation, waste management and water usage, diversity and inclusion, fair labour practices, executive pay, internal corruption, and lobbying. 

So, there are both similarities and differences between the terms CSR and ESG. They can be used together as strategies within your business, although some might say that ESG is an advancement on CSR as it is more measurable. 

In summary, CSR can be used to build awareness and highlight goals within the business and is more qualitative. At the same time, ESG provides metrics that can instil confidence in investors and the broader market. 

Video discussing CSR and ESG

Watch Laura Heuston examine why businesses must develop a more complete picture of their sustainability agenda. Laura also discusses the role of directors in effectively overseeing and reporting on sustainability, CSR and ESG.

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