What is the difference between CSR and ESG?

What is the difference between CSR and ESG? If you’re getting into the weeds with corporate sustainability, you’ll likely see the term ESG everywhere but, especially in older documents, you might also encounter the term CSR.

The bottom line is that while there’s a good deal of overlap, there is a technical difference between the two. If your role is connected to sustainability in any way, it’s vital that you understand what separates one from the other as well as how both have evolved through the long history of corporate efforts to take care of the planet and its people.

Corporate social responsibility is an idea. Its central point is the concept that businesses have a responsibility to society and the environment. Some definitions classify CSR as a business model rather than simply an idea; this is likely in the context of businesses that have agreed to pursue the idea in practice. Many have, and many haven’t, but in modern business, it will likely be up for discussion at some point, no matter what sector or country you’re in. 

Important elements of CSR discussion include lowering carbon footprints, improving labour practices, improving community relations, and charitable activities, pursuing employee well-being, and having diversity strategies.

The key point about CSR is that, as an idea, the above elements are often talked about as principles – nothing more. Quantification and metrics happen in other contexts, particularly that of ESG, which you can read more about below.

ESG means Environment, Social, and Governance.

At its core, it’s an investing tool. It’s an intricate network of metrics designed to help investors assess companies’ commitment to the planet and its people. Such assessments can be done in isolation, but many involve companies being measured against each other. 

In practice, ESG often allows clear visibility on which company is more “environmentally friendly”, “socially just”, “well governed” and other interrelated principles.

Who does the actual judging when it comes to these metrics? It’s mainly dedicated ratings companies with expertise in the area. Their verdict influences how companies are seen in the eyes of stakeholders. In modern times, ESG metrics can have a significant impact on a company’s valuation. Many investment pathways deliberately only include companies with high ESG ratings, because that’s where many stakeholders want their money to go. 

CSR is an idea, a principle. ESG is a scorecard system, an investing tool. The former sets out goals while the latter measures the goals in practice. 

While ESG concerns itself with the same focus areas as CSR, ESG is more practical. It transforms words into actions through concrete measurements – often using standards that are increasingly known and respected worldwide – to show how companies are performing on CSR-related principles. 

Because of ESG’s practical nature, it has rapidly won out in terms of “airtime” at board and C-suite meetings. Many companies will look at CSR principles only through the lens of ESG; CSR might not even get a mention in many contexts.

You’re far better off not thinking of the two as an “either-or” choice. In reality, they are complementary.

Practically, however, stakeholders and strategy will remain largely concerned with ESG in the first instance. It’s more practical and can give a better picture of a company’s strategic direction than CSR.

ESG’s metrics and many reporting frameworks give the kind of clarity that many stakeholders want. Additionally, regulations worldwide designed to enforce sustainability commitments are largely written in the context of ESG. Examples like Europe’s CSRD indicate the kinds of benchmarks you’re expected to follow if the rules apply to your business.

CSR – being largely based on concepts and principles – is largely concerned with your company’s mission statement and business goals. At times, your board and executives may need to analyse what your core business goals are about and, in these instances, CSR may arise as a discussion point.

The important thing with CSR is that, if you decide to incorporate its principles, you do it thoroughly. Don’t just decide something at the leadership level and leave it there. Policy needs an organisational-wide approach and follow-through. Ensure you have the stamina, resources and correct culture to do that.

ESG, meanwhile, is all about the practicalities. Implementing ESG means following reporting frameworks, conforming to established data collection practices and metrics. You need people within your board who are trained in sustainability governance, because ESG is becoming increasingly structured by regulators. They expect certain standards and leave little room for straying.

• Corporate Social Responsibility (CSR): What It Is, How It Works, and Types
• What Is Corporate Social Responsibility? 4 Types
• Environmental Social Governance (ESG)
• Top 10: Sustainability Reporting Frameworks
• Corporate sustainability reporting
• Diploma in ESG