ESG vs CSR: What is the Difference?

ESG, CSR… have you ever found yourself nodding along as your colleagues rattle off these acronyms without really having a clue as to what they mean? Well, fear not, because we’re here to help you. So the next time these topics come up you’ll be armed with all the information you need to sound like the intelligent, well-read individual you really are. 

It can sometimes feel like the world around us is creeping closer and closer towards environmental disaster, but thankfully companies and governments around the globe are finally starting to take notice. And while CSR and ESG are not new, they’re two topics that are cropping up more and more, so what exactly do they mean and what’s the difference?

Let’s start with the basics: CSR stands for corporate social responsibility, and ESG stands for environmental, social and governance. Don’t feel too bad if you’ve got them muddled in the past - they’re easy to confuse, because in practice they’re different angles of measuring the same thing - ie. a company’s impact on society. The main thing to remember is that CSR is used as a company’s internal framework, whereas ESG provides a measure of assessment for investors. 

Still confused? Don’t worry, we’ve got you covered - keep reading on and everything should become clear!

Let’s drill into the details of CSR.

Corporate Social Responsibility refers to a company’s values, practices, and policies that address social, economic, and environmental issues. A company will usually have what's known as a corporate purpose statement outlining the aims of the company beyond simply making a profit - because it's not just about money you know! 

CSR isn’t something that’s legally required or mandated, but in an ideal world the company’s leaders, management team, and employees would develop and uphold these CSR principles together by making sure that they’re reflected in the company’s corporate culture. Here’s hoping that your company already has one, but if not, why not step up as the hero who suggests one?

Still a little confused? How about a few examples to help you understand: CSR objectives can include things like a company’s target to reduce its carbon footprint, its ambition to build green office spaces, or to develop new product lines from waste materials etc. 

The term CSR goes way back, but started to really gain attention in the 1970s. By the late 1990s it was pretty much considered essential for companies, both large and small. And while it’s a great way for companies to push initiatives that benefit more than just its shareholders, today’s society demands more. Companies need to prove that they’re actually doing the things they say they’re doing - this is where ESG comes into play.

Environmental, social and governance (ESG) is an umbrella term that refers to criteria used by stakeholders (mainly investors) to review a company’s impact on society (including the environment). Times have changed and now, when evaluating a company, many investors look beyond a company’s financial situation and will also consider a company’s ESG rating. 

It would be nice to think that ESG has seen a surge in popularity because companies around the world suddenly found their conscience, but research shows that the main reason reported for incorporating ESG factors is in response to growing regulation and legal requirements. Regulations like the EU Sustainable Finance Disclosure Regulation (SFDR), the EU Taxonomy system, and the Corporate Sustainability Reporting Directive (CSRD) are leading the way globally - though, it’s not just the EU who is stepping up in the area of ESG disclosures, the US and UK are also in the process of developing their own ESG disclosure regulations.

CSR and ESG don’t just exist to confuse you, nor are they merely buzz words to make your company sound ethical, they’re actually useful tools that bring benefits to both the business and to the wider community.

CSR

CSR for example, might be self regulated by the company and its stakeholders however, it brings a number of real life advantages: 

• CSR helps a company to effectively communicate its sustainability commitments
• Builds a responsible and ethical company reputation 
• Improves brand credibility and customer loyalty - these days people care about the impact of the products and services they’re buying!
• Helps to attract and retain employees - it’s not only customers and clients who care about society and the environment, it’s employees too. If companies want to attract and keep the best talent they need to have effective CSR strategies and ESG practices in place

ESG

Not bad! But what about ESG? Well, ESG also brings with it a number of benefits: 

• With increasing regulations, it’s likely that companies will have to disclose ESG factors sooner rather than later - it’s a smart move for companies to get ahead of the game and make sure they’re already measuring their ESG risks and opportunities 
• ESG helps companies respond to climate change and other global challenges - at one point in time profit was a company's biggest concern, but these days, management need to care about more than the bottom line
• More attractive to investors - ESG investing is a thing now!
• ESG brings competitive advantages - in competitive and crowded markets, company’s can use ESG to stand out
• Builds trust with stakeholders by promoting transparency
• Eliminates risks of greenwashing

Companies don’t have to pick CSR or ESG, in fact it’s better if a company uses both these tools to incorporate sustainability and environmental considerations into their business operations. CSR is useful because it provides an internal framework for the company to communicate with its employees, while ESG provides measurable goals.

Now that you’re pretty much an expert of CSR and ESG, it’s time for you to step up and make sure that your company has its own CSR strategy and ESG reporting program. But where to start? 

CSR is the best place to start, but you don’t need to reinvent the wheel when it comes to creating your own CSR strategy. There are heaps of other businesses out there with highly effective CSR strategies - so why not borrow from them, don’t worry we won't tell anyone 🤫!

Just make sure to link up your CSR strategy to your company’s own values - tailor them to suit your operational needs and to align with your brand identity. It’s also a good idea to gather insight from your company’s various stakeholders - we wouldn’t want them to feel left out after all! Above all else, make sure that your CSR strategy is clear and transparent, and focuses on specific goals and objectives. 

Then once you’ve created a wonderful, shiny new CSR strategy, it’s time to get back to work! CSR is great, but ESG takes it one step further.

Begin by assessing your company’s CSR strategy and programs against commonly listed ESG factors. What are these factors you might ask - well, there’s not one exhaustive list, however, there are lots of ESG frameworks out there that you can use for inspiration. Take the UN’s Sustainable Development Goals for example, it lists factors such as sustainable energy, reduction in inequality, sustainable consumption, conservation of resources, gender equality… the list goes on. Another good idea is to check out the many ESG frameworks that already exist - they’ll show you what existing regulations demand when it comes to ESG reporting. 

Then once you’ve developed an ESG roadmap and framework you’ll need to roll up your sleeves and get your hands dirty - ESG reporting relies on real life quantitative data. Companies need to set action plans and measure KPIs so that they can report on the progress being made.

Phew! Now that’s all in place, you can finally relax… But not for too long - you need to make sure that the company is progressing against its CSR and ESG goals after all.

CSR and ESG, peanut butter and jelly, crackers and cheese… you get the picture, they belong together! Subtly different, but both useful strategies that help a company to build a more sustainable future for a company’s employees, investors and society! 

We hope that this article has not only filled you with confidence to participate the next time the topics of CSR and ESG come up, but also that it might have inspired you to take action and make sure that your own company’s CSR strategies and ESG reporting metrics are up to the mark!

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required. 

If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.