CSR vs ESG: What’s the Difference and Why Does It Matter?
Sustainability and corporate responsibility are two concepts that have gained prominence in the business world. They are often associated with two acronyms: CSR and ESG.
But, what do they mean, and how are they different? Let’s clarify the definitions, differences, and benefits of CSR and ESG, and provide some examples of how they are applied in practice.
What is CSR?
CSR stands for Corporate Social Responsibility. It is a concept that describes how businesses take responsibility for their social and environmental impact. CSR can include various activities, such as:
- Volunteering for social causes
- Reducing carbon footprint and waste
- Supporting charities and nonprofits
- Improving labor practices and human rights
- Promoting diversity and inclusion
CSR is usually self-regulated by businesses, and it can vary widely in scope and quality. CSR is often used as a way to communicate the values and goals of a business to its stakeholders, such as customers, employees, investors, and regulators. CSR can also help businesses enhance their reputation, brand image, customer loyalty, and employee engagement.
For example, one of the companies that is known for its CSR initiatives is Microsoft. Microsoft has a mission to empower every person and every organization on the planet to achieve more. To fulfill this mission, Microsoft has adopted various CSR practices, such as:
- Providing technology and education to underserved communities
- Investing in renewable energy and carbon reduction
- Supporting social justice and racial equity
- Donating software and cash to nonprofits
- Encouraging employee giving and volunteering
These practices have helped Microsoft to create a positive social impact, as well as a loyal customer base and a motivated workforce.
What is ESG?
ESG stands for Environmental, Social, and Governance. It is a set of criteria that investors use to evaluate the sustainability performance of businesses practice based on internal framework. ESG can include various factors, such as:
How a business manages its environmental impact, such as greenhouse gas emissions, energy efficiency, waste management, water use, biodiversity, etc.
How a business treats its employees, customers, suppliers, communities, and other stakeholders. This could be labour standards, health and safety, customer satisfaction, human rights, diversity and inclusion, etc.
How a business is run by its board of directors and management team. This includes corporate ethics, transparency, accountability, risk management, anti-corruption, etc.
Environmental, social and governance (ESG) is usually measured by third-party rating agencies or platforms that collect data from various sources. They use this to assign scores or ratings to businesses based on their ESG performance. ESG metrics can help investors make better decisions about which businesses to invest in.
Also, they could choose to avoid based on their sustainability risks and opportunities. ESG can also help businesses improve their valuation, profitability, innovation, and resilience.
For example, one of the companies that is recognized for its ESG performance is Unilever. Unilever is a consumer goods company that produces brands such as Dove, Ben & Jerry’s, Lipton, etc.
Unilever has adopted an ESG strategy called the Unilever Sustainable Living Plan (USLP), which aims to:
- Improve the health and well-being of 1 billion people by 2030
- Reduce the environmental impact of its products by half by 2030
- Enhance the livelihoods of millions of people in its value chain by 2030
These goals have helped Unilever to create value in these ways:
- For shareholders by increasing its sales and financial performance.
- For customers by offering high-quality and affordable products.
- For employees by providing a safe and inclusive workplace.
- For suppliers by supporting their growth and development.
- For communities by contributing to their social and economic well-being.
- For society by addressing global challenges such as climate change, poverty, and inequality.
CSR vs ESG: What’s the Difference?
So what’s the difference between CSR and ESG? While both concepts are related to sustainability and corporate responsibility, the main difference between them is that:
- CSR is a business model used by individual businesses.
- ESG is a criteria used by investors to assess businesses.
- CSR is your company’s internal commitment to strong corporate values.
- ESG is the measurable sustainable impact of your business.
- ESG is a quantifiable, enforceable sustainability framework, while CSR is a looser, self-regulating initiative for corporate behavior.
In other words, Corporate Social Responsibility (CSR) is the ideal and gives context about sustainability agendas and corporate responsibility culture. ESG is the action and measurable outcome. To simplify, CSR can be thought of as the qualitative side and ESG as the quantitative side.
CSR vs ESG: Why Does It Matter?
Why does it matter to know the difference between CSR and ESG? Because both concepts have significant implications for your business and its stakeholders. Here are some of the benefits of adopting CSR and ESG reports and practices:
CSR can help you communicate your values and goals to your stakeholders, such as customers, employees, investors, and regulators. This can help you build trust, loyalty, and engagement with them.
ESG can help you measure your sustainability performance and identify your strengths and weaknesses. This can help you improve your efficiency, productivity, innovation, and quality.
CSR can help you enhance your reputation and brand image among consumers and other stakeholders. This can help you differentiate yourself from your competitors and create a unique value proposition.
ESG can help you attract and retain investors who are looking for sustainable businesses to invest in. This can help you increase your valuation, profitability, and resilience.
CSR can help you fulfill your social and environmental responsibilities and make a positive impact on the world. This can help you create a sense of purpose and meaning for yourself and your stakeholders.
ESG can help you mitigate the risks of legal issues, regulatory fines, reputational damage, consumer boycotts, or employee turnover that may arise from unethical or irresponsible behavior. This can help you avoid or minimize these costs.
Incorporating CSR and ESG into Your Business
If you are interested in incorporating CSR and ESG into your business, here are some steps you can take:
To incorporate CSR, think about the culture of your business. For example, the values and goals you want to uphold and communicate to your stakeholders. You can also look at the best practices and examples of other businesses in your industry or sector that have adopted CSR initiatives.
You can then develop a CSR strategy that aligns with your vision, mission, and objectives, and implement it across your business functions and operations. You can also communicate your CSR efforts to your stakeholders through various channels, such as reports, websites, social media, etc.
To incorporate ESG, conduct audits and assessments of your current sustainability performance and identify the gaps and opportunities for improvement. You can also look at the ESG criteria and standards that are relevant to your industry or sector, such as:
- The Global Reporting Initiative (GRI)
- The Sustainability Accounting Standards Board (SASB),
- The Task Force on Climate-related Financial Disclosures (TCFD)
You can then set measurable goals and targets for each ESG factor and track your progress and results over time. You can also report your ESG performance to your investors and other stakeholders through various platforms, such as ratings, rankings, indexes, certifications, etc.
CSR and ESG are two important concepts that relate to sustainability and corporate responsibility. While they are different in their scope, purpose, and measurement, they are both beneficial for businesses and their stakeholders. By adopting CSR and ESG practices, businesses can create value for themselves and the society at large.
At Windo, we prioritize CSR data and acknowledge the importance of ESG Goals in business sustainability and development. That’s why our CSR Profiles on Windo highlight ESG initiatives as well as CSR data.