ESG, CSR, clearing up the confusion

ESG, CSR, GRI, UNSDG, Sustainability, just a few of the terms that are used when discussing what businesses are doing around corporate social responsibility (CSR).

Without a CSR framework in place, one that delivers the required ESG information, your business is likely to miss out on opportunities for new business.

In recent years, ESG (Environment, Social, Governance) has received the largest share of the media and business voice, but what is not understood by most is that ESG is very different from CSR. In this article, we will try, in a straight-forward way, clarify what the definitions mean and how they impact a business.

CSR – Corporate Social Responsibility

It is worth starting with the history of CSR as this is where the drive for businesses to be responsible started.

CSR has its roots in the late 1800’s when philanthropy combined with a deteriorating workplace started to make businesses re-evaluate their working and production models. We then jump forward to 1953, the date when most business historians agree that the term “Corporate Social Responsibility” was first used by American economist Howard Bowen. In the 1960’s, some started to believe that CSR could be a response to the emerging problems of the new modern society (Ecolytics) although at this point there was no wide-spread adoption. It wasn’t until the 1980’s when CSR became more relevant to businesses as increased deregulation meant that businesses were more in control of their actions and activities. In the 1990’s as we started to see increased globalisation and the introduction of the internet, more organisations adopted CSR, or a variation to begin to address the big, global issues, most notably, Agenda 21, the United Nations Framework on Climate Change.

Since then, there has been a significant increase in support for CSR and in many sectors of business a demand for the businesses to be more proactive and be able to demonstrate their credentials around CSR.

ESG – Environment, Social, Governance

We can now introduce ESG. This definition was mentioned in the United Nation’s Principles for Responsible Investment (PRI) in 2006. In this report It stated for the first time that companies should be required to incorporate ESG criteria in their financial evaluations. At this point there were only 63 signatories to the principles, as at June 2019 this had risen to 2450, amounting to $80 trillion assets under management.

ESG is fundamentally a reporting standard required by the investment community for a fund to invest in a business. Whilst this will help focus the minds of the boards of those businesses, for the majority it is of little relevance. What is more important is establishing a framework within an organisation that encourages, promotes and facilitates a change to becoming genuinely sustainable and a business with a purpose.

The is what a CSR is, a framework for change to become sustainable and responsible. A good way to describe the relationship between ESG and CSR is that CSR is the “Swiss Army Knife” with many different tools of which ESG is one of these.

Many business leaders believe that CSR is a cost to the business, and especially in these times, one that cannot be justified. However, the attitude of the population is changing and more and more, it is now an essential element of the business planning. But it is much more than that.

A CSR strategy

A CSR strategy developed and implement well will have many benefits to a business. The strategy should be based around four pillars of activity;

  • Environment
  • Workplace
  • Community
  • Philanthropy

Each of these pillars, when fully implemented will allow the business to establish a framework that genuinely builds towards a sustainable future for the business and the community around it. It is also important to note that if you adopt the Four Pillar framework, it will ensure your business is ESG compliant with regards to gathering the date needed for ESG reporting. Other stand alone requirements such as Netzero, TCFD (Task Force on Climate-Related Financial Disclosures) and CSRD (Corporate Sustainability Reporting Directive) can be used alongside ESG within the framework.

With the CSR framework in place the business will become an environment where staff are comfortable and enjoy being part of the organisation. The culture will allow staff to develop and evolve and understand their worth and value to the business. This in turn will help increase productivity and efficiency in the workplace.

In the current climate a greater focus is being placed on businesses to demonstrate their ESG credentials when tendering for projects, or in certain circumstances pitching for funding. It is becoming increasingly common for larger organisations to require certain documentation and evidence around ESG and this is to be further enhanced by the implementation of CSRD (Corporate Sustainability Reporting Directive). Whilst this only applies to larger corporate organisations, and at the moment in the EU, if you are a supplier to these organisations, you will be required to provide them with certain information that is also covered by ESG guidelines under their Scope 3 requirements. Scope 3 requires that a business looks at the impact of its complete supply chain, down to raw material production where applicable.

This is a long way to say that without a CSR framework in place, one that delivers the required ESG information, your business is likely to miss out on opportunities for new business.

In addition to the business potential the impact on recruitment and retention of staff is considerable. Increasingly, people are looking for an employer who values them and their contribution, but also one that cares about the community, including the environment.

In raising awareness of the business and its work in the community, protecting the environment and supporting its staff, the brand reputation will be enhanced and the profile of the business raised, in a positive way. Where the business support charities or community projects there will also be increased opportunities for unpaid media coverage, a dream to any marketing or PR professional.

In summary, ESG can be defined as the “tip of the CSR iceberg” where CSR is the framework beneath the surface that supports the reporting required to deliver the business ESG results for the business. Whilst until now, it is often seen as a “nice to have” increasingly a CSR framework is now an essential tool for any business of any size. But remember, many businesses will not be required to deliver ESG reporting, so it is important to check what your requirements are.

To find out more about establishing a CSR email me