CSR and ESG Basics in the Spotlight
In today’s dynamic business world, companies face growing pressure to operate responsibly and sustainably. This includes considering the impact of their operations on the environment, society, and governance.
To address these concerns, two frameworks have emerged as guiding principles: Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG).
Corporate Social Responsibility (CSR)
CSR is the commitment by a company to ensure business activity benefits society and the environment. This means integrating social and environmental considerations into all aspects of a company’s business operations. Ranging from production, through to marketing and customer relations.
CSR encompasses three key pillars:
Economic Responsibility: Companies need to generate profits and create value for shareholders. However, CSR should aim beyond financial success to consider the broader impact on society. This includes fair labour practices, ethical sourcing, and responsible marketing.
Social Responsibility: Companies can positively impact society through various initiatives, such as supporting community development projects, promoting education, and contributing to poverty alleviation. This can also include initiatives that promote diversity and inclusion, employee well-being, and community engagement.
Environmental Responsibility: CSR emphasizes the importance of environmental stewardship. Companies can minimize their ecological footprint by adopting sustainable practices, reducing waste, and conserving energy. They can also engage in activities that contribute to environmental conservation. Examples include recycling, planting trees, and supporting renewable energy projects.
Businesses will commonly adopt frameworks to align and develop action within these areas of responsibility. Some of the most commonly adopted frameworks include the ISO26000 standard and alignment with the UN Sustainability Goals.
Criticisms of CSR
Critics have long argued that some companies engage in CSR reporting simply for public image, without delivering the full spirit of what they claim.
This is termed as greenwashing. Such claims can be heightened when the actions delivered under CSR are not evidenced or measured transparently.
Historically there has also been a tendency to focus on philanthropy by businesses. This diverts focus from acting upon the root causes of social or environmental issues within business operations.
Environmental, Social, and Governance (ESG)
ESG is considered a broader framework that encompasses a wider range of criteria for evaluating a company’s impact and sustainability. It considers a company’s performance across three interconnected dimensions:
Environmental Factors: This includes a company’s efforts to minimize its environmental impact, such as reducing its carbon footprint, conserving resources, and managing waste effectively.
Social Factors: ESG assesses a company’s relationships with its employees, customers, and communities. This involves assessing diversity and inclusion practices, labor practices, human rights, and community engagement.
Governance Factors: Governance refers to how a company is managed and controlled. ESG considerations include board structure, executive compensation, transparency, and adherence to ethical business practices.
The IFRS Sustainability Disclosure Standards and the Sustainable Accounting Standards Board (SASB) are two of the most commonly applied standards to implement ESG.
Integration of CSR and ESG
CSR and ESG are interconnected frameworks that share a common goal: promoting responsible business behaviour. While CSR traditionally focused more so on philanthropy and social initiatives, ESG broadens the scope.
This encompasses more comprehensive focus on the environmental and governance factors. The integration of these frameworks strengthens a company’s commitment to sustainable and responsible business practices.
Shared Purpose: Both CSR and ESG aim to promote positive impact on society, the environment, and the company itself. ESG, however, provides a more structured and standardized approach by offering specific criteria for evaluation.
Long-Term Value Creation: Both frameworks recognize the importance of long-term value creation. Companies that prioritize CSR and ESG are often viewed as more resilient and better positioned for sustained success.
Stakeholder Engagement: Both CSR and ESG emphasize the engagement of stakeholders. This involves understanding and addressing the concerns of employees, customers, communities, and investors.
Considering these benefits, embracing CSR and ESG can enhance a company’s reputation. In turn this can attract socially conscious investors and foster innovation in sustainable business practices.
It can also lead to increased employee satisfaction and loyalty. Recognition of these benefits is represented by the growing number of companies pursuing standards that integrate components of both CSR and ESG, such as B Corp.
CSR & ESG: The Guiding Frameworks For Business
CSR and ESG are essential frameworks that guide companies towards responsible and sustainable business practices. While CSR has been a longstanding concept, ESG has gained prominence for its comprehensive approach to evaluating a company’s impact on the environment, society, and governance.
Together, these frameworks contribute to a business environment that values not only financial success but also ethical, social, and environmental responsibility.
As companies navigate an ever-changing global landscape, the integration of CSR and ESG principles will be crucial for creating lasting value and positive societal impact.
If you’re new to CSR and ESG, then you may also find our Key Green Terms page helpful. Our posts below will also help you keep up to date with the latest developments in the climate and sustainability space!
