With modern consumer choices weighted heavily on corporate responsibility, for the first time, CEOs insist environmental concerns and climate change are a top focus for their commercial operations.
This has led to a renewed focus on initiatives like Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG), which provide frameworks for evaluating and addressing social and environmental concerns.
While both frameworks may appear synonymous, each is distinct from one another.
To remove any possible confusion and shed light on how companies use CSR and ESG to implement sustainability practices, here we:
- define what CSR, ESG, and sustainability are,
- detail how each term is unique and where overlap exists,
- and explain how businesses can use each concept to shift company culture and reach sustainability goals.
What Is The Difference Between CSR, ESG, and Sustainability?
Understanding the distinctions between CSR, ESG, and sustainability concepts is essential to employ them effectively.
Here’s a quickfire look at how each varies from the other:
- ESG is a quantifiable, enforceable sustainability framework, while CSR is a looser, self-regulating initiative for corporate behavior.
- ESG focuses on reaching specific performance metrics, setting measurable goals, and conducting audits, while CSR focuses on creating a positive brand image and boosting corporate reputation.
- While sustainability is the umbrella that both ESG and CSR fall under and contribute to.
For further clarity, let’s now dive deeper into each concept.
What Is CSR?
Corporate Social Responsibility (CSR) is a framework that enables companies to balance their economic, environmental, and social responsibilities. This is achieved through self-regulation and voluntary actions that aim to ensure that a company operates ethically and sustainably, considering the long-term impact of its decisions on all stakeholders.
CSR is primarily qualitative in nature, meaning that assessing its outcomes can be challenging. Instead, it is a concept that requires interpretation by stakeholders in terms of the extent to which an organization’s activities are socially responsible.
Companies that embrace CSR typically set standards for their practice in sustainability initiatives, philanthropy programs or donations, environmental protection efforts, diversity measures within the workplace, or supply chain management. These standards are often communicated through corporate policies or statements demonstrating an organization’s commitment to responsible behavior.
For these reasons, it is becoming increasingly popular for companies to adopt CSR practices, as they provide benefits such as improved reputation and customer loyalty, increased employee morale and retention, and reduced regulatory risks.
So what do CSR initiatives look like in practice?
Dr. Bonner’s is an excellent example of a company utilizing CSR to achieve its social and sustainability objectives. The company is dedicated to social and environmental responsibility and has implemented multiple initiatives to show this dedication.
Here are examples of how Dr. Bonner’s has implemented CSR practices:
- Regarding social responsibility, Dr. Bronner’s has a strict code of conduct for its suppliers, ensuring that they use fair labor practices and pay living wages.
- The company also strongly commits to social justice and actively supports several causes, including fair trade and organic farming.
- Dr. Bronner’s has committed to using sustainable and organic ingredients in its products and has adopted sustainable packaging solutions by using 100% post-consumer recycled plastic for its bottles.
- The company has pledged to donate at least 1% of its annual sales to organizations that support social justice, environmental sustainability, and animal welfare.
- Dr. Bronner’s also has a solid commitment to transparency, regularly publishing its CSR reports and engaging its stakeholders in sustainability and carbon neutrality.
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What Is ESG?
Environment, Social, and Governance (ESG) is a rapidly emerging concept in the world of corporate social responsibility. Its rapid emergence is a result of customer demand. Evidence of this can be seen in a 2019 report revealing that 93 percent of the world’s largest companies already report on their ESG performance. Further, it has been found that seven out of the ten top “likely risks” and eight out of the top ten “most impactful risks” pertain to environmental, social, and governance issues.
For these pressing reasons and more, ESG consists of three interrelated criteria that companies must address to ensure they conduct their business activities ethically. As the concept’s name suggests, these are:
- Environmental criteria consider how a company uses natural resources, limits greenhouse gas emissions, and manages its impacts on local ecosystems.
- Social criteria assess how a company manages relationships with its stakeholders, including employees, communities, customers, suppliers, and other external entities.
- Governance criteria evaluate the corporate culture of resource management, risk management, internal controls, transparency, and disclosure policies.
A real-life example of ESG in action is the case of Patagonia, the popular clothing and outdoor gear company. To align with actionable ESG criteria, Patagonia has established two initiatives, the Patagonia Purpose Trust and the Holdfast Collective.
Through these initiatives and the company’s various sustainability commitments, here’s how Patagonia has implemented ESG practices:
- Patagonia has also pledged it will become carbon neutral by 2025. Through this pledge, the company has taken steps to reduce its carbon footprint, such as sourcing renewable energy and investing in carbon offset projects.
- Patagonia has also been highly transparent about its environmental impact, publicly disclosing its environmental footprint and progress toward its goals.
- Patagonia has a strong commitment to fair labor practices. It has implemented a strict code of conduct for its suppliers to ensure that workers are treated fairly and paid a living wage.
- Patagonia is a certified B-Corp, a certification that guarantees that the company meets specific standards of social and environmental performance, accountability, and transparency.
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What Is Sustainability?
From a business perspective, sustainability is broadly defined as a company or organization’s capacity to remain financially viable while managing its impact on local ecosystems and ensuring that future generations have the necessary resources to meet their needs. This includes managing development and growth to sustain economic prosperity, maintain healthy communities, and protect natural resources.
Or, in its broadest sense, sustainability considers how the decisions made by businesses today will affect long-term outcomes for people and the planet. For this reason, sustainability is considered an umbrella term under which CSR and ESG practices and initiatives fall within.
Without the foundation of sustainable business practices, the concepts of Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) would not have emerged.
Is CSR A Part Of ESG?
Yes, you could make this argument. CSR incorporates environmental and social responsibility aspects, which are also included in the Environmental, Social, and Governance (ESG) framework. But CSR is a self-regulatory concept and does not incorporate the governance aspect present in ESG. In other words, the CSR framework is not enforceable by law. In contrast, ESG has legal and regulatory components that can be enforced, making it a more comprehensive framework for addressing sustainability issues.
Is ESG The New CSR?
While ESG isn’t necessarily a new concept, because of its recent rise in use and popularity within the corporate world, some experts are now arguing that ESG is replacing Corporate Social Responsibility (CSR) as the primary framework for evaluating a company’s social and environmental impact.
This is due mainly to the fact that ESG takes a more holistic approach and includes a broader range of issues than CSR, which is primarily focused on a company’s social and environmental responsibilities. However, it should be noted that CSR and ESG are not mutually exclusive, and many companies continue to use both frameworks to evaluate their performance and impact.
How & When To Use Each To Become a More Eco-Friendly Business
Whether you decide to self-regulate through CSR practices, commit to being a B-Corp and follow ESG guidelines, or implement both concepts into your business practices, each path will have a similar end goal: moving your business toward eco-friendliness.
To help you take the first steps, here are some tips for implementing both CSR and ESG into your business operations:
- Use CSR when evaluating and addressing specific social and environmental issues relevant to your business, such as reducing carbon emissions or improving working conditions for employees.
- Use ESG when evaluating your business’s overall sustainability and long-term performance, considering a broader range of issues, such as environmental impact, social responsibility, and governance practices.
- Use CSR and ESG to create a comprehensive sustainability strategy to reduce your business’s carbon footprint. By considering both frameworks, you can ensure that you are addressing specific social and environmental issues and the overall sustainability of your business.
- Incorporate CSR and ESG into your business operations by setting goals and targets, measuring progress, and reporting on your performance. This will help you identify improvement areas and demonstrate your commitment to sustainability.
- Be transparent and open in communicating your CSR and ESG initiatives to stakeholders, including shareholders and customers. This includes regularly reporting on your progress and sharing any challenges you may face.
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Complying with CSR and ESG initiatives can be challenging, particularly for small- to mid-sized businesses.
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