Why move from CSR to ESG?
Traditionally, corporate social responsibility (CSR) has been about doing good for good’s sake. It has focused on social accountability and community engagement, offering qualitative evidence of the positive impact a company can have on the world.
Investors, regulators, industry-leading manufacturers, non-governmental organizations (NGOs), and the public are now pressuring companies for quantifiable evidence of this positive impact. Enter environmental, social, and governance reporting (ESG), which examines the hard numbers and material effects of a company’s activities on the ecosystem, people, and on the business itself. For complex manufacturers, it has become imperative to move from CSR to ESG.
ESG vs CSR
To understand the shift from CSR to ESG, let’s examine the differences between the two concepts.
Corporate social responsibility has its roots in corporate philanthropy. Entrepreneur Andrew Carnegie challenged other wealthy people to support social causes. As the years went by, society compelled businesses, not just individuals, to do more than just make a profit. In 1953, U.S. economist Howard Bowen published Social Responsibilities of a Businessman, in which he advocated for business ethics. As such, CSR has always been a “conscience” behavior for companies.
The concept of ESG also has a long history. Quakers in 17th century England would invest in companies that turned a profit while minimizing harm to society. However, the term ESG did not come into use until 2005. Yet, ESG has always included business objectives while striving to make the world a better place.
Since that time, the terms ESG, CSR, and sustainability have been used interchangeably by companies. ESG has become mainstream, and it is used almost exclusively by those who evaluate a company’s efforts to improve its impact on society, the environment, and its employees (institutional investors and regulators). Companies title external reports on these matters “ESG reporting.”
In contrast, CSR refers to organizational efforts to make the world a better place. Corporate philanthropic work, community involvement, environmental, and employee well-being programs all fall under the CSR umbrella.
Another distinction with ESG vs CSR has to do with accountability, ESG goes beyond CSR to demonstrate positive impact with data.
