ESG vs. CSR vs. Sustainability: What's the difference?
Environmental, Social, and Governance. Corporate Social Responsibility. Sustainability. These terms have been used time and again to describe responsible business practices for decades. While each one shares the same common goal with the other, each has very different focuses and implications.
Here is what you need to know about each one.
Standing for ‘environmental, social, and governance’, this movement is one of the most familiar terms for many these days. Getting into the details, this form of responsible business practice involves the three categories that ESG represents.
As an investment philosophy, ESG is about including businesses involvements in three core categories:
Environmental: Both a company and investor will consider the wide variety of environmental involvement a company has when it comes to investing or business operations. Factors considered range from existing carbon footprints to energy efficiency, waste management, and water usage. Companies with a strong score in the E area display a desire to reduce their negative environmental impact and adopt sustainable - or regenerative - practices.
Social: This accounts for how companies treat those that keep the company operational - the employees. This also extends to suppliers, customers, and communities. Factors that an investor and company will keep in mind are labour practices, human rights, Diversity, Equity, and Inclusion (DEI), community involvement, and philanthropy.
Governance: This focuses on a company’s inner structure and practices. It covers leadership, who is on the board, how much executives are being paid, general transparency of the company, and how compliant a company is to ethical and legal standards.
The best way to summarise ESG is that it’s an evaluation of how much good (or bad) a company is offering to the planet and the people on it, both internally and externally. For investors, this criteria extends beyond sheer financial performance. Furthermore, it’s the focus of government regulation and standardization.
Corporate Social Responsibility
Otherwise known as CSR, this movement is, in many ways, the precursor to ESG. In a nutshell, CSR was more focused on social and environmental concerns at large, but as they related to the internal health of the company. CSR is more of an internal-facing initiative. CSR really made a name for itself, for example, when tobacco products ramped up their marketing efforts decades ago.
One of the biggest differences between these two movements is that CSR isn’t as mandated when compared to ESG in various countries. CSR doesn’t demand companies divulge carbon emissions or waste management figures. CSR is entirely voluntary, with no key standard metrics, criteria, or framework.
It makes sense why ESG is being adopted now since companies, governments, and investors, have put in place particular metrics. There is also a robust scoring system that quantifies data, even if it’s still a work in progress.
But in terms of CSR at its core, the big thing involves specific actions that a business takes in its operations. “Good” CSR would look like a business participating in many impactful philanthropic activities, community development projects, employee volunteer programs, ethical sourcing practices, and reducing environmental impacts.
The goal isn’t so much to measure how much good is being done as to determine whether a company is partaking in any or all of these things beyond turning a profit.
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While CSR is the first iteration of ESG, Sustainability can be described as the future of ESG. The more ESG becomes part of regular business operations, the more this term will likely be used. It represents both of those concepts, but also expands on them even more.
The idea behind sustainability is that it’s not just a matter of ticking a box or reaching a specific score. It involves organisations operating in a manner, with acquired knowledge and skills, that allows them to function without compromising the needs of future generations. You could say sustainability is about not only reaching the environmental, social, and governance challenges but also balancing its accomplishments on a long-term basis.
The biggest differences to note about sustainability can come down to the framework as well. Both ESG and CSR have at least a general framework to build upon. Sustainability is more of a holistic approach to how business is done.
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The Differences At A Glance
Breaking down ESG, CSR, and Sustainability into specific representations of the present, past, and future, respectively, helps a lot. But on a conceptual level, another way to look at these three is that ESG focuses on specific measures a company is taking in social, environmental, and governance issues, while CSR focuses on voluntary initiatives, with Sustainability, with its implied ESG engagement and stakeholder stewardship, being the broader concept.
But regardless of the terms that are being used, everyone can agree that they all work towards the same goal of improving life and the planet we all live on.
Questions? We have it covered at our FAQs.
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