Why ESG is Replacing CSR in Corporate Sustainability Strategies

Environmental, Social, and Governance (ESG) is a framework used to evaluate how well an enterprise performs concerning sustainability standards and ethical concerns. Corporate Social Responsibility (CSR) refers to a concept in management where companies assess various social and environmental issues within their business operations, which impact society and help promote sustainable business practices.

ESG is currently a hot topic among businesses, investors, and stakeholders. Due to the significant risks relating to the climate crisis, businesses have realized the importance of being sustainable and how it affects them in the long run. ESG investing focuses on how we can make a responsible investment in the private sector, and that entails companies employing business ethics that take into account environmental risks and their societal impact as drivers of their financial performance.

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Origins

The term corporate social responsibility may have first appeared during the Industrial Revolution in the 1760s, but it took off in the early 1950s. ESG originally appeared in a 2004 UN study titled "Who Cares Wins." However, the practice of ESG investment dates back to the 1960s when it was known as ‘socially responsible investing'. Building social justice into the fabric of company operations is becoming increasingly important to create new definitions of value for a wider pool of stakeholders, not just shareholders.

In many ways, CSR laid the foundation for integrating sustainable practices into business operations, focusing on philanthropy and ethical practices that support both society and the planet.

However, one can wonder: Is ESG better than CSR? Do they both represent distinct ideas? Or, how can ESG support CSR initiatives?

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What is Corporate Social Responsibility? 

According to the United Nations Industrial Development Organisation (UNIDO), CSR is defined as a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as the way through which a company achieves a balance of economic, environmental, and social imperatives while contributing to sustainable development.

CSR attempts to motivate companies to integrate environmental and social issues into their business operations and enhance stakeholder relations. Companies hope to improve their brand image in the eyes of potential investors and customers through CSR initiatives. The four categories of environmental, philanthropic, ethical, and economic concentrate on various facets of corporate sustainability and are used to categorise CSR practices for this reason.

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What is ESG?

ESG assesses an organization's performance concerning several ethical and sustainable concerns, as well as its economic operations. Additionally, ESG analytics tools evaluate risks and performance and provide a way to measure ESG criteria. For investors to assess how sustainable their investments are, the fundamental goal of ESG is to figure out how sustainable a company is based on a company's sustainability initiatives that can be measured through assigning ESG ratings to different aspects of its business operations. ESG thus offers a mechanism to quantify business risks and opportunities to demonstrate the company's advancement towards sustainability.

By integrating ESG metrics into their strategies, businesses can better align their goals with responsible practices that ensure transparency, accountability, and sustainability in the long term.

ESG thus offers a mechanism to quantify business risks and opportunities to demonstrate the company's advancement towards sustainability.

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Positives and Negatives of ESG of CSR 

Companies can show their commitment to sustainability and gauge their social impact in two different ways: through ESG and CSR. So, what are the pros and cons of each?

CSR - The Positive

By promoting initiatives that can benefit society and the local community, such as educational outreach for children or changing labour practices and environmental policies, CSR helps businesses fulfil their corporate and social duties. Through CSR initiatives, it creates a favourable brand image for the business, attracting fresh talent and retaining clients and staff. These actions often have a positive impact on both reputation and community welfare.

CSR - The Negative

CSR holds that businesses should examine how their actions may affect the environment and society. It takes a less pragmatic stance and a more idealistic approach to sustainability. CSR lacks a global perspective on corporate practices and has a limited vision that only considers a company's image and how its activities would be perceived by future employees, consumers, and suppliers.

Also, companies may choose to place less focus on CSR since it is not required of them. Companies may overstate their claims about CSR initiatives to raise awareness. As such, CSR activities cannot be ‘measured'.

ESG - The Positive

By offering a quantifiable measure of sustainability through ESG ratings and reports, ESG assists firms in identifying areas where their sustainability efforts are either lacking or working. Monitoring a company's sustainability initiatives, employee treatment, and open governance rules through ESG reporting enables businesses, investors, and stakeholders to make informed investment decisions.

ESG is on the way to being underpinned by strong regulation. Regardless of whether a company is an SME or a large enterprise, the new ESG mandatory reporting and disclosure regulation will assist them in disclosing their sustainability reports. These efforts are essential for integrating sustainable practices that preserve resources and ensure equity for future generations.

To achieve their ESG objectives, this will assist in providing stakeholders with comparative and targeted ESG data across businesses and industry sectors.

ESG - The Negative

Companies operating under the ‘cover' of ESG have been exposed for misleading consumers about their products' environmental impact. For instance, Delta Airlines has been sued with a lawsuit of USD 1 billion for misleading consumers about its carbon neutrality promises. Similarly, Lufthansa's Green Fares is also an attempt to greenwash its customers by making them pay extra to compensate for the flight's carbon emissions. If one is unaware of the dishonest means by which businesses present environmental claims, greenwashing can be challenging to identify.

The variability of ESG indexes and ratings, which makes it challenging for customers, institutional investors, and stakeholders to evaluate them across businesses and industry norms, is another significant issue with ESG. For example, in an effort to stop greenwashing, MSCI, one of the primary providers of ESG ratings, plans to remove ESG ratings from the majority of funds.

Many genuinely ESG-focused organisations, however, will lose their ESG ratings as a result of this change and will see their ESG ranking drop, which is essential to a company's reputation and general performance. Setting long-term sustainability goals for businesses and investors might be difficult in light of the new laws and regulations pertaining to ESG issues.

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ESG Factors

When determining and studying a company's overall sustainability efforts, ESG has emerged as a more practical and effective way to measure environmental, social, and governance aspects when compared to CSR. ESG focuses on measuring a company's overall sustainability efforts through reports and ratings and helps investors form a clear idea of how sustainable a company is when compared to others, and stay informed on areas where they lack. On the other hand, CSR helps businesses adopt sustainability both internally and externally by allocating resources to social causes, environmental sustainability, and philanthropy and ethical practices.

ESG reporting provides factual data that can be measured and tracked across industry standards for sustainability benchmarks, which can be verified for accuracy by investors and stakeholders. CSR strategies concentrate on a company's actions towards benefiting society, which may or may not be accurate, as it cannot be measured.

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Takeaway

Even though CSR has been around for decades, the impact of CSR has not been as substantial when compared to the increasingly widespread adoption of ESG. CSR has been, in many ways, the voluntary ‘run up' to what is a more regulated ESG.

ESG has provided a practical framework for companies to be more accountable for their sustainability claims, and most importantly, has helped organizations to place sustainability concerns at the centre of their operations and drive the innovation needed to meet the growing challenges of climate change. It supports companies as they adopt sustainable practices that are measurable, accountable, and impactful.

Thanks to ESG reporting laws now coming into effect in the EU, which will likely be emulated or built upon throughout other regions, companies will be compelled to disclose material information about their climate exposure, risk management strategy, corporate governance, and greenhouse gas emissions. These requirements promote responsible practices and align corporate strategies with the well-being of future generations.

It's not a question of being ‘better', but rather that ESG is the more comprehensive successor to CSR that lets us put sustainability in front.

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Frequently Asked Questions (FAQs)

Has CSR been replaced by ESG?

Yes, in many ways, ESG (Environmental, Social, and Governance) has become the evolved version of Corporate Social Responsibility (CSR). While CSR is largely voluntary and idealistic, ESG offers quantifiable, data-driven metrics that can be tracked, reported, and benchmarked. This makes ESG more suitable for regulatory compliance, risk management, and investment analysis in today’s sustainability-focused world.

Does ESG fall under corporate governance?

Yes. Governance factors, such as executive accountability, board diversity, and stakeholder engagement, are core components of ESG. These elements also align with corporate governance practices, making ESG a crucial part of long-term business strategy and oversight. ESG reinforces ethical governance and ensures decision-making considers social and environmental impacts.

What is the difference between CSR and ESG?

CSR (Corporate Social Responsibility) is a voluntary, internally-driven approach focusing on philanthropy, community engagement, and brand reputation. In contrast, ESG is a measurable, externally validated framework used by investors and regulators to assess a company’s performance on sustainability practices, risk management, and ethical business operations.

Why is ESG replacing CSR in corporate strategy?

ESG strategies are replacing traditional CSR because they are data-backed, auditable, and aligned with global sustainability reporting frameworks like the Global Reporting Initiative (GRI) and the EU’s Corporate Sustainability Reporting Directive (CSRD). This shift is driven by demand for greater transparency, climate accountability, and long-term value creation.

Can ESG and CSR work together?

Without a doubt. CSR can be seen as the foundation of a company’s sustainability agenda, while ESG provides the metrics and structure to implement and track those values. Together, they promote responsible business practices, social value, and environmental stewardship in a measurable, reportable way.

How does ESG contribute to sustainable business practices?

ESG practices help companies integrate responsible sourcing, supply chain transparency, and carbon footprint reduction into their core business operations. Through measurable goals and structured frameworks, ESG allows businesses to ensure their strategies match broader sustainability objectives and address climate change and societal challenges.

What are the limitations of CSR compared to ESG?

CSR initiatives often lack measurable outcomes, making them vulnerable to greenwashing and limited stakeholder accountability. By contrast, ESG requires evidence-based reporting, which supports investment decisions, regulatory compliance, and corporate sustainability assessment based on quantifiable ESG metrics.

How do ESG reporting standards help organizations?

ESG reporting frameworks help companies identify environmental considerations, track fair labor practices, and report on greenhouse gas emissions. These reports are essential for investment community analysis, regulatory audits, and public trust. ESG disclosures ensure that sustainability efforts are not just intentions, but verifiable actions.

What role does ESG play in addressing broader societal impacts?

Unlike CSR, which is often focused on community giving and image, ESG actively addresses broader societal impacts through responsible investing, supply chain ethics, governance reforms, and social responsibility. It promotes a sustainable future through systemic, structural change.

Is ESG mandatory for companies?

In many jurisdictions, ESG reporting is becoming mandatory, especially across the EU and other developed economies. Regulations like the CSRD, SFDR, and EU Taxonomy require companies to report on sustainability risks, carbon emissions, and environmental initiatives. CSR, on the other hand, remains mostly voluntary.

Last updated on June 24, 2025, by Mamata Saha.