Last updated on March 25th, 2024
The growing popularity of responsible investment and sustainable finance, coupled with a rise in conscious consumerism, has put significant pressure on companies to prioritize transparency in measuring and managing environmental, social, and governance-related risks and opportunities. Beyond investors, corporate stakeholders, and recent regulations, consumers and employees are also demanding more information about how businesses address their social and environmental impact.
But confusion abounds as to where companies should place their focus, a reality often portrayed as an “alphabet soup” of acronyms and institutions. So, what exactly is the difference between CSR (Corporate Social Responsibility) and ESG (Environmental, Social, Governance)?
Similar, but distinct
Traditionally, the terms CSR and ESG were used in sustainability report titles at almost the same frequency—and, at first glance, these two terms seemed interchangeable.
But even though CSR and ESG have similar aims and origins, they are two different things:
- CSR refers to a company’s commitment to operating ethically and responsibly, considering its impact on society, the environment, and its stakeholders.
- ESG takes this concept a step further, requiring integration into the company’s core purpose and supported by concrete evidence and data. Ultimately, it’s based on a company’s performance across environmental, social, and corporate governance metrics, serving as a critical factor both for investors and stakeholders.
What is Corporate Social Responsibility (CSR)?
Corporate social responsibility (CSR) is intrinsically tied to a company’s social responsibility, encompassing voluntary actions or donations aimed at benefiting communities and/or the environment. It often involves initiatives such as philanthropy, community engagement, ethical labour practices. This is especially important for younger generations, who are more likely to seek work that aligns with their values and push back against employers that don’t.
A company’s CSR efforts frequently touch on four main themes: environmental (reducing pollution and transitioning to renewable energy), ethical (fair treatment of everyone), philanthropic (donating to charities and nonprofits), and economic (contributing to community programs).
What is Environmental, Social, and Governance (ESG)?
ESG is an acronym that characterizes business issues and their related performance measures, which impact the operational and financial performance of a company based on how material they are relative to the company’s context (i.e. industry, location, size, business model, competitive landscape).
ESG programs can be very sophisticated and linked to GHG emissions, waste, human rights, community relations. Here are some examples of ESG issues and their related metrics:
| Examples of ESG issues | Examples of related performance measures or metrics |
| Carbon footprint | – Total Scope 1, 2 and 3 GHG emissions (tCO2e) – GHG emissions intensity (tCO2e / $ revenue or full-time equivalent) |
| Employee attraction and retention | – Voluntary employee turnover rate (%) – Employee turnover (%) by gender, age group, region |
| Diversity, Equity and Inclusion (DEI) | – Employees by age group categories or by ethnic/racial group (# and %) – Gender pay gap (%) |
| Ethical business practices | – Number of confirmed incidents of corruption – Monetary losses as a result of corruption cases – Actions taken by the company as a result |
Key differences between CSR and ESG
Companies can run CSR and ESG programs simultaneously, but there are some major differences at play.
ESG focuses on material risks and opportunities
Identifying and managing financially material environmental, social, and governance risks and opportunities is a key part of ESG strategy, and a significant differentiator from CSR. Whereas CSR might be more likely to align to and support a company’s values, the information a company discloses via ESG reporting is based on its materiality in relation to the company’s operations and business model.
ESG is almost mandatory now
In many parts of the world, and for many types of companies, ESG reporting is no longer voluntary: it is an act of corporate compliance. ESG disclosure requirements are quickly becoming more standardized and regulated, which will push more companies to collect, track, and report ESG information. Meanwhile, companies are not typically required to engage in CSR—if they do, they do so out of their own volition.
ESG is purely data-driven
What gets managed, gets measured. That’s why data is at the very center of ESG. The primary objective of ESG reporting is often to satisfy the information requirements of capital providers and key stakeholders. Again, ESG requires high-quality data to build credibility, trust, and access to capital. On the other hand, CSR activities (and even reporting based on these activities) are often designed to engage employees and foster a positive corporate reputation in the eyes of consumers and invested communities.
ESG is more quantifiable and standardized
One key difference between ESG and CSR lies in their approach to data. While CSR initiatives may include quantifiable goals and reporting, ESG is the more data-intensive of the two.
Companies reporting on ESG metrics will need to collect and disclose significant amounts of quantitative data—although qualitative data also plays a key role in ESG reporting. Additionally, international frameworks, standards, regulations, and questionnaires offer standardization for comparable ESG disclosure and performance measures, whereas CSR outcomes and reporting are generally developed independently by the company.
Tools for managing CSR and ESG data
While CSR software is generally designed to assist corporations in managing their donation and volunteering programs, ESG software offers a broader scope of functionalities. Ensuring high-quality data is essential for effective management. Therefore, investing in sophisticated ESG data management software becomes necessary, facilitating:
- Streamlined and automated data collection across departments, business units, and third-party data providers
- Secure and centralized databases that house all of a company’s ESG data and assets in one place and offer a single source of truth
- Advanced search capabilities and references to mainstream ESG standards, frameworks, and regulations
- A system of record (SOR) for both quantitative and qualitative data, accompanied by supporting references and documentation
- Sophisticated performance measurement and assessment
- Advanced gap analyses and benchmarking
- Analytics that translate into actionable insights and recommendations on best practices and next steps for your organization
From a reporting perspective, an ESG reporting tool lets you:
- Build customized and comprehensive ESG reports
- Share reports with relevant stakeholders
Looking for an ESG management solution?
ESG reporting is rapidly evolving into a mandatory, structured, and externally assured business practice, on par with traditional financial reporting. A key catalyst is an expanding body of regulations compelling organizations to standardize, audit, and digitize their disclosures. Consequently, many companies are struggling to keep pace with the changing tides.
Novisto exists to address the requirements of this new era of mandatory reporting. From simplified data collection to generating investor-grade, audit-ready data, our all-in-one ESG management solution empowers you to leave the spreadsheets, legacy tools, and data silos behind.
Request a demo of Novisto today.
