The growing popularity of responsible investment and sustainable finance, coupled with a rise in conscious consumerism, has put significant pressure on companies to be more transparent about how they measure and manage environmental, social, and governance-related risks and opportunities. Beyond investors and corporate stakeholders, 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. One key area of confusion is the difference between CSR (corporate social responsibility) and ESG (environmental, social, governance).
A 2021 study by Harvard Law School analyzed 200 sustainability reports published by S&P 500 index companies. In the study, the terms CSR (corporate social responsibility) and ESG (environmental, social, governance) appeared in the titles at almost the same frequency — and at first glance, these two terms may seem interchangeable. But even though CSR and ESG have similar aims and origins, they are two different things.
This article will explore the differences and similarities between CSR and ESG, and address some common questions about the two.
What Is Corporate Social Responsibility (CSR)?
Corporate social responsibility (CSR) refers to activities or donations a company undertakes voluntarily to give back to communities and/or the environment. These activities often involve a company’s employees (such as allocating volunteering and community service hours), which can help to engage and motivate team members. This is especially true for younger generations, who are more likely to seek work that aligns with their values, and push back against employers that don’t. CSR initiatives also help to paint a positive brand image in the eyes of consumers and stakeholders.
A company’s CSR initiatives 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 to characterize 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). Some examples of ESG issues and their related metrics include:
|Examples of ESG issues||Examples of related performance measures or metrics|
|Carbon footprint||Total Scope 1 and 2 GHG emissions (tCO2e), and GHG emissions intensity (tCO2e / $ revenue or full-time equivalent)|
|Employee attraction and retention||Voluntary employee turnover rate (%)|
|Diversity, Equity and Inclusion (DEI)||Employees by age group categories or by ethnic/racial group (# and %)|
|Ethical business practices||Number of confirmed incidents of corruption, monetary losses as a result of corruption cases, and action 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 Is Data-Oriented
The primary objective of ESG reporting and disclosure is often to satisfy the information requirements of capital providers and key stakeholders. On the other hand, CSR activities (and even reporting based on these activities) is often designed to engage employees, and build a positive corporate reputation in the eyes of consumers and invested communities.
ESG Is Increasingly A Compliance Activity
In many parts of the world, 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 More Quantifiable and Standardized
Although CSR initiatives can certainly involve 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, questionnaires, and ratings offer some element of standardization for comparable ESG disclosure and performance measures, whereas CSR outcomes and reporting is generally developed independently by the company.
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.
Tools For Managing CSR and ESG Data
Whereas CSR software is generally designed to help corporations manage their donation and volunteering programs, ESG software covers much more ground. On the data side, sophisticated ESG data management software allows for:
- Streamlined and automated data collection across various departments 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 and frameworks
- 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 ESG Data Management Software?
Whether you’re just getting started on your ESG journey, or you’re working from spreadsheets and legacy tools and looking for more sophisticated ESG management, Novisto can help you conquer your ESG data management challenges.
To learn more about what our ESG data management software can do for your organization, request a demo today.