ESG, CSR and Sustainability – What’s the difference?

The role of business in society has received great attention over the years. Companies have been taking strides to improve societies, in their areas of operations and beyond. Environmental, Social, and Governance (ESG), Sustainability, and Corporate Social Responsibility (CSR) policies have been useful guides on how businesses should carry themselves as well as informing the public about the values, goals, and risks of an organisation.

In this article, we will attempt to explain the similarities and differences between ESG, CSR and Sustainability practices.

For some, these terms have been used interchangeably and often questions have risen whether they are the same. A quick answer to the question is NO!

However, it makes some sense as the three terms share the same goals of improving business practices to boost profitability and be on good terms with stakeholders including customers, regulators, and investors. To gain an understanding, let’s start by defining each term.

CSR

CSR encompasses the environmental, economic, and social aspects of a company’s practices, policies, and decision-making. Its commitment serves as an important pillar for corporate culture and gives the stakeholders insights into company values. CSR is generally self-regulated and varies widely from one organisation to another. It generally denotes the company’s responsibility to society. It is an ideal practice that gives context to the sustainability agenda.

Sustainability

Sustainability is measured in these three main areas, that is:

  • The risk of biodiversity loss
  • Carbon reduction and addressing climate change issues
  • Meeting sustainable development goals

A question has been posed on whether reporting on the above issues can be termed enough in determining whether a business is sustainable. This question highlights the problem of using the term sustainability. This is an indication that it is not clear what constitutes sustainability. This inadequacy is what has given birth to ESG where the financial institutions recognise the need for safeguarding the environment and holding high social morals if sustained financial success was to be attained.

ESG

ESG encompasses environmental, social, and governance aspects. These components affect an organisation’s future stability, behaviours, and financial results. Environmental factors include reduction of carbon emission, managing waste, and reducing consumption of various resources such as water and energy among others. Social aspects that are considered include diversity issues, elimination of inequalities, and focusing on customers’ needs among others. The governance aspect refers to the organisation’s structure and ensuring openness and transparency. These factors play an important role in motivating a company to integrate sustainability with strategic management. ESG practices are used to evaluate a business’s adherence to set CSR and sustainability goals.

Sustainability vs CSR

  • CSR looks backward, basically reporting on what a business has done in the last year, more so in its contribution to society.
  • Sustainability is forward-looking; it involves planning the changes that a company might make to secure its future that as the reduction of waste assuring its value chains, development of new markets, and building of a brand.
Component/ focusCSRESGSustainability
TargetIt targets opinion shapers  such as pressure groups, politicians and the mediaIt is meant for investors, customers and suppliers among other entitiesIt targets the whole value chain
BusinessAims at becoming complianceIt’s about the disclosure of business dataIt is about business
ManagementIts managed by the PR and communication teamIt’s the responsibility of operations teamsIt’s the responsibility of operations and marketing teams
DriveIt aims at protecting reputations in already existing marketsIncrease brand value and trustIt is driven by the need to create opportunities in new markets

CSR vs ESG

  • CSR aims at making a business accountable while ESG makes the accountability efforts measurable
  • CSR gives insights into company values while ESG helps consumers and investors decide on which organisation to support 

ESG vs sustainability

  • ESG is about three main aspects of a business that is, the stakeholders, identity, and decision-making whereas sustainability deals with the relationship between a company and the environment.
  • While the two are essential in making an investment assessment of company performance, ESG is mainly seen as a framework that assists external investors while sustainability helps internal capital investment efforts. 
  • In terms of who sets the standards, ESG is based on what has been set by lawmakers, investors, and the ESG reporting organisation while sustainable standards are set by groups that are more science-based and standardised such as GHG protocol.

In summary, when looking at the difference between the two, it is important to remember that ESG looks at how the world impacts a business, whereas sustainability is focused on how a business impacts the world.

In a nutshell, CSR, ESG and Sustainability are strategic considerations for businesses. While the terms may have some overlap, there are also important distinctions around how a business approaches, prioritises, and measures.  

 

CSR, ESG and Sustainability are strategic considerations for businesses.