Striking the Right Balance: ESG or CSR for Your Organization
Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) initiatives have taken over business strategy discussions as corporate activism rapidly becomes an expectation among employees and other stakeholders. But many organizations are finding it difficult to manage those expectations while still making an impact.
In Skillsoft’s recent CSR at work report, where we surveyed nearly 1,000 professionals across industries and geographies, more than 60% of respondents said that organizations should take a stand on social and/or political issues, yet many of these same people report that they are not aware of where their own company stands.
To truly understand your organization's goals – and your role in accomplishing them – you need to first understand the key differences between CSR and ESG practices. Although these terms are often used synonymously, they are not the same. And from charitable giving to scope 3 emissions, knowing the difference between CSR and ESG is crucial for not only your organization’s bottom line, but your public perception as well.
Let’s start with CSR.
You may have heard the term “CSR” first, and more often. CSR refers to a business model where organizations consider the impact of their operations on society and take action to promote social benefits both inside and outside of the company. Seventy-three percent of respondents from Skillsoft’s 2023 CSR at Work Report say CSR is “what we do at our organization”, while ESG is “what we report to our investors.”
While CSR efforts remain largely unregulated, at their core, they demonstrate an organization’s commitment to positive societal impacts. Yet, according to our report, 60% of professionals say CSR initiatives are merely an add-on to their organization’s main purpose and direction.
CSR programs vary widely. At Skillsoft, we prioritize in-kind donations, volunteerism, corporate philanthropy, and a sense of belonging via our Employee Advisory Groups. Your organization’s program may look quite different as CSR efforts are often driven by company leadership.
Subscribe to the Skillsoft Blog
We will email when we make a new post in your interest area.
ESG, on the other hand, is a set of criteria used by multiple stakeholders, including investors and customers, to assess a company's performance in three key areas: environmental stewardship, social impact, and governance practices. These factors have become integral to investment decisions, reflecting the growing importance of sustainable and ethical business practices in financial performance.
Environmental considerations include a company's energy use, waste, pollution, and natural resource conservation. Social factors examine how a company manages relationships with employees, suppliers, customers, and communities. Governance pertains to a company's leadership structure, policies and procedures, internal controls, and other mechanisms designed to ensure accountability and responsibility within its business activities.
Unlike CSR, ESG is no longer optional; it's become core to an organization's strategy and can significantly impact a company's financial performance and long-term health. Results from our CSR at Work Report revealed that 55% of respondents view CSR as “anecdotal,” whereas ESG provides “solid data” about their organization’s contributions to the world.
The Distinction: Strategy vs. Action
The primary difference between CSR and ESG lies in the distinction between action and strategy. CSR is about actions—philanthropic efforts, community engagement, and environmentally friendly practices. It's about doing the right thing because it's good for the company's reputation and morale.
On the other hand, ESG is about strategy. It involves incorporating ethical and sustainable practices into the very fabric of a company's operations. ESG factors directly impact a company's financial performance and can influence investment decisions. Moreover, ESG standards seek comparable and measurable data, allowing companies to track progress and investors to make informed decisions.
Let’s break it down even more:
Integration into Business Strategy
CSR is often seen as an “add-on” to existing business strategies. It may not be intimately tied to the core business model or operations. ESG factors are integrated into the core strategy of a business. They are considered crucial in long-term business planning and value creation.
Measurement and Reporting Requirements
CSR activities are usually reported in a separate CSR or sustainability report, and the metrics can vary widely from company to company. ESG factors are typically quantifiable and standardized across industries. They are often included in financial reports and are used by investors to assess a company's risk profile.
CSR primarily focuses on the company's impact on the community and society at large. ESG takes a broader view, considering the company's impact on all stakeholders, including employees, investors, communities, and the environment.
The Bottom Line: Both CSR and ESG Matter
For large organizations, both CSR and ESG are essential. CSR initiatives enhance a company's reputation, boost employee morale, and demonstrate a commitment to societal impact. Meanwhile, strong ESG performance can attract investors, lead to better financial results, and ensure long-term stability.
By understanding the differences and finding the right balance between CSR and ESG, large organizations can drive growth while building a better future. As society becomes more socially conscious, it's no longer enough for companies to merely do well—they must also do good. Understanding and implementing both CSR and ESG initiatives is a crucial step in this direction.