The terms CSR (Corporate Social Responsibility), ESG (Environmental, Social, and Governance), sustainability, and purpose-driven business are often used interchangeably. However, there are important differences between them.
While some may argue these are just jargon, at SBV, we believe understanding these nuances is crucial. Each approach offers distinct advantages, and choosing the right one can ensure your organisation embarks on the most effective pathway to becoming more responsible.
Definition:
Corporate Social Responsibility (CSR): CSR refers to practices and policies undertaken by organisations to have a positive impact on society and the environment on a voluntary basis1
Environmental, Social & Governance (ESG): ESG describes three central factors used to measure the sustainability and societal impact of an organisation. The term is often used by investors to evaluate an organisation and predict future financial performance.
Sustainability: Sustainability in its broadest sense is the ability to maintain or support a process over time. In a business context, it focuses on long-term environmental stewardship, social equity, and economic viability (the triple bottom line (TBL).5
Purpose Driven Organisation: A purpose-driven organisation aligns its strategy, culture and operations with a clearly defined purpose beyond profit, it explains why a company exists.7 PDO’s exist for a meaningful end (addressing broader societal, environmental or community needs) ensuring long term wellbeing of people and planet.8
History & Attributes & Standards
Corporate Social Responsibility (CSR): Howard Bowen is often credited as the “father of CSR” as he connected the responsibility of corporations to society in his 1953 book, “Social Responsibilities of the Businessman”; this evolved in the 1970s to the term “social contract” 2. More recently, UNIDO3 refers to CSR as a management concept which integrates ESG concerns into operations and stakeholder interactions.
Initially CSR initiatives often focused on: Philanthropy Ethical business practices and Employee engagement (i.e. volunteering or pro bono work); it has now often been superseded by an ESG approach. Often these are voluntary programmes; which are qualitative.
Standards: ISO26000 (guidelines)
Environmental, Social & Governance (ESG): The term ESG was coined in 2004 in a landmark study titled “Who Cares Wins”4 by the UN Global Compact in collaboration with the financial industry. This illustrated how to integrate ESG factors into a company’s operations, breaking down the concept into its three basic components: environmental, social and governance. In subsequent decades further frameworks have developed to provide reporting structure.
Specific reporting that identifies an organisation’s contributions to factors under each of three pillars and how to manage / mitigate. Environmental: climate change, resource depletion, waste management, and pollution. Social: Involves labour practices, human rights, community relations, and employee health and safety; Governance: Encompasses corporate governance practices, executive compensation, board diversity, and anti-corruption measures.
Standards: UN PRI; SASB & TCFD (now feeding into IFRS SDS); ESG DCI
Sustainability: The modern concept of sustainability was popularised by the Brundtland Report6 that was published in 1987, which defined sustainable development as meeting the needs of the present without compromising the ability of future generations to meet their own needs.
The attributes of sustainability include ensuring business practices are economically sustainable and support long-term growth, maintaining a long-term focus on environmental and social stewardship, using resources efficiently to reduce environmental impact, and treating employees, communities, and other stakeholders fairly.
Purpose Driven Organisation or Purpose Driven Business: The idea of purpose-driven business gained traction in the 2010s as consumers and employees increasingly valued companies that contributed positively to society.
The purpose is central to the business mission and influences all aspects of operations.The organisational purpose can be justified as an optimal strategic contribution to long-term wellbeing for all people and planet and this guides all decision-making in the organisation. The Stakeholder Focus: Engages employees, customers, investors, and communities in the purpose-driven journey.
Standards: PAS808
Understanding the differences between these concepts is important so that businesses adopt practices that can benefit both the environment and society while creating long-term value for their stakeholders.9
CSR: Focuses on voluntary actions to improve societal and environmental impact. Many SMEs will already be undertaking activities that demonstrate CSR however, may not have consolidated them into one programme. Where an organisation is likely to stay in private ownership; is not supplying large Corporate or Financial Markets clients and plans to remain a micro-SME, sticking with CSR may make commercial sense. This approach demonstrates a commitment to positive impact but without the complexity of meeting specific requirements.
ESG: Approach is particularly relevant for SMEs looking to attract investment within the short to medium term. This quantitative, externally regulated approach is directly linked to financial performance and business valuation and influences investors decisions.
Sustainability: In many ways combines the CSR ethos with an ESG quantitative reporting mindset. Through holistically looking at both strategy and ESG practices, SMEs can improve their long-term resilience and growth, focusing on reducing costs through efficient resource use, identifying new revenue streams (investigating circular economy models) and improving brand reputation.
Purpose-driven business models: The most challenging approach to implement as they turn the existing status quo on its head and there remains debate on what a genuine “purpose driven” business looks like. However, they offer the opportunity for SMEs to differentiate themselves in their market, attract loyal customers and motivated employees, whilst building a strong, authentic brand which commands a premium due to being embodied. The surge in B-Corp businesses over the past five years is testament that this approach is possible.
If you would like to discuss your business and the most relevant approach for your situation, please contact anjuli@sustainablebusinessventures.co.uk for your complimentary discovery one-hour call.
References
- https://www.investopedia.com/terms/c/corp-social-responsibility.asp
- https://accp.org/resources/csr-resources/accp-insights-blog/corporate-social-responsibility-brief-history/
- https://www.unido.org/our-focus-advancing-economic-competitiveness-competitive-trade-capacities-and-corporate-responsibility-corporate-social-responsibility-market-integration/what-csr
- https://www.unepfi.org/fileadmin/events/2004/stocks/who_cares_wins_global_compact_2004.pdf
- https://www.investopedia.com/terms/s/sustainability.asp#toc-what-is-sustainability
- https://sustainabledevelopment.un.org/content/documents/5987our-common-future.pdf
- https://www2.deloitte.com/us/en/insights/topics/marketing-and-sales-operations/global-marketing-trends/2020/purpose-driven-companies.html
- https://www.bsigroup.com/en-GB/insights-and-media/insights/brochures/pas-808-purpose-driven-organizations-for-delivering-sustainability/
- https://www.greenstoneplus.com/blog/whats-the-difference-esg-vs-sustainability-vs-csr