ESG & CSR: Insights for Corporate Brands (Part 1)
2024.05.23 / View Point
ESG and CSR: Insights for Corporate Brands (Part 1)
People are increasingly focused on corporate sustainability and the disclosure of related issues. One frequently asked question is: What is the difference between CSR and ESG?
CSR (Corporate Social Responsibility) and ESG (Environmental, Social, and Governance) are different frameworks used by companies to assess sustainability.
In simple terms, CSR can be seen as an internal framework, while ESG provides a metric for investors and companies themselves to evaluate performance. As a measure of corporate sustainability, ESG is currently surpassing CSR.
Differences Between ESG and CSR
ESG refers to a company's responsibilities in the areas of Environment, Social issues, and Governance. Globally, ESG is deeply changing the rules of the business world and has become an important framework for assessing a company’s sense of social responsibility and sustainability, beyond just financial statements. CSR (Corporate Social Responsibility) refers to a management philosophy where businesses integrate social and environmental issues into their operations and interactions with stakeholders.
Although ESG (Environmental, Social, and Governance) and CSR (Corporate Social Responsibility) are interconnected, they are not synonymous. CSR is more about building awareness and highlighting goals within a company, with a focus on qualitative aspects, such as raising employees' awareness of environmental and social impacts or promoting sustainable practices in internal and external communications. Meanwhile, ESG provides measurable metrics that can instill confidence in investors and the broader market. ESG allows companies to assess their adherence to sustainable development and corporate sustainability goals through quantifiable standards. Essentially, CSR provides the context for sustainable development agendas and corporate responsibility culture, while ESG focuses more on specific actions and measurable outcomes.
To clarify, CSR focuses on values, while ESG focuses on goals. Integrating ESG involves risk assessments, supply chain evaluations, stakeholder engagement, and progress monitoring. On the other hand, CSR implementation mainly includes cultivating a responsible corporate culture, prioritizing health and safety, actively responding to environmental changes, and promoting diversity and continuous learning.
We can illustrate the difference between the two with a simple example. A paper bag manufacturer, Company P, implements both CSR and ESG policies. CSR can be demonstrated by integrating internal communications and publishing press releases to showcase Company P's commitment to sustainability and social responsibility. ESG, on the other hand, goes beyond the foundation of CSR by setting measurable goals, such as increasing the use of recycled materials by 20% within three years or planting 1 million trees over the next decade.
Key Factors for Implementing CSR
When companies practice CSR initiatives, they must first recognize the key sustainability issues within their industry and integrate improvement efforts into the company culture. The following are five key factors to consider when implementing CSR:
01 Corporate Culture
Foster a corporate culture that reflects ethical standards and core values related to social and environmental management by implementing codes of conduct and practices that promote sustainability.
02 Health and Safety
Establish clear workplace health and safety standards, including measures to mitigate any negative environmental impacts. Clearly define how the company proactively reduces the risk of incidents that may harm the environment.
03 Environmental Factors
Actively address the company’s environmental impact by setting goals to improve resource management and reduce carbon emissions. Strive for the efficient and sustainable use of resources.
04 Social Aspects
Make diversity and fair treatment of employees a core value within the organization. Implement programs that promote diversity among employees, customers, and suppliers. Strengthen relationships with local communities and find sustainable ways to give back.
05 Education and Listening
Encourage an environment of continuous learning and improvement by seeking input from employees, suppliers, and customers. Educate employees about their role in achieving CSR goals and encourage them to recommend alternative suppliers and potential employees. Provide industry-relevant education on environmental and social risks to employees and the wider public.
Key Steps for Implementing ESG
ESG best practices have become a critical component of successful business strategies. Net-zero emissions, supply chain sustainability, and supplier diversity are no longer optional goals. Businesses must comply with relevant regulations and actively respond to the expectations of consumers, investors, governments, and employees regarding sustainability. To improve operational efficiency, achieve sustainable growth, and reduce costs, publicly traded companies must not only comply with regional and local regulations but also adhere to international commitments such as the United Nations Sustainable Development Goals, the COP26 Declaration, and the 2015 Paris Agreement.
Incorporating ESG into business management requires a comprehensive approach, including thorough risk assessments, supply chain evaluations, setting measurable goals, collecting data, and reporting progress. Here are the key steps for successfully integrating ESG:
01 Conduct a Risk Assessment
First, conduct a comprehensive ESG risk assessment for each stage and element of the business’s operations to identify potential ESG risks. This helps prioritize areas where risk reduction and efficiency improvements are needed.
02 Evaluate the Entire Supply Chain Process
Start by evaluating every step of the supply chain, from supplier selection to product delivery. Identify potential ESG risks and opportunities at each stage and collect data to assess the current sustainability status of the supply chain.
03 Set Specific ESG Goals
Benchmark against broader sustainability frameworks to set consistent, clear, and measurable goals. These goals should align with identified ESG risks and opportunities and be communicated clearly to all stakeholders, including suppliers, customers, and investors.
04 Stakeholder Engagement
Engage suppliers, partners, customers, and other stakeholders in identifying potential risks and opportunities throughout the implementation of the ESG strategy. Encourage collaboration and joint efforts to address sustainability issues and achieve ESG goals. Provide support through training programs and establish milestones to track progress across multiple stakeholders.
05 Collaborate with External Organizations
Form partnerships with NGOs, industry groups, or government bodies to drive ESG initiatives and gain valuable expertise. These partnerships help companies implement sustainability efforts while leveraging collective knowledge to strengthen their capabilities.
06 Monitor and Measure Progress
Implement robust monitoring systems to track ESG performance. This may involve data analysis, on-site visits, and audits. Define key performance indicators (KPIs) to assess both qualitative and quantitative aspects of ESG results. Consider using scorecards to rate supplier performance and identify areas needing improvement.
07 Embrace Innovation and Technology
Utilize emerging technologies to promote sustainability within the supply chain. Leverage supply chain and procurement management software integrated with big data analytics, artificial intelligence, and automation to make informed decisions. Actively explore opportunities to adopt renewable energy, replace traditional equipment with energy-efficient alternatives, implement circular economy principles, and integrate sustainable packaging solutions.
From CSR to ESG
Historically, the advocacy and practice of CSR (Corporate Social Responsibility) largely stemmed from reflections on the negative consequences brought about by profit-maximizing business practices. In the pursuit of maximizing profits, capitalists often ignored issues such as environmental pollution, insider trading, and labor exploitation. This not only tarnished the reputation of many businesses but also imposed high social costs on humanity as a whole. Under pressure from public opinion, large companies began to adopt CSR initiatives to enhance their brand image and protect their reputation. However, many of these CSR actions often conflicted with the companies’ profit-driven motives.
Traditionally, CSR was about doing good to make a positive social impact. It focused on social responsibility and community engagement, providing qualitative evidence of the positive effects a company had on society. However, this voluntary initiative by companies has gradually evolved into mandatory norms enforced through international agreements, multi-party initiatives, and regional regulations. These norms systematically address three key areas—Environment (E), Social (S), and Governance (G)—and impose clear requirements on all publicly listed companies. Today, investors, regulatory bodies, industry leaders, NGOs, and the public are pressuring companies to provide measurable evidence of their positive social impact. The mainstream context of the business world has gradually shifted from CSR to ESG, which demands a comprehensive review of the impact of business activities on the environmental ecosystem, society, employees, and the business itself. ESG also identifies key factors that could have a significant, material impact on business operations.
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