In the guide below, we compare sustainability, ESG, and CSR.
We outline what the main differences between them might be, the main similarities, and provide a brief description of what each one is.
(Note – the information in this guide is general information only. It doesn’t constitute professional financial advice. See a suitably qualified financial professional for expert advice)
Main Differences Between Sustainability, ESG & CSR
The main differences might be:
How Specific The Concept & It’s Application Is
– Sustainability
Is more of a general concept that can be applied to different parts of society
For example, it can be applied to people, activities, businesses, industries, countries, and more
Therefore, it might be more broad than both ESG and CSR
There’s various guides we’ve written on this site about sustainability in business, sustainability in different industries, sustainability of different products and services, and more
– ESG
Is a concept or framework that usually applies specifically to companies and organizations, and also investing (such as ESG-linked investing products)
– CSR
Is a form of self regulation specifically for businesses
The Different Aspects, & Objectives/Goals Of Each Concept
– Sustainability
The different aspects/pillars and objectives are environmental, economic, and social
– ESG
The different aspects and objectives are environmental, social, and corporate governance
There may also be a key aim to create enterprise value through these overall aspects and goals
– CSR
Mainly involves social responsibility that contributes to societal goals
May also involve making a positive impact on the environment
There is a focus on being ethical in business (with ethical business practices), and considering what is the norm in terms of morals (when conducting business)
How They Are Enforced Or Implemented
– Sustainability, ESG and CSR
Each of the three concepts might be enforced and/or implemented differently in different countries around the world
Some countries may have no legal requirement to implement any of the concepts, so implementation is voluntary
Other countries may either have legal requirements or ‘best practice’ suggestions to implement parts of the concepts, or the full concepts
There may also be more social pressure or third party pressure to implement the concepts in some way in some countries more than others
The Difference Specifically Between ESG & CSR
Various reports suggest that ESG and CSR are not the same thing.
Beyond what’s written in this guide about the differences, various reports indicate that one of the key difference between the two are:
– CSR might be more of a qualitative internal commitment by companies to meet social goals
Having said this, CSR reporting also exists where companies may measure and report on their impact. These reports may also be audited.
– ESG on the other hand is the measurement or quantification of social efforts (along with environmental and corporate governance efforts) with broad ESG ratings, and other forms of measurement, reporting, etc.
Are There Similarities Between Sustainability, ESG & CSR?
Some of the main similarities between these concepts might be:
No Clear Consensus On Definitions, Scope & Objectives Of Each
Sustainability and CSR in particular can lack a consensus on their definitions.
And, there can be disagreement on what each concept should involve (in terms of scope), or what their specific objectives should be
As one example, different groups may value different sustainability indicators differently, and companies and senior management may have different ethics and beliefs that influence their social efforts.
Each One May Lack Uniform Systems, Standards, Methods Of Measurement, Auditing & Review, & So On
All three of sustainability, ESG and CSR may lack uniform systems across all countries, regions and jurisdictions for things like standards that companies have to meet, requirements for reporting, how impact is measured, and how reports and impact are audited, reviewed and verified.
Each One Has Aspects That Can Be Hard To Objectively Measure
Because all three concepts have intangible aspects, it can be difficult to objectively measure the full impact of each.
Some impact may be missed, or may be subjectively quantified and reported.
Each Concept Involves Objectives Outside Of Just Economic Objectives, & The Agenda Of Individual Companies
Each of these concepts for example has at least a social goals and environmental aspect.
What Is Sustainability?
General Definition
We’ve previously discussed/explained sustainability in this guide:
A general definition of sustainability though might be:
The ability to sustain something at a certain level (e.g. sustaining the needs of a certain population over a certain time period), whilst meeting the needs of present generations, and not compromising the ability of future generations to meet their needs
Different Aspects/Pillars
There are environmental (including natural resource management), economic, and social pillars to sustainability
We’ve previously explained the main aspects of sustainability in this guide:
– Environmental vs Economic vs Social Sustainability
Sustainability In Business
We previously put together a guide specifically about sustainability in business here.
What Is ESG?
What ESG Stands For
ESG stands for ‘Environmental, Social & Corporate Governance’
What It Is
ESG is a framework that is integrated into an organization or company
It is designed to create enterprise value by expanding aspects and objectives outside of traditional organizational aspects and objectives
ESG can also be used in investing, and might be considered part of ‘Responsible Investing’
ESG In Businesses, & ESG In Investing
ESG in investing might be seen as it’s own form of ESG
It involves things such as ESG-linked investment products, responsible investing principles, and more
wikipedia.org does a good job of outlining the business and investing forms of ESG
Different Aspects & Objectives
ESG involves environmental, social, and corporate governance objectives
Whilst environmental and social objectives may be more widely known, corporate governance might be something that not as many people understand, or have heard of
Corporate governance involves essentially the structures and processes that direct and control companies, and can include factors like how companies are managed, what stockholder relationships are like, how employees are treated (and their relationship and satisfaction with the company), and more.
Example Of An ESG Framework
The United Nations’ ‘Sustainable Development Goals’ is one of the prominent ESG framework ‘blueprints’ that an organization might align their ESG related goals with
Although, other groups might provide ESG frameworks too
Systems, Standards, & Compliance For ESG May Currently Lack Uniformity
A criticism of ESG might be that there isn’t uniformity across various regions and countries for systems, standards, and compliance relating to ESG
There also isn’t uniformity or standardisation of reporting, ratings, and the agencies that manage and produce ESG ratings yet
Another way to say that is that there is no industry-wide set of common ESG systems and standards for ESG yet
What this means is that all companies’ efforts and impact aren’t being measured, assessed and rated in the same way.
This may make it difficult to verify, compare, or assess ESG data and claims in a credible way in some instances
From wikipedia.org:
In 2021, several organizations were working to make ESG compliance a better understood process in order to establish standards between rating agencies, amongst industries, and across jurisdictions.
ESG Ratings & Ratings Agencies
In some countries, there are ESG ratings agencies that assess, measure (quantify) and compare the ESG performance of different companies.
Currently though, each agency might have their own metrics and methods to measure ESG compliance and performance.
MSCI might be an example of a global ESG rating agency
ESG Reporting
Different agencies require different data from organizations in their ESG reporting.
This data should show that these organizations are meeting certain ESG standards (which are provided by agencies)
Current ESG Regulations
wikipedia.org mentions Europe as an example of a region that has regulated a part of ESG, with the EU’s Sustainable Finance Disclosure Regulation (SFDR)
Although, ESG is not regulated everywhere globally
Potential Pros & Cons Of ESG
We put together a potential list of pros and cons of ESG in this guide.
More Information On ESG
The wikipedia.org article listed in the ‘Sources’ section at the bottom of this guide has more information on the different aspects of ESG
What Is CSR?
What CSR Stands For
CSR stands for ‘Corporate Social Responsibility’
A Lack Of Consensus On CSR
There can be a variety of definitions of CSR
There can also be a lack of a consensus on what corporate social responsibility should involve, or what it should prioritise
This is because different groups and different individuals have different interests
For example, business groups may prioritise economic interests and the business’ own interests, whilst social and environmental activist groups may prioritise social and environmental interests
Even individuals, such as individuals in upper/senior management at companies (like CEOs) may have different subjective ethics and moral norms they prioritize (wikipedia.org gives an example of this in their guide)
Something wikipedia.org also mentions is how CSR is approached differently in different countries. They give examples of how China, Germany, South Africa, and different parts of Europe provide different things when it comes to social responsibility.
General Definition Of CSR
A general description of CSR might be that it’s a form of business self regulation, that aims to to contribute to societal goals
More recently, it may apply to supplier behavior too (in addition to behavior of businesses themselves)
Contribution to societal goals might occur via various philanthropic and activism based practices, such as monetary donations given to non for profit organizations, volunteering (and providing aid), providing resources, providing opportunities (for education, or employment), and so on
Other definitions might describe CSR as a company’s sense of responsibility towards their community and also to the environment
In CSR, there is a focus on ethical issues in business, and also ethical business practices (i.e. whether practices might be in line with moral norms or not)
Different Aspects & Objectives
The main aspects of CSR are the social aspect, and also positively impacting the environment
Apart from achieving social and environmental objectives, CSR may also help create value in the form of risk management for businesses, and also value creation for the actual business themselves (whether that be asset value, brand equity, or something else)
Pyramid Of Corporate Social Responsibility
Some reports reference the ‘CSR pyramid’
This pyramid puts economic responsibility at the bottom/base level of the pyramid, legal responsibility on the second level, ethical responsibility on the third level, and philanthropic responsibility at the top level of the pyramid.
Explaining the pyramid – economic and legal responsibilities are business’ traditional responsibilities, with ethical and philanthropic responsibilities being additional responsibilities under CSR.
Ways A Company Might Meet Their Corporate Social Responsibility
Some of the key ways might be:
– Contributing to the local community or society in some way (which we listed above, but, wikipedia.org also lists various corporate social initiatives too)
– Reducing waste, or better managing waste
– Reducing environmental pollution
– Ensuring responsibility in the supply chain via responsible supply chain management (ensuring safe working conditions, product quality, traceability, and so on)
– Ethical marketing and advertising (such as not misleading consumers)
wikipedia.org lists some other approaches to CSR, and where businesses might spend their resources
Tracking & Monitoring CSR Within A Company
Once CSR objectives and plans have been developed, and practices are carried out, companies may engage in ‘benchmarking’ to track and monitor CSR within their company.
This might involve:
– Assessing the output vs return of CSR based practices over time
i.e. doing a cost benefit analysis, and figuring out if CSR makes sense from a net value point of view
– Measuring the impact of CSR based company practices over time, and comparing them to both internal CSR objectives, and also competitors and other companies in the same industry
Accounting, Reporting, & Auditing
Reporting by companies to external groups and the public under CSR might also be called ‘social accounting’
wikipedia.org list many of the different reporting guidelines and standards that can serve as framework for social accounting, auditing and reporting in their article
They also mention that some companies have their reports audited by external groups, and that reporting, as well as the measurements and methodology used in different reports, differs between companies
Verification
A critique of CSR in some countries is that verification of company reporting and performance isn’t comprehensive.
Enforcement Of CSR – Regulations, Standards, etc.
In some countries, CSR may still be voluntary, with little to no CSR based regulations in place
But, in other countries worldwide, partially mandatory schemes and regulations may have been introduced on both the national and international levels.
wikipedia.org mentions that (paraphrased):
India has one of the only mandatory CSR Acts in the world so far
France is one example of a country with legal requirements for specifically for the social accounting, auditing and reporting aspect of CSF
Some European countries have engaged in CSR regulation, developed some CSR programs and policies, and collective bargaining also exists to promote CSR in some ways.
CSR vs Corporate Sustainability – Are They The Same, Or Different?
Some articles indicate that CSR is a slightly different concept to ‘Corporate Sustainability’, because it has more of a focus specifically on ethics and ethical issues., and also less of a focus on impact over time on different generations.
We briefly wrote about the potential difference between CSR and Corporate Sustainability in this guide about ‘Sustainability In Business’, but, wikipedia.org outlines the difference in more detail in their ‘Corporate Sustainability’ article.
Having said that, in their ‘Corporate Social Responsibility’ article, wikipedia.org mentions that CSR is also called corporate sustainability, or sustainable business.
So, different articles can use different terminology to refer to the same concept.
How similar CSR and Corporate Sustainability are in reality might be be determined by the actual aspects, goals and outcomes implemented and achieved by the individual companies that use them
Potential Pros & Cons Of CSR
We put together a potential list of pros and cons of CSR in this guide.
More Information On CSR
The wikipedia.org article listed in the ‘Sources’ section at the bottom of this guide has more information on the different aspects of CSR
Sources
1. Various ‘Better Meets Reality’ guides
2. https://en.wikipedia.org/wiki/Environmental,_social,_and_corporate_governance
3. https://en.wikipedia.org/wiki/Corporate_social_responsibility
4. https://en.wikipedia.org/wiki/Corporate_sustainability
5. https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html
6. https://online.hbs.edu/blog/post/types-of-corporate-social-responsibility
7. https://corporatefinanceinstitute.com/resources/knowledge/other/esg-environmental-social-governance/
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