Has CSR Been Replaced by ESG? Expert Analysis

In a word, no.

Whilst the differences between the Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) may seem nuanced, there are several distinctions which should be considered by corporations assessing sustainability.

Sustainability is a goal that businesses can aim towards striking a balance between economic, social and environmental factors, being the triple bottom line. Whilst generating a profit is fundamental for the survival of most businesses, Milton Friedman’s 1970 assertion that, “the social responsibility of business is to increase its profits” is at variance with CSR which has been described as “the responsibility of enterprises for their impact on society”.

The concept of CSR is well established with 19^th century examples including Cadbury and Marks & Spencer. Employee welfare was important to the Cadbury brothers who provided healthcare, a pension and housing. Michael Marks ensured that his outdoor market stall staff were able to have a hot meal and wooden boards to stand on so that their feet would not get cold. In contrast, it is believed that ESG was first formulated as recently as 2004, in the International Finance Corporation Report, “Who Cares Wins” noting the impact of ESG on investment decisions.   

Nevertheless, both frameworks consider environmental and social impacts, but ESG is more measurable. There are further important differences.

Main features of CSR

• Primarily voluntary and self-regulating.
• Qualitative and may not be measurable.
• Includes environmental stewardship and ethical practices.
• Highlights values and culture.
• Used internally but may publish reports.
• Potential for third sector engagement and staff volunteering initiatives.
• Social and environmental legislation can guide operations

To Incorporate CSR Companies Should

• assess their environmental impact.
• engage staff.
• Consider their cultural values.
• Foster community engagement.
• Consider ISO 26000 Guidance on social responsibility.

Benefits of CSR

According to the ISO 26000 Guidance on social responsibility, benefits to achieving CSR include:

• enhanced reputation.
• competitive advantage.
• attracting and retaining staff, clients and customers.
• boosting employee morale and embracing diversity.
• influencing the perception of investors and sponsors.
• enhancing relationships with stakeholders.

Main Features of ESG: 

• Mandatory compliance with legislation and codes of conduct.
• Provides measurable and quantifiable information for investors.
• Broad reach: includes resource management and supply chain impacts.
• Requires auditing and measurable goals.
• External reporting for dissemination by shareholders and customers.
• Can obtain ESG ratings to demonstrate commitment, manage risk and allow comparisons.

To Incorporate ESG Companies Should:

• Conduct a materiality assessment to identify significant issues.
• Prepare a gap analysis to help develop a roadmap.
• Collaborate with stakeholders.
• Set measurable goals with appropriate KPIs.
• Monitor and report on developments.
• Adopt a compliance strategic framework.

Benefits of ESG 

Research conducted by KPMG found that business leaders focus on ESG not only to provide a framework to meet legislative requirements but because it is fundamental to sustainable growth. [Barbour ESG (Environmental, Social and Governance) - an Introduction, 2024]

In addition, adopting an ESG framework can:

• Help build trust and provide a competitive edge.
• Meet stakeholder expectations.
• Provide transparency for investors.
• Attract consumers who share similar values.
• Ensure legal compliance.
• Reduce environmental impact, resulting in cost savings.
• Help to future-proof the business and build resilience.
• Avoid the risk of prosecutions.
• Avoid greenwashing.
• Assist in attracting and retaining staff.

Should My Business Make a Choice Between CSR and ESG?

Ideally, a business should give back more than it takes from society and the environment. Both frameworks can be complementary in achieving this aim through different means and as such it is not necessary to choose between them. CSR can focus on values and outline goals that ESG can support with measurable data. For example, one feature of CSR is environmental stewardship such as energy and waste reduction. ESG can provide measurable data with the implementation of energy saving and waste reduction policies to set goals and obtain KPIs with appropriate monitoring and reporting. Once in place, it may well be found that the policy has resulted in cost savings in addition to achieving the intended positive environmental and social outcomes.

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