Global Perspectives on the Difference Between CSR and ESG

Sustainability efforts have gained momentum as businesses and governments experience the mounting impact of climate change. The global consensus is that action must be taken to ensure the long-term stability of economies and ecosystems.

Still, there are disparate definitions of some standard sustainability terms that can be a source of confusion.

This lack of consensus is evident in the way Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) are used from country to country, region to region.

In an effort to bring clarity to important conversations, we will examine the baseline of these two terms and explore how they are defined and implemented across the world.

What Are CSR and ESG?

While there are commonalities between CSR and ESG, there are unique factors that inform the core definitions of CSR and ESG.

How is CSR defined?

Corporate Social Responsibility (CSR) is a voluntary, self-regulated practice through which corporations develop social, environmental, and economic policies and programs – sometimes referred to as the “triple bottom line” – aimed at elevating their corporate culture and brand by making a positive impact in their communities.

The CSR programs companies invest in or develop internally are not tied to how their organization makes money. These programs are often charitable or philanthropic in nature and are designed to address public needs in a way that creates corporate accountability and garners goodwill.

How is ESG defined?

Environmental, Social, and Governance (ESG) is a set of quantitative factors used to assess the financial risk and stability of an organization. ESG assessments can be and often are undertaken voluntarily, but with the increase in government action on climate change, some ESG assessments have become a necessary part of regulatory compliance.

ESG assessments give guidance to organizations seeking to improve their sustainability efforts by highlighting areas in need of improvement.

Differences Between CSR and ESG

Regulation

CSR: There are no regulations that mandate or control the corporate programs, processes, and objectives that arise from CSR activities. While there are some international standards available to guide companies through the CSR process, these standards are not binding. All CSR work is voluntary.

ESG: ESG is a much more heavily regulated accountability practice. Since ESG is a quantitative measure of risk and performance, it is easier for governing bodies to establish goals and benchmarks that can be met across industries and across governmental units.

Corporate responsibility

CSR: CSR programs are in no way required to, and often do not, tie in with a corporation’s business interests. For example, an oil company could fund a school reading program, or a financial organization could create a grant for STEM scholars. The corporate responsibility exhibited in CSR programs is social stewardship through charitable efforts.

ESG: All efforts undertaken in response to an ESG assessment are done to improve the inner workings of the organization. These internal changes can be anything from ensuring product manufacturing is not polluting the environment to implementing more robust DEI (Diversity, Equity, and Inclusion) programs. The corporate responsibility exhibited through the ESG process is one of ownership of the environmental, social, and financial impact of doing business.

Accountability

CSR: Reporting for CSR is largely voluntary and unregulated. It is a reflective process that informs the public and stakeholders of what an organization has accomplished. In general, there are no KPIs to be met or benchmarks to report. Reporting is often done to bring awareness to an organization’s charitable activities as part of an overall brand campaign.

ESG: ESG is guided by much stricter reporting standards. These standards can vary by region and country and are subject to the laws in those areas. When an organization is using its ESG assessment to comply with local regulations or maintain an investment rating, there are benchmarks that must be met and exceeded to remain compliant.

Regional Differences in Sustainability Terminology and Strategy

Different areas of the globe can have significantly different understandings and approaches when it comes to CSR and ESG, and how they are treated as business focuses. ESG, especially, is a term that carries different levels of recognition and weight depending on where the discussion is taking place.

During Inogen Alliance’s Spring Associate meeting earlier this year, this inconsistency was made clear.

“Our consultants in Latin America and the Middle East shared the regional views that ESG is a new term, and not as mature as in other markets,” according to a writeup on the meeting. “In Asia many companies did not understand the significance of ESG ratings of their company and are now investing more in improving their strategies and scores.”

CSR is a term that’s been around longer, leading to a stronger global consensus in terms of definition, but here too there are a wide range of policies and practices that vary based on region. The United Nations Global Compact serves as a guiding framework for many countries when it comes to CSR priorities, implementation, and reporting.

Below, we’ll zoom in on India as one example of regionally specific challenges and opportunities when it comes to CSR and ESG.

Global Perspectives: A Look at India’s Sustainability Efforts

There are several factors that play a role in why sustainability terminology has inconsistent definitions and implementation around the world:

• Social norms around the intersection of business and government
• Local laws and regulations that set standards for these terms
• Economic resources available to invest in sustainability projects
• Ownership of environmental stewardship
• The current impact of climate change on regional biomes and natural resources

Drivers of CSR and ESG activities and behaviors vary across the globe. The following snapshot of sustainability in India illustrates the role these regionally unique factors play in the effort to develop a truly global standard.

Sustainability challenges in India

To understand the local perspective we discussed this topic with the Head of Sustainability and Environment Practices, V.S. Bhaskar, at our Associate Chola Risk. India’s focus on sustainability has been growing since the early 2000s, spurred forward recently by real concerns over water scarcity. Other sustainability priorities include reduced waste production, reduced fossil fuel use, and the preservation of raw materials and natural resources.

Water scarcity has already been impacted by climate change. Monsoons are no longer replenishing water supplies with a reliable frequency. Since watershed management starts at the local government level, there are layers of laws and regulations from municipalities through the national government that regulate water sourcing, usage, and preservation.

CSR in India

The businesses and government of India have placed watershed preservation as a prime objective of CSR activities. Due to increased regulation around water use at all levels of government, businesses have proactively started directing their CSR activities toward ensuring the preservation and maintenance of local watersheds.

In 2000, the Government of India (GoI) laid out a set of nine CSR principles that corporations could enter into voluntarily. In 2021, the GoI made it mandatory for organizations participating in CSR activities to have an audit conducted by a third-party accredited agency, to ensure funds are actually going to assist local communities.

ESG in India

Multinational corporations and those based in the EU began Independent ESG reporting in 2015. Since then, the Security and Exchange Board of India (SEBI) has issued mandatory ESG reporting guidelines based on the Global Reporting Initiative (GRI) standard GRI-G4.

Most of the top corporations in India expect to meet reporting compliance by 2023. The GoI understands that climate is a top issue globally and has launched a number of initiatives set to encourage the adoption of sustainable business practices across industries in India.

Learn more about ESG Global Trends in 2022, and be sure to check back here in the future for more information on the evolving worlds of ESG and CSR.

For more on this topic, check out our Associate denxpert's on-demand webinar, CSR, Sustainability, ESG - definitions & differences.

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