After I wrote the last blog on ESG, a few came back asking me for further clarity on the two terms used frequently by corporates whenever they talk about sustainability — CSR and ESG.

CSR or Corporate Social Responsibility is the initiative taken by a corporate to give back to the community. This may include either or all of the four areas of environmental, philanthropy, economic, and ethical responsibilities that the corporate has toward providing a positive social impact. Businesses often use CSR to build a positive brand image while making a difference in the world around them, but not necessarily inside the company.

CSR would involve activities beyond the regular operations of the organization, often through a third-party specialist like an NGO. While the activities might involve the employees, it is hardly mandated but involves more about the motivation to volunteer. The best part of CSR is that it touches multiple segments like the company, its employees, society as well as NGOs through which the initiatives get executed. When we discuss sustainability in the context of CSR, it relates more to the holistic aspects beyond the organization.

On the other hand, ESG is more aligned with the company operations and its financial reporting, with a direct impact on the sustainability of the business. The type of business, its infrastructure, and size, the employees, the business model, and innovation, all are included in the discussion, as ultimately the performance is regarded from a holistic aspect. The focus has shifted from being solely on profitability to the ethics that is held by the organization, as that is regarded as having a longer-term vision and viability of sustenance.

As ESG is more compliance-oriented, there is more importance given to the data than is done in CSR. This when compared against international frameworks, ratings and standards brings in an extent of the relation between ESG disclosures and business performance. On the other hand, CSR outcomes are generally not directly included in business performance reporting, other than the budgetary numbers.

To sum it up, while both are oriented towards the greater good of the world we live in, ESG involves managing material, environmental, social, and governance risks and opportunities of the business as a part of its strategy. CSR is important to develop a public opinion on the credibility and sense of responsibility of the corporate, while the importance of ESG reporting will keep gaining importance in the eyes of the investors.