ESG vs. CSR: What's the Difference?

In this newfound era of responsible corporate citizenry, a lot of terms that are at least tangentially related get tossed around. You might have heard of DEI (diversity, equity, and inclusion) programs, as they’ve made the news a significant amount lately.

Two other three-letter initialisms in this arena are ESG (environmental, social, and governance) and CSR (corporate social responsibility). Some people use the two terms interchangeably, but they have more than a few differences that executives should understand before launching their own programs. 

We’ll take a look at ESG vs. CSR programs, how each one can benefit your company, and some ways to seamlessly implement them into your everyday operations.

Table of Contents:

• What is Environmental, Social, and Governance (ESG)?
• What is Corporate Social Responsibility (CSR)?
• ESG vs. CSR: Where They Overlap (and Where They Don’t)
• Ways ESG and CSR Can Complement Each Other
• Groundswell: Bigger Impacts, Less Overhead, & Benefits You Can See

What is Environmental, Social, and Governance (ESG)?

ESG can almost be considered an adjective. Simply put, it’s a framework and set of criteria by which companies can measure the effectiveness of programs designed to help them become responsible citizens. The initialism “ESG” is almost always followed by the word “report,” which refers to a comprehensive dataset of the results of companies’ ESG programs. 

The ESG criteria, which are offered and suggested by a number of public and NGO organizations, focus on three areas:

• Environmental: Companies analyze the effects of their operations on the planet; they might measure greenhouse gas emissions, the weight of solid pollutants, impacts on biodiversity, and gallons of water used per year.
• Social: How does the company affect people—both inside and outside the business? Social impacts include working conditions, workforce diversity, consumer rights, and broader principles of equity and fairness. This ESG pillar most closely resembles CSR programs.
• Governance: The final pillar of ESG focuses on a company’s internal rules and procedures for conducting business. More specifically, it often covers topics like executive compensation, shareholder rights, board structure, and financial disclosures. You can think of it as a report card on a company’s bylaws. 

What is Corporate Social Responsibility (CSR)?

CSR is a business philosophy or approach that advocates for charitable endeavors, including financial and asset contributions, undertaken by companies. Put more simply, it’s the idea that corporations have the responsibility to make a positive difference in their communities in addition to their obligations to shareholders. 

Endeavors commonly deployed in corporations’ CSR programs include:

• Employee volunteering
• Company donations (along with employee matching)
• Corporate grants

ESG vs. CSR: Where They Overlap (and Where They Don’t)

Off the top of your head, you might be thinking something along the lines of, “Well, CSR and ESG sound a lot alike—especially the ‘S’ part of ‘ESG.’”

It’s true that companies’ CSR programs get mentioned a lot in ESG reports, but it’s also important to know the distinctions between the two.

1. Both ESG & CSR Consider Impacts on External Stakeholders

One notable trait shared by CSR programs and ESG reporting is their involvement with individuals and entities beyond companies’ immediate ecosystems. While CSR initiatives can be (and usually are) good for business, the primary purpose is to make a positive impact on vulnerable or marginalized populations. Skills-based volunteering, for instance, means a company provides products or services at no cost to recipients, who may not even become paying customers.

The same holds true for ESG reporting. Environmentally conscious companies implement green initiatives that, oftentimes, do not directly benefit customers or clients, for instance. It’s this focus on the larger community (and world) that sets CSR and ESG apart from business as usual.

2. CSR is Scaleable, But ESG is About the Big Picture

One key difference between CSR and ESG is that CSR programs—especially volunteering endeavors—tend to focus on local populations. Common CSR volunteer opportunities include local trash pickups, serving at soup kitchens, and tutoring or mentoring local youth. CSR donations may also favor local nonprofits and charities.

Conversely, ESG reporting often takes into account global actions and impacts. A corporation’s carbon footprint affects every corner of the world, for example, as do human rights and supply chain considerations.

3. Both CSR & ESG Can Improve Financial Performance

Another trait both CSR and ESG share is that today’s consumers increasingly demand responsible corporate citizenship from brands. We already mentioned the bottom-line benefits for companies with CSR programs, but it’s also clear that consumers value robust ESG transparency when making buying decisions.  

4. ESG Uses Specific Criteria Frameworks; CSR is Customizable

While CSR programs can be tailored to each company’s unique goals and capabilities, ESG reporting criteria are largely standardized. Some of the most prominent ESG rating agencies, such as Moody’s, Sustainalytics, MSCI, and Morningstar, suggest reporting frameworks that many large companies have adopted. These agencies also conduct their own research and provide third-party ESG reports. 

How ESG and CSR Can Complement Each Other

The question for your company now is whether to adopt both CSR and ESG programs and approaches. Only you can definitively answer that question, but it may help your decision to know that CSR and ESG principles can strengthen one another.

• ESG can finish what CSR started. That’s a somewhat rudimentary way of looking at things, but ESG reporting can help reinforce your company’s CSR programs by providing investors with hard data. 
• CSR can provide a glide path to ESG reporting. Because companies have more flexibility with CSR programs than with ESG, many begin their journey toward becoming eco- and socially conscious brands by implementing one or two CSR initiatives. After getting some employee volunteering programs under your belt, you could be well on your way to crafting robust, comprehensive ESG reports that highlight your company’s global impact.
• CSR allows ESG reporters to get a head start on the “S” pillar. In many ways, CSR programs align—some say completely—with the “social” facet of ESG. So, instead of starting from scratch, companies with existing CSR programs may find they already have many of the pieces for their first ESG reports.

Groundswell: Bigger Impacts, Less Overhead, & Benefits You Can See

We don’t think the ESG vs. CSR debate is the right framing for businesses. The right question, rather, is: “Can our company do both?”

If you think the answer is yes, it’s important to have the right software to support CSR and related programs. Groundswell offers an intuitive CSR platform that prioritizes efficiency for businesses of all sizes. Our digital solutions support, among other things:

• Volunteer programs
• Employee-led volunteer programs
• Corporate philanthropy
• Donation matching
• Donor-advised funds (DAFs)
• Employee assistance fund (EAFs)
• Corporate grantmaking and grants

Our software instantly matches donations and sends funds to every nonprofit and charity within 24 hours. The best part (for you)? No monthly reports and reconciliations, saving you about 90% of the work most CSR professionals expect. 

The next step in your Groundswell journey is signing up for a personalized demo. We look forward to discussing ways we can help your company execute high-level CSR programs.