Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) are two concepts that have been increasingly discussed in the business world. While CSR is a voluntary practice that companies undertake to give back to the community and show their concern for the environment, ESG is a more integrated and systematic approach that companies take towards their operations. ESG involves a holistic approach to decision-making and is integrated into the company’s strategy, affecting the entire business and not just a single department.
In the past, CSR was often seen as an add-on to the main business of turning a profit and was not considered a core factor in the way that profits are made. As a result, CSR fell out of favour as it was perceived as a tick-box exercise and did not deliver authentic change. However, ESG is significantly more than just a box-ticking exercise. It demands action and transparency, often involving deep and systemic change within and between organizations. Companies are expected to be accountable and transparent in their operations, and to engage with their stakeholders to ensure that they are taking a responsible approach to their business.
ESG is also driven by the need to protect and build trust with stakeholders. Companies that embrace ESG are considered more resilient to market shocks, and some have outperformed their peers during the pandemic. The ramifications of not embracing ESG have become very real, with companies facing risks of losing investment, reputation, customers, employees, and business opportunities. The way organizations engage with their global community is no longer just a page in the annual report or a talking point in investor relations meetings, it is a way of doing business.
Whereas CSR was very much driven from marketing departments, ESG is embedded into the actions and decisions of the entire organisation, and starts right at the top. The move towards becoming more genuinely responsible corporate citizens involves and affects the whole business. It is integrated into the company’s strategy and decision-making: which is why almost half of FTSE 100 companies have linked executive pay to ESG targets. This link between executive pay and ESG targets ensures that the leadership of the company is held accountable for the company’s ESG performance and is incentivized to drive ESG performance.
The ESG trend has also seen an increase in regulation, investor action, NGO pressure, company culture, and consumer expectations. This has put the spotlight on businesses and given them the opportunity to set the bar for doing well while doing good. Companies are expected to demonstrate their commitment to ESG principles and to report on their ESG performance, providing investors and stakeholders with the information they need to make informed decisions.
ESG demands action and transparency and involves deep and systemic change within and between organizations. Companies that embrace ESG are considered more resilient to market shocks, and are taking the approach of responsible corporate citizenship seriously. ESG is no longer just a page in the annual report or a talking point in investor relations meetings, it is a way of doing business, and companies are taking it on not just because it is good for the bottom line, but because it is the right thing to do.
Net Zero Analytics is an advisory firm that assists businesses in creating, communicating, and implementing their environmental, social, and governance (ESG) and sustainability plans. We aid in areas such as reporting on sustainability performance using different ESG frameworks, creating strategies, and evaluating what issues are most relevant to the company. This not only helps companies comply with disclosure regulations like CSRD but also allows them to proactively share their plans with stakeholders such as lenders, investors, customers, and the communities where they operate. Our primary focus area is South-East Europe.