Transitioning from CSR to ESG

Recently, I decided to update my professional profile, for which I requested a former colleague and a good friend to provide some constructive feedback. As anticipated, I received invaluable inputs, but the one that stood out for me was the advice to update a keyword I had been parading for years. It was then that I realised the importance of highlighting my experiences in Corporate Social Responsibility (CSR), coupled strongly with Environmental, Social and Governance (ESG), a term I had been hearing and endeavouring to implement at my former workplace. Over the course of my on-the-job learnings encompassing the past few years, I found first-hand that CSR incorporated most components under the sustainability umbrella, including social, environmental and economic aspects of the business, with the ultimate aim of being recognised as a Responsible Corporate Citizen. However, this specific episode triggered a question—Is CSR gradually transitioning to ESG?

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About CSR

Companies understand the importance of garnering a good reputation through socially and environmentally responsible approaches as a means to connect better with consumers and investors and as responsible businesses. People in general are now more socially conscious and are willing to tolerate higher costs for fair/ethical/sustainable products and services. Companies which are highly active in their CSR efforts promote inclusive growth through upliftment of communities they work in, and strive to resonate with the national priorities. These efforts are directed towards social commitments that augment accountability to the organisation, consumers and stakeholders at large. CSR is now no longer a sheer facade for companies to look good in the eyes of consumers/stakeholders. Currently, a conscientious CSR performance of an organisation is an organic expectation of end consumers, and a mandate to operate responsibly while giving back for regulators. With everything said and done, CSR is a self-regulated model, which in most occasions impacts internally and across the company culture, all the while strengthening the brand image. In other words, CSR is unique to the requirements of the organisation concerned. A recent survey I led of 12 companies to understand the basic CSR landscape in Nepal indicated the trend of a diverse set of activities relating to community livelihoods, community development, environment conservation, water, sanitation and hygiene (WASH), women empowerment and youth engagement. While it is encouraging to see Nepal’s business community progressing in understanding and implementing CSR activities, the outcome of the survey additionally revealed the private sector’s persistence with the traditional CSR approach on limiting independent activities in close vicinity of their area of operations, with no involvement of relevant third-party advisors/experts, particularly from the development sector.

About ESG

With direct correlation to CSR, ESG is understood to be both qualitative and quantitative, primarily in terms of business evaluation of sustainability practices. It uses environmental, social and governance criteria to measure activities that lead to business accountability and improvement opportunities. ESG implementation is metrics driven, which requires greater commitment by organisations for a more comprehensive process to achieve measurable outcomes and fact-based reporting. Stringent data-driven ESG scores and ratings provide an insight into businesses’ financial performances and risks relating to ESG matters. These details feature prominently on annual reports, storytelling, media coverages, board/shareholder meetings and investment evaluations, with increasingly greater credibility. These ratings are a disclosure of risks in numeric scores pertaining to financials and ESG-related issues. The scores determine an organisation’s capacity and preparedness to withstand business headwinds/risks and strategically drive long-term profitable business plans. ESG-focused organisations are understood to possess sounder business resiliency, which investors directly relate to as being of better value creation.

CSR or ESG?

There is no denying that CSR paved the way for ESG, but the future of corporate-giving is inclining towards the latter, with better transparency of social impacts through improved measurement processes. Taking ownership of sustainable business practices to actually assessing a company’s performance through evidence-based and measurable methodologies, ESG criteria suggest a shift towards enhanced efficiency. Clearly, this leads to a thorough evaluation beyond financial performance and market value. While ESG is gaining momentum, it is still a work in progress, primarily due to the current absence of an industry standard on rating against ESG criteria. However, as the trend in regulator's intervention on businesses’ social and environmental impacts grow, whether it is CSR, ESG or any other prerequisite that may arise with time, companies need to act timely to establish robust compliance and risk management platforms to carefully track overall performances, in order to future-proof the organisation. Over the years, CSR professionals have been operating in a hazy space of trying hard to do the right thing while protecting businesses from being perceived merely as marketing gimmicks. Equally challenging is convincing consumers and external stakeholders, when a lot of times employees of organisations themselves seem cynical concerning CSR investments. An efficient ESG policy can streamline CSR efforts, embedding them in the hearts of business strategies, with the incorporation of all functions at all levels, within the organisation and beyond. With visible results on impact investments, a purpose-led effort can be achieved and accepted by all. A well-defined ESG integration into businesses allows organisations to responsibly, sustainably and confidently live up to their promises. Reaping the best of both CSR and ESG and intertwining it for measurable, tangible and positive impacts, is definitely the way forward. READ ALSO:

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