ESG and CSR: What You Need to Know?
oinaime • Feb 23, 2022
The abbreviation ESG stands for environmental, social, and governance – criteria by which investors rate companies and their investment opportunities.
The phrase corporate social responsibility (CSR) is often used interchangeably with ESG, but this isn’t entirely accurate, as CSR is broader in scope than ESG.
Let’s take a look at what these terms mean and why it’s important to understand the differences between them.
The phrase corporate social responsibility (CSR) is often used interchangeably with ESG, but this isn’t entirely accurate, as CSR is broader in scope than ESG.
Let’s take a look at what these terms mean and why it’s important to understand the differences between them.
How Does Your Company Measure Up?
In recent years, corporate responsibility has become increasingly important for investors. As such, they have been more vocal about what they consider 'good business'. But how do you measure up? How can you make sure your company stands out from others in terms of ethics and sustainability? And how can that boost your bottom line? To learn more about ESG and CSR (corporate social responsibility), keep reading.
Having a solid understanding of what ESG is—and what it means for your business—can help you be an industry leader when it comes to environmental health, workplace safety and community involvement. Before we get into specifics, let's break down a few definitions. What does ESG mean? Simply put, ESG refers to an organization's economic, environmental and social performance standards—but not all companies use that definition. Some focus on just one (economic or environmental), some include all three elements and some simply say SRI, which is short for socially responsible investing.
What does ESG mean in business?
ESG is a big buzzword in business today. It stands for Environmental, Social, and Governance, which encompasses corporate social responsibility (CSR) programs as well as environmental sustainability practices. The most common ESG topics include fossil fuel use and climate change; water pollution; air pollution; recycling; sustainable supply chains; human rights violations/corruption/labor abuse. In other words, companies are going green by making sure they’re not harming society or hurting their communities or employees. But what does it all mean? And why should you care?
The good news is that firms that don’t work to improve their sustainability have a higher risk of dropping in value than those that do. According to one study, companies with low ESG scores had lower long-term shareholder returns than those with high scores. This means investors can use ESG scores when determining which companies are financially sound – and which aren’t worth investing in at al.
How do you implement an ESG?
Every organization’s ESG is different, which is why it’s so important to take into account your target market, product or service offerings, investors, and location. Although there isn’t a single right way to incorporate ESG best practices into your business plan, you can still follow these steps as a guide:
When it comes to incorporating ESGs into your business, remember that every business is different, so it’s important for you to figure out how you can best incorporate these initiatives into your operations and make them part of company culture.
Your goals may not be exactly like another organization’s goals, but adopting an ESG mindset allows you to create a sustainable business model that builds value for employees, customers, investors and society as a whole.
- Set Overall Goals.
- Create a budget for your ESG goals.
- Figure out what changes need to be made.
- Measure your performance against your standards
- Encourage knowledge sharing through training opportunities.
- Incorporate ESG values into marketing efforts by tying sustainability messages to products or services offered.
When it comes to incorporating ESGs into your business, remember that every business is different, so it’s important for you to figure out how you can best incorporate these initiatives into your operations and make them part of company culture.
Your goals may not be exactly like another organization’s goals, but adopting an ESG mindset allows you to create a sustainable business model that builds value for employees, customers, investors and society as a whole.
Why Environmental, Social, Governance (ESG) is Important?
Companies are slowly coming around to implementing a form of Environmental, Social, Governance. ESG is a common acronym in which these three terms refer to different areas of corporate responsibility. The definition for each has evolved significantly over time but, for our purposes, we’ll define them as follows:
At times ESG can seem synonymous with Corporate Social Responsibility (CSR), but that isn't entirely accurate because CSR looks at only one dimension of corporate responsibility: societal factors.
- Environmental refers to how a company operates from an ecological perspective.
- Social refers to how it acts in relation with its employees and supply chain.
- Governance refers to how it conducts itself publicly.
At times ESG can seem synonymous with Corporate Social Responsibility (CSR), but that isn't entirely accurate because CSR looks at only one dimension of corporate responsibility: societal factors.
Difference between sustainability and ESG
Both of these concepts share common ground, but there is a slight difference between sustainability and ESG. Sustainability focuses on environmental aspects, while ESG (Environmental, Social & Governance) takes a more holistic approach by factoring in environmental issues as well as social ones.
Some people consider sustainability as a broader category that includes both ESG factors, while others would argue that sustainability is only concerned with making sure we can sustain our environment for future generations. Because these terms are sometimes used interchangeably, it's important to clearly define what they mean before deciding how they apply to your business model.
Some people consider sustainability as a broader category that includes both ESG factors, while others would argue that sustainability is only concerned with making sure we can sustain our environment for future generations. Because these terms are sometimes used interchangeably, it's important to clearly define what they mean before deciding how they apply to your business model.
What is the difference between ESG and CSR?
The terms ESG and CSR are often used interchangeably, but they're actually very different. The first refers to environmental, social, and governance practices—i.e., how companies operate in various realms that impact society. The second is more about a company's relationship with stakeholders—its reputation, its community involvement, how it compensates employees (aka corporate social responsibility).
Although both ESG practices and CSR are important for any company hoping to do business in today's world , they should be thought of as different ways of practicing corporate citizenship. It all depends on your values, but if you're interested in influencing social change, chances are you want to focus on environmental issues (aka ESG). If, however, you just want to make sure your company is doing right by stakeholders—i.e., acting ethically and transparently—then CSR might be more up your alley.
Although both ESG practices and CSR are important for any company hoping to do business in today's world , they should be thought of as different ways of practicing corporate citizenship. It all depends on your values, but if you're interested in influencing social change, chances are you want to focus on environmental issues (aka ESG). If, however, you just want to make sure your company is doing right by stakeholders—i.e., acting ethically and transparently—then CSR might be more up your alley.
The Benefits of Excellence in ESG Performance
Decades of academic research and real-world experience have proven that organizations with exceptional ESG performance — those with high scores in ESG ratings—tend to be more profitable than their competitors, attract better talent, and have a higher likelihood of long-term success.
Companies that invest in ESG excellence create stronger relationships with their customers, employees, regulators, shareholders and communities. In short: you can’t afford not to know what sustainability standards are relevant for your business. If you aren’t already familiar with these topics (especially if your company has never before been rated by an independent third party), now is a great time to get caught up on both corporate social responsibility (CSR) and environmental, social & governance (ESG) standards.
Benefits of excellence in ESG performance include increased profitability, better employee retention rates, greater market awareness among customers and improved investor trust. And if you’re planning on making any new investments or taking over another company anytime soon, chances are it will be easier—and cheaper—to do so if your portfolio is certified as compliant with industry-specific ESG best practices. Sustainability Standards and ESG standards are growing as more companies—in more countries—are adopting them. As we’ve said before, committing your company to ESG excellence has a lot of benefits and can save you money in a number of different ways. We’re guessing that many other companies will come around to our way of thinking on these issues soon enough; if you don’t want your business left behind when they do, now is a great time to learn more about ESG standards!
Companies that invest in ESG excellence create stronger relationships with their customers, employees, regulators, shareholders and communities. In short: you can’t afford not to know what sustainability standards are relevant for your business. If you aren’t already familiar with these topics (especially if your company has never before been rated by an independent third party), now is a great time to get caught up on both corporate social responsibility (CSR) and environmental, social & governance (ESG) standards.
Benefits of excellence in ESG performance include increased profitability, better employee retention rates, greater market awareness among customers and improved investor trust. And if you’re planning on making any new investments or taking over another company anytime soon, chances are it will be easier—and cheaper—to do so if your portfolio is certified as compliant with industry-specific ESG best practices. Sustainability Standards and ESG standards are growing as more companies—in more countries—are adopting them. As we’ve said before, committing your company to ESG excellence has a lot of benefits and can save you money in a number of different ways. We’re guessing that many other companies will come around to our way of thinking on these issues soon enough; if you don’t want your business left behind when they do, now is a great time to learn more about ESG standards!
People-Centric Products and Services
Today’s companies must balance profit with a host of social responsibilities. This is not just a nice trend—it’s an imperative. As companies realize their fiduciary responsibility extends beyond shareholders, they take better care of their customers and employees as well as consider environmental impact in everything they do. In short, ethical practices are good for business because people-centric products and services make you money over time. Below are some examples of how some companies have incorporated ESG into their value propositions, making them more people-centric:
Unilever: Since 2008, Unilever has reduced its water usage by 43% across its entire product range. The company has taken more than 600 measures to improve efficiency at 14 different sites around Europe, including installing solar panels at several manufacturing plants and repurposing water used during processes back into raw materials.
Nestlé and Danone are both multinational food companies. In addition to having high ESG ratings, both companies have a strong reputation for becoming more sustainable in their business practices and products.
Danone is an international food company aiming to become the world's largest B Corp. The company's B-Corp certification demonstrates its strong ESG performance. Additionally, Danone's strong animal welfare program has transformed the company over the past five years from a laggard to a leader in this regard. Moreover, the company has set itself the goal of becoming carbon neutral throughout its entire value chain by 2050 in order to counteract global warming.
Nestlé , a Swiss multinational food and beverage company, is also known for its sustainability initiatives.
Unilever: Since 2008, Unilever has reduced its water usage by 43% across its entire product range. The company has taken more than 600 measures to improve efficiency at 14 different sites around Europe, including installing solar panels at several manufacturing plants and repurposing water used during processes back into raw materials.
Nestlé and Danone are both multinational food companies. In addition to having high ESG ratings, both companies have a strong reputation for becoming more sustainable in their business practices and products.
Danone is an international food company aiming to become the world's largest B Corp. The company's B-Corp certification demonstrates its strong ESG performance. Additionally, Danone's strong animal welfare program has transformed the company over the past five years from a laggard to a leader in this regard. Moreover, the company has set itself the goal of becoming carbon neutral throughout its entire value chain by 2050 in order to counteract global warming.
Nestlé , a Swiss multinational food and beverage company, is also known for its sustainability initiatives.
Engaging with Stakeholders
Environment, social, and governance (ESG) is an investor mandate that refers to a company’s environmental, social, and governance practices. As these concerns become increasingly important in our digital economy, one thing is clear: companies need to be mindful of how they engage with stakeholders. More than ever before, organizations must strive to do well by doing good if they want their investors to stick around.
Responsible Innovation
ESG investing encompasses values-based criteria when making investment decisions. ESG, or sustainable investing, refers to investment strategies that consider environmental, social, governance, and financial issues. These investments typically carry a bit more risk than those without consideration of ESGs—which is part of their appeal for sustainable investors—but for many customers, it is about doing business with companies that reflect their values.
ESG Examples
It’s easy for businesses to tell people that they are working on incorporating sustainability in their operations—but it’s not always clear what that actually means.
As part of its commitment to the UN Sustainable Development Goals, today the company pledges to work toward achieving net-zero emissions in the making and use of its products by 2039. In addition, Unilever is committed to improving millions of people's livelihoods through fair and inclusive business practices. Most recently, the company announced additional measures to support more SMEs in the extended value chain, including minority owned businesses.
- Luckily, there are many concrete examples of companies who have implemented sustainable practices in their operations. Some companies have gone so far as to make transparency reports public so anyone can see just how they incorporate ESG into their business model. This transparency helps demonstrate a company’s commitment—it's much harder for investors or stakeholders to point out problems when you're already showing them you're making an effort. ESG examples include
- Coca-Cola Company scored 91/100 on its 2016 sustainability report card from Sustainalytics; it has taken steps to reduce water use, greenhouse gas emissions and waste by investing in renewable energy sources such as solar panels at facilities across five continents. In 2015 alone, it reduced water usage by 9 percent per unit produced compared with 2006 levels while increasing production volume by 4 percent overall. It also uses 100 percent recycled plastic bottles worldwide (including refillable ones).
- Unilever is the third-largest consumer products company worldwide in terms of sales, with 400 global and local brands, including brands such as Dove, Lux, Axe, Rexona, Knorr, and Lipton, worth more than 13 billion Euros. Over the past decade, they have established themselves as leaders in environmental, social and corporate governance (ESG), actively contributing to a green agenda.
As part of its commitment to the UN Sustainable Development Goals, today the company pledges to work toward achieving net-zero emissions in the making and use of its products by 2039. In addition, Unilever is committed to improving millions of people's livelihoods through fair and inclusive business practices. Most recently, the company announced additional measures to support more SMEs in the extended value chain, including minority owned businesses.
Conclusion
How can responsible investing benefit your company? You might be surprised to know that ESG (Environmental, Social, and Governance) and CSR (Corporate Social Responsibility) isn’t just good PR — it’s also good business! ESG stands for environmental, social, and governance. It is a broad term that describes how companies are becoming more socially conscious and aware of their environmental impact. In some cases, ESGs reflect an increase in regulation—it's impossible for a company to meet certain ESG standards without being held accountable by regulators.
In other instances, they represent only common sense. For example, there are plenty of social and environmental issues associated with coal energy production, so when you decide to invest in a coal energy stock , you're taking on certain risk factors even if it has nothing to do with regulators or changing regulations. If you don't want those risks associated with your portfolio—and most investors don't—you have to invest elsewhere; better options include solar- or wind-power stocks . There is no one way (or list) for complying with ESG measures; there’s definitely no checklist you can use as your personal guidebook through every purchasing decision in life.
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