by Source Intelligence
on April 7, 2021
For the past two decades, Corporate Social Responsibility (CSR) has globally gained momentum. What was once mostly a focus of large corporations with the means to invest in programs and initiatives, has gradually been adopted by small and medium businesses.
Around the same time CSR started to become part of the conversation at board meetings, the notion of Environmental, Social and corporate Governance (ESG) was emerging, sparking a heated debate between those in favor of ESG reporting and those against. In a nutshell, opponents advanced that companies invested in ESG matters were likely to perform poorly due to a lack of focus on financial performance.
However, in a study of the ESG and financial performance of more than 2,000 aggregated studies, Gunnar Friede, Timo Busch, and Alexander Bassen found that 63% reported positive ESG to Corporate Financial Performance and only 10% reported negative outcomes.
The fact that financial statements are no longer sufficient to convince investors of opportunities proves the importance of integrating ESG in corporate strategies. Another critical aspect of ESG to consider is that it doesn’t solely concern financial institutions any longer. Stakeholders have come to expect engagement from companies in all industries and demand transparency along all supply chains.
What of CSR, then? Is it becoming an obsolete approach to “doing better by doing good”? Should your CSR initiatives be replaced?
The truth is you will need to expand your sustainability efforts to include ESG factors if you want to achieve long-term profitability. The good news is, your current corporate social responsibility stance is the ideal leg up to enter the game and gain a quick advantage over those of your competitors who have yet to implement any plan.
Before we look at how you can fit your CSR initiative into an ESG reporting framework and how you can include your suppliers, let’s talk about what the main differences are.
Corporate Social Responsibility is just that: a set of measures and programs that provide accountability at the corporate level. You may have implemented various aspects of it that you report to shareholders on a yearly basis, be it a corporate code of conduct, equal opportunity programs, labor policies, practices that reduce your carbon footprint, non-discriminatory access to leadership, community involvement, etc.
These are all important steps to take and you can harvest many benefits, including:
However, such positive and change-inducing measures are too often staying within your close ecosystem and do not have a ripple effect throughout your supply chain. For instance, you offer fair wages, but your supplier, or supplier’s supplier, doesn’t.
The other limitation posed by CSR is the lack of measurability. It then becomes difficult to assess the true impact of your initiatives, as you don’t really quantity it. You are likely doing some good, but it is difficult to say how much good and how far it reaches.
Lastly, CSR activities vary between businesses and industries which means few benchmarks are available to accurately measure performance.
ESG on the other hand takes business sustainability a step (or many steps) further by including data collection and relevant metrics. Rather than focusing on shareholders’ satisfaction only, it reaches a much wider spectrum of issues that matter to stakeholders: shareholders and employees, suppliers, customers, and investors.
In short, ESG could be described as quantifiable CSR.
Consider your CSR program as the nest in which ESG can grow. With a set of environmental, social, and governance issues already worked out, or at least in some degree of progress, you then have to move to the big data and metrics.
Start by assessing your current programs against the indicators commonly listed as ESG factors. You can also get inspiration from the UN’s Sustainable Development Goals, or dig into the many ESG frameworks. This will help you determine the weaker areas upon which you can improve.
You can then leverage the data you already collect and analyze through the various compliance programs you abide by and roll intelligence into a robust ESG reporting program. Not only will data guide you through priorities, but it will also deliver great risk-based insight.
The variety of standards in play may be confusing and overwhelming. ESG scoring is different from one framework to the other, so the next items on your list will be to determine which metrics are most relevant to your sector. SASB has a useful tool for doing this, found here.
Stakeholders’ expectations of transparency and accountability have exponentially increased in the last few years. From aware-buying to reports of misconduct, forced labor, climate change and inequalities across the globe, you recognize the need to weave ethical, social and environmental practices into your company’s culture. ESG reporting will place you in a position to show results, which in turn will lead to profit. Likewise, your supply chain partners will benefit from sustainable conduct. To that effect, your CSR program puts you in an advantageous position, since it has established your commitment.
As the Harvard Business Review states, "Through regular dialogue with stakeholders and continual iteration, a company with a sustainability agenda is better positioned to anticipate and react to economic, social, environmental, and regulatory changes as they arise." - Click To Tweet
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In this white paper, we outline how you can:
Download our white paper to learn more about ESG Reporting or request a demo to see what our ESG solutions can do for you.