Why Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) Standards are Real and Relevant and What’s the Difference

They encourage the integration of social, environmental, ethical, human rights and consumer concerns into business operations and core strategy.

Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) standards are crucial contemporary business practices. They encourage the integration of social, environmental, ethical, human rights and consumer concerns into business operations and core strategy. There are however important differences between them and what their outcome means to you; in this brief article I will explore their definitions and touch on a couple of best practices to ensure CSR and ESG standards are behaving in your best interests.

Corporate Social Responsibility

How a consumer views your business is, of course, extremely important. The actions you take and the values you present have a direct impact on your overall performance. This is where CSR comes in. CSR can be defined as the responsibility enterprises have with regards to their impact on society. In the process of creating a product or service, businesses should also strive to give something back, often in the form of supporting a charity (using a portion of profits, etc). For those on the outside (i.e. the consumer), these actions can be a huge bonus. It suggests that your business is not self-serving but is concerned with wider interests and issues. The result: people want to support and be associated with your brand. Those that commit to CSR outperform those that don’t, acting as a particularly strong way of helping your brand stand out against competitors.

There is some cynicism surrounding CSR that’s worth noting. Occasional charitable campaigns have been criticised as ‘marketing gimmicks’, which have resulted in negative reactions from the public and press. That’s not to say that a ‘gimmick’ will not boost your short-term sales, but it is important to be aware of how you present your actions and the causes you support. Jumping on the latest cause or trending hashtag might be a way to get your brand noticed, but ask yourself whether or not it reflects your companies overall message and attitudes. To forge a more genuine commitment, it’s valuable to form ties with causes that are linked to your organisation. For example, if you are selling food products then supporting ethical manufacturing or farming processes would be a good choice.

Patagonia is a great example of the benefits of good CSR. For Patagonia, CSR policies are considered as a core and inseparable component of their product, and it’s helped them grow their public support, allowing them to stand out in a crowded market. They have followed good practices, connecting their brand with contemporary concerns that relate to their products in order to carve a new conscious consumer culture.

Environmental, Social, and Governance Standards

ESG standards have a more internal focus, and are based around the values a company holds and how governance keeps it in check. The environmental aspect looks at areas such as an organisations targets to minimising waste or reducing water usage, whereas its social side looks at how individuals are treated, policies to encourage diversity and equal pay, and so on. When it comes to governance, this is the ability to show that the organisation uses accurate and transparent accounting methods, and that common stakeholders are allowed to vote on certain important issues.

Whilst ESG standards should be important to the organisation internally (and will benefit company culture in the long run), they have more of an impact on potential investors. Environmental, social and corporate governance criteria refers to the main factors and investor considers with regards to an organisations ethical impact and sustainable practices. It gives them an insight into how a company is performing as a ‘steward of the natural environment’, such as its impact on climate change, conservation efforts, etc. Companies with bad ESG practices are a no go for investors as they pose a risk for the firm suffering tangible losses, so in order to win the confidence of investors, it’s important to clearly present the criteria your organisation meets. It’s also worth noting that investors are looking for companies with values that match their own, so don’t be surprised if not every investor is suited to your ESG goals.

It’s clear to see that CSR and ESG standards should not be taken lightly. Although simple to grasp in theory, knowing that they have the power to make or break your business can put pressure on your organisation. And with consumers acting as an ever-watchful eye on the actions of organisations, you really can’t hide any dirty laundry. My advice – take CSR and ESG standards seriously; ingrain them in the roots of your organisations and set practices that has a positive effect on the planet and society as a whole at the forefront of what you do and how you are presented.

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