You’ll be really surprised, but socially responsible investing goes back more than 200 years. But it wasn’t until the 1980s that investors started becoming more and more selective about the companies they wanted to invest in. Profit was not their only motivation, and they began integrating social and environmental factors into their decision making.
The concept of ESG was first coined in 2005. It was developed to be used as a framework to measure the extra-financial performance of a company in the eyes of prospective investors and partners. ESG indexes and ratings were built on a diverse range of topics that weren’t generally accounted for in financial due diligence.
Climate change, health and safety policies, staff welfare and company culture, helped stakeholders to make informed decisions about the social liquidity of a given organisation.
As governments across the globe intensified their climate change effort, investors have had to weigh the pros and cons of injecting money into companies that are not playing an active role in reaching ‘Net Zero’. But it is not just the environment that is guiding responsible investment. Promoting diversity and inclusion, attending to the wellbeing of staff, fighting against forced labour and modern slavery are all positive indicators for the socially minded investor.
From a company’s perspective, the pillars of ESG should inspire its overall corporate governance strategy. They are used to determine best practice and due diligence responsibilities within an organisation and at its core are the board of directors, shareholders and stakeholders.
How does this differ from Corporate Social Responsibility?
CSR broadly refers to the practices and policies undertaken by companies, and whether these are perceived as socially responsible. In other words, it is about building a company that supports employees, values diversity and inclusion, respects the natural environment, and serves its wider community. A consistent CSR strategy has numerous social and financial benefits, such as talent attraction, engagement and retention, serving to boost company morale. It also has the potential to boost a company’s reputation by investing in its community, donating to charitable causes and organisations, whilst unravelling the idea that businesses only care about turnover.
Good CSR practices address some of the same topics as ESG, and they tend to make companies more egalitarian, diverse and humane from the bottom of the supply chain to corporate hierarchy.
ESG vs CSR
Whilst CSR and ESG might appear similar they are not synonymous. CSR once held organisations accountable for their commitments in a qualitative and (to an extent) quantitative fashion, whilst ESG allows investors to measure and quantify such efforts.
The Global Reporting Initiative’s sustainability standards are the most widely used framework for reporting on ESG, but some standards are harder to measure than others. Measuring carbon emissions, for example, can be done with scientific precision but quantifying social impacts that are qualitative in nature has been a challenge for ESG experts. Because CSR doesn’t often lend itself to quantitative evaluations, it generates added value and lays the groundwork for ESG strategies. In other words, positive CSR indicators help companies build promising ESG ratings.
For now, this ambiguity has promoted a symbiotic relationship between CSR and ESG. CSR still plays a pivotal role in brand reputation, both internally and externally. Indeed, ESG specialists often resort to CSR accredited organisations to collect data about the social and governmental performance of these companies.
Are you up-to-date with the latest developments?
Successful companies put their customers, partners, and investors at the centre of any organisational strategy. Consumers are becoming increasingly selective about the products and services they consume, as they are looking for socially responsible and environmentally friendly brands. Investors are following suit and ESG ratings are the best way for them to determine the societal value of a company.
At College Green Group Academy, our tutors are expertly equipped to help business leaders navigate the complexities of our changing economies. We place an emphasis on professional development, social impact and corporate responsibility which is at the heart of what we are trying to achieve and is embedded right through our entire course series. We can help you to leverage your existing CSR policy to achieve great ESG ratings. Check out some of our courses below:
