Difference Between ESG And CSR – A 2 Minute Explanation

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Financial Minds Blog - KC Rottok

Difference Between ESG And CSR – A 2 Minute Explanation

Dec 8, 2023 | Sustainability

You’ve likely encountered the term CSR frequently, especially since the early 90s. No, I’m not referring to CSIR, the scientific research body headquartered in Pretoria; I mean Corporate Social Responsibility. Occasionally, ‘responsibility’ is replaced with ‘investment,’ transforming the acronym into ‘CSI.’ Both terms are often confused with their newer counterpart, ESG, denoting Environmental, Social, and Governance.

Key differences

CSR primarily constitutes an internal initiative driven by an organization’s desire to contribute to society. Conversely, ESG carries external implications, with an increasing number of investors requiring ESG metrics to determine their investment decisions. Consequently, ESG has evolved into a quantitative measure, demanding specific criteria such as carbon footprint, while CSR remains qualitative, incorporating ‘feel-good’ stories into company reports.

ESG is subject to regulation from governmental and multinational bodies, guided by organizations like the International Sustainability Standards Board (ISSB). The external nature of ESG is underscored by the fact that activities outside an organization can influence its ESG perception. For example, a European car manufacturer may face ESG challenges if it sources platinum for catalytic converters from a South African miner engaged in environmentally harmful activities. In contrast, CSR is less likely to be affected by such externalities.

Oceana group case study

For the application of CSR and ESG, let’s look at South African fishing company Oceana Group as an example. Their CSI report (they prefer the I over the R!) states that their actions ‘are based on the philosophy that those of us who live above the breadline have the responsibility to improve the lives of those below’. Their flagship projects in this regard include contributions to education, disaster relief and food security.

Their sustainability report on the other hand has several policies including carbon footprint, climate change, human rights policy and environmental policy. Their environmental policy details procedures around ‘procuring marine resources in a sustainable manner’. In simpler English, this means that they cannot over-fish leading to depletion of certain fish species. The fish should be ‘sustained’ in appropriate quantities for future generations.

Both acronyms share a commonality in incorporating the term ‘social,’ and initiatives undertaken by companies for ESG and CSR frequently intersect in this aspect.

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