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In an ESG Environment, CSR Needs to Measure Up

There’s no denying that Environmental, Social and Governance (ESG) activity is ramping up in organizations of all sizes. In many cases, companies are focusing on measures that carry a global impact, such as reducing emissions and altering supply chains to promote partnerships with socially responsible vendors. Due to this global focus, Corporate Social Responsibility (CSR) on a local scale often takes a backseat when it should be a central element of ESG.

Organizations need to examine what they’re doing with local CSR activity, and evolve programs to collect metrics the same way they do for ESG efforts to create a balanced environmental and social impact. 

ESG’s roots in CSR

CSR and ESG converge with the goal of creating a positive social impact, but they are not interchangeable. CSR is the original precursor to ESG, and focuses on building engagement with local communities through things like donations, events and sponsorships. The main point of divergence between the two concepts is that CSR is arguably more concerned about optics and drumming up goodwill, and ESG demands comparable and often standardized metrics. 

CSR is still a critical element of good corporate citizenship, but in the age of ESG it needs to be backed with measurable results that drive accountability and create a basis for further positive action. 

Why CSR is making a comeback

The explosive and far-reaching effects of the pandemic and the subsequent Great Resignation have shone a spotlight on the way companies approach local CSR. Seven in 10 corporate funders increased charitable donations as a response to Covid-19. While almost 60 percent gave internationally, nearly all the respondents from companies of all sizes gave to U.S. charities and local projects like statewide food relief programs.

In addition to simply being the right thing to do for communities, CSR efforts affect consumer sentiment and can produce greater revenue. Research has shown that the vast majority of consumers believe it’s a company’s responsibility to make the world a better place, and future studies may show that the pandemic strengthened these expectations.

From CSR to ESG: Consumers believe it’s a company’s responsibility to make the world a better place, now with measurable success.

On the employee side, savvy companies have been using CSR to increase retention throughout the Great Resignation. A full 71 percent of employees say it’s imperative or very important to work where the culture is supportive of giving and volunteering. Companies responded by expanding volunteer programs, with 60 percent that didn’t offer virtual volunteering pre-pandemic beginning to offer it since. 

Diversity, Equity and Inclusion (DEI) projects are another critical area of social responsibility that can make or break consumer and employee opinions. A majority of companies are making an effort but frequently not doing enough to quantify and report on it. One study reveals that after the racial justice protests of 2020, 83 percent of the companies surveyed took action on DEI. This number clashes with the findings of a different study, which indicates that three-quarters of companies don’t include DEI in leadership or overall training programs.  

These efforts to increase donations and provide further volunteering avenues are certainly exercises in good CSR in terms of optics but are not enough on their own to be meaningful contributions to ESG. 

Ingraining CSR into ESG

With CSR now being nested under ESG as a whole, it’s time to bring accountability and measurable results to the forefront. It’s no longer enough to make a few charitable donations and send off a press release; companies need to demonstrate and quantify the impact of CSR activities so that insights are actionable at the board level and meaningful for all stakeholders.

Companies have to find ways to ensure their CSR activities are trackable in some way. Donations should be going to organizations that provide breakdowns of where the money goes. Volunteer programs should be paired with reports on what projects were accomplished, and how the activities impact employee engagement. DEI programs need to collect data on demographics, pay gaps and how training impacts overall goals. 

The way this information is gathered is key, too. Competitive companies have already moved beyond disparate, manual spreadsheets to centralized, single sources of truth when it comes to ESG, and CSR activity needs to be collected the same way to ensure efforts aren’t just a smokescreen.   

Reporting unified in a dashboard-style system is promoting the elevation of CSR metrics to the level of ESG, so local impact can be accurately measured and businesses can be as demonstrably accountable in their own communities as they are in a broader ESG context.     

 


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