CSR, ESG - the same? Or maybe not.…
CSR, ESG... Very often these three-letter abbreviations are used interchangeably when we mean corporate social responsibility. Meanwhile, they mean different things.
If you just want to...
CSR (Corporate Social Responsibility). As the name suggests, it is mainly about social activities, i.e. various forms of business support for the community, the environment and building positive relations with their surroundings. Companies deciding to conduct socially responsible activities initially did so rather for image and marketing purposes - completely voluntarily. It became standard to report these activities annually to emphasize the positive impact of business on its entire environment, and beautiful, colorful reports on the subject were great promotional material. The growing sensitivity of various stakeholder groups to labor issues, human rights, the environment or ethical activities made these factors increasingly important. Therefore, it has become increasingly important to communicate these activities in a transparent and orderly manner. Companies therefore began to issue social reports, still only voluntarily, to increase their image value, guided by international reporting standards (e.g. GRI) in their preparation. Standardized communication of companies with the environment took the form of non-financial reporting over time. As of 2017, reporting on activities based on social responsibility principles became an obligation imposed on Poland's largest business entities by the Act of December 15, 2016 amending the Accounting Act. It implemented Directive 2014/95/EU of the European Parliament and of the Council of October 22, 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large entities and groups.
Approximately 300 of Poland's largest entities, representing both individual companies and capital groups, were subject to the new reporting obligation. The obligation covered companies in which:
had an average annual employment of more than 500 people and
achieved more than PLN 85,000,000 in total balance sheet assets at the end of the fiscal year, or more than PLN 170,000,000 in net revenues from sales of goods and products for the fiscal year.
As must is must...
The obligation to report non-financial data has meant that conducting and reporting socially responsible activities has ceased to be voluntary and has become an obligation. And at this point, three letters - E (environment, or environment), S (social responsibility, or social accountability) and G (governance, or governance) - entered business everyday life, which outlined the possibility of specifically counting and measuring non-financial activities. ESG assessments and ratings have been developed, targets have been set and reports have been provided on them. Today we can already count how companies treat their employees, manage their supply chains, respond to climate change, increase diversity and inclusion, and build community ties. Actions based on these three factors are gaining even more momentum after the European Union issued new directives imposing further sustainability obligations on the business community. Today, companies face reporting and disclosure according to NFRD (and soon CSRD) guidelines, Taxonomy, or several new directives affecting the financial industry in particular (e.g. SFDR). The new regulations have messed up business a great deal. A company's non-financial activities have become an obligation, and the implementation of the new regulations still raises many problems. Although seemingly everyone knows that including ESG factors in a company's daily operations is no longer voluntary, it is still difficult to convince company boards to do so. And although we all know that ESG is a legitimate concept and already essential for business today, it is sometimes the bane of employees dealing with its implementation at their employers on a daily basis. Difficulties of interpretation, lack of understanding within the organization, reluctance to fund activities are just a few of the many obstacles faced by professionals responsible for ESG in the organizations. However, in spite of this, sustainable principles are increasingly making their way into business, and will undoubtedly in time become one of its main pillars, without which no business can do without anymore.
To sum up...
Without CSR, there would be no ESG. While CSR aims to make business responsible, ESG criteria make its efforts measurable. Since CSR activities vary widely from company to company and sector to sector, and have lacked comparable metrics, ESG activities tend to be much more measurable, and thus more easily "reportable." Creating a virtuous circle, stakeholder pressure is driving a focus on ESG issues whose performance helps meet their needs. And by using ESG intelligence solutions, companies are able to fully understand their ESG position and respond accordingly. Ultimately, ESG activity replaces CSR because it has a tangible, measurable, positive impact.