The Difference Between ESG, CSR and Philanthropy
All Three Focus on Benefiting Society, But ESG Seeks to do More
People often use acronyms like ESG and CSR interchangeably when they are talking about a company’s philanthropic endeavours and other good works.
There are differences in these terms and understanding those differences can mean a lot, not only to the corporate bottom line but in the affect a company or organization can have on the world.
For communicators, the differences between these three terms are crucial to telling a company’s story.
There’s an easy, albeit simplistic, way to think about this:
Philanthropy = Donating to Good Causes
Some of the world’s greatest and most generous philanthropists are corporations. Businesses give enormous amounts of money to charitable organizations like United Way, the Nature Conservancy or St. Jude’s Children’s Research Hospital. Generally, donations like this should be given modestly and without any expectation of public recognition. While this is perhaps among the most noble things a company can do, the downside of giving away money is that it negatively affects the corporate bottom line.
CSR = Doing Good
Corporate Social Responsibility (CSR) expands on the idea of giving money to another organization so that it can do good. Instead, companies engaging in CSR recognize their own role in their community or their world. So, they commit to doing good themselves. They might choose to clean up a park or sponsor a local theatre. They might think more globally to protect a rainforest or cure cancer. More than just giving money, the company might donate time, money and resources to those ends. It might even add its voice to the cause. While recognition is not supposed to be the primary goal for a CSR program, leadership on issues people care about can often benefit reputation. Still, like philanthropy, CSR is often cash-flow negative and thus not appreciated by some investors in the short term.
ESG = Doing Good + Making Profit
In recent years, smart leaders have taken CSR to another level by focusing on key Environmental, Social, and Governance (ESG) issues their stakeholders care about. Data shows that in many cases these companies outperform their peers financially. Why? In short, ESG treats CSR and philanthropy not just as a donation, but as a foundation for a new line of sustainable business. In this way, ESG is an unapologetic pursuit of profit. Imagine an oil company that invests in renewable energy to fight climate change. That’s not philanthropy, it’s business. Because ESG demands quantifiable returns, it can put a company in a better position to mitigate business and reputational risks and it facilitates productive communication with shareholders, employees, regulators, the government, and the media.
ESG does not replace the need for CSR. And, corporate philanthropy is not dead. Quite the contrary. These initiatives can and should work hand-in-hand in an integrated plan that has a common and compelling narrative.
To learn more about telling a corporate story through ESG reporting, please visit our ESG page.