Businesses are under increasing pressure to behave ethically—and to prove and showcase their socially-conscious actions. In addition to rising demand for greener products, consumers and investors are more interested than ever in responsible efforts from companies.
You might have heard a few acronyms thrown around in relation to all this: Environmental, social, and governance (ESG) and corporate social responsibility (CSR). They’re both approaches for businesses to showcase their commitment to improve society, protect the environment, and behave ethically—but each framework has a different objective.
CSR usually encompasses how a company will approach its internal framework of sustainability plans and responsible cultural influence, whereas ESG relates to the assessable outcome concerning a company’s overall sustainability performance. Investors typically look at this framework when making financial decisions regarding the company in question.
We spoke with Kogod Professor Jennifer Oetzel about why these frameworks matter and the business implications of each one.
Oetzel first echoes that there is a growing expectation that companies and organizations should take responsibility for their environmental and social performance as well as the quality of their corporate governance.
“Companies that fail to address their ESG performance may increase business risk,” she said. “Vulnerability to natural disasters, for instance, can threaten a company’s financial performance and, in some cases, its survival.