CSR vs ESG: what are the differences and complementarities?

The concepts ofESG (Environment, Social, Governance) and CSR (Corporate Social Responsibility) are closely related and complementary, but differ in origin, purpose and target audience.

ESG and CSR: definitions, objectives and targets

GSS

ESG criteria were born in the financial world (socially responsible investment) to help investors integrate sustainability factors into their decisions.
The ultimate aim is to assess a company's extra-financial performance, in the same way as financial performance criteria (sales, EBIDA, etc.).

For the most part, ESG criteria are used by investors to assess long-term risks and performance: a good rating in an ESG report facilitatesaccess to capital (reduced rates for green bonds, access to sustainable investment funds, etc.).

They can also have a bearing on the organization's governance, by guaranteeing the diversity, structure and independence of the board of directors.

CSR

A CSR approach is a company's commitment to integrating social, environmental, ethical and governance issues into its activities and strategy.

It is based on the ISO 26000 standard and rests on 7 pillars: governance, human rights, labor relations, environment, fair practices, consumer issues and local development.

🔎 In detail :

The ISO (International Organisation for Standardisation) 26000 standard (Corporate Social Responsibility), gives the following definition: "an organization's responsibility for the impacts of its decisions and activities on society and the environment, reflected in ethical and transparent behavior that :

contributes to sustainable development, including the health and well-being of society;

takes into account stakeholders' expectations;

complies with applicable laws and international standards of behavior;

and which is integrated throughout the organization and implemented in its relationships".

‍

The first step is to understand the global ecosystem in which the company operates, identify its key stakeholders and their expectations, map its value chain and analyze its socio-economic and natural environment.

CSR is an approach - mostly voluntary - that is embedded in corporate management to strengthen the company's role in society. A CSR strategy plays a central role in anticipating and orienting corporate strategy towards a more sustainable business model that is resilient to climate change, regulations and social and societal developments.

In addition to anticipating and reducing risks and negative impacts, a robust CSR policy makes it possible, through sustainable practices, to improve the employer brand, mobilize employees, foster healthy social dialogue, attract customers, differentiate and improve competitiveness, access sustainable financing...

Complementarities and divergences between CSR and ESG

CSR commitment and ESG criteria cover the same themes: climate, biodiversity, social responsibility, equality, working conditions, ethics, governance... These two concepts are therefore highly interdependent.

Two logics, two timeframes, one common base

CSR provides the strategic foundation for ESG reporting. It is a strategic approach supported by the company, based on an in-depth understanding of its ecosystem (stakeholders, value chain, impacts, etc.). It helps structure a long-term vision, aligned with the principles of sustainable development. It represents a holistic approach, integrated with governance and operations.

L'ESG translates CSR into indicators that are measurable, comparable and usable by stakeholders and third parties. It aims to provide a standardized account of a company's non-financial performance. It is therefore part of an often more short-termist evaluation logic, geared towards risk management and market transparency.

To sum up, CSR is the strategic approach. ESG is the measurement tool.

Thus, the quality of ESG reporting depends on the maturity of the CSR strategy. And, conversely, rigorous ESG requirements can encourage a company to structure or strengthen its CSR approach.

Differences in governance and levers for action

Targets and contacts

CSR is still primarily an internal lever (management, HR, purchasing, production...) at the service of a global transformation of the company, whereas ESG criteria will mainly be aimed at third parties (financiers, analysts, rating agencies, B2B customers...).
‍

Reference frames‍

CSR is based on best practice guidelines (e.g. ISO 26000), which are often voluntary. ESG, on the other hand, meets increasingly regulated transparency requirements (CSRD, SFDR, Green Taxonomy...).
‍

Method of use‍

CSR mobilizes policies, concrete actions and commitment plans (decarbonization, responsible purchasing, inclusion, etc.). ESG translates these dynamics into quantitative and qualitative indicators, within more formatted reports designed for sector comparison.

Evolving regulatory frameworks and stakeholder requirements:

Non-financial performance and CSR are increasingly governed by standards, framework directives (e.g. the CSRD, SFDR and Green Taxonomy Directives in Europe) and external assessments.

ESG reporting is becoming standardized, oriented towards investor expectations and often responds to European normative or regulatory frameworks (SFDRTCFD, European Green Taxonomy). It focuses on measuring extra-financial performance, mainly using key indicators (e.g. carbon intensity, share of green sales, employee turnover rate, % of independent board members, etc.).

CSR reporting, initially voluntary, is gradually becoming compulsory (e.g.: Déclaration de Performance Extra-Financière in France - DPEF, now replaced by CSRD for large companies in Europe, and VSME as a voluntary reporting framework for SMEs and VSEs).

It includes quantified ESG indicators, but also descriptions of the company's risks, opportunities and impacts on society - both civil and environmental - as well as concrete CSR commitments, policies and actions (e.g. decarbonization plan, diversity and inclusion program, environmental criteria, waste management, etc.) in response. These indicators enable companies to make a concrete commitment to their social responsibility, and to integrate the notion of responsible investment.

Non-financial rating agencies (e.g. MSCI ESG Ratings, widely used by institutional investors, or EcoVadis, which focuses on CSR assessment for supply chains) are playing an increasingly crucial role in assessing companies' CSR and ESG performance. They do not impose regulatory obligations on companies, but they are becoming key intermediaries between companies and investors, regulators, financial markets and customers or suppliers.

Focus on CSRD and VSME

Regulations CSRD (Corporate Sustainability Reporting Directive) and the VSME (Voluntary Sustainability reporting standard for SMEs) are part of a major regulatory and societal shift towards greater transparency, quality of non-financial information and sustainability.

These two Directives aim to harmonize and strengthen sustainability reporting, and to help stakeholders (investors, customers, employees, etc.) assess companies' CSR performance and ESG risks.

Companies must respond on

ESG data(environmental: greenhouse gas emissions, energy, biodiversity, pollution...; social: working conditions, diversity, inclusion, human rights...; governance: business ethics, anti-corruption, composition of governing bodies...)
as well as on the operational management of positive and negative impacts, risks and important opportunities (see article on the principle of Dual Materiality and IROs) through the structuring of CSR governance bodies, policies, commitments, objectives and action plans.

In this context, having a good CSR strategy and solid ESG indicators becomes not only an asset, but a necessity.

Conclusion:

ESG and CSR are complementary. Steering a CSR strategy requires extra-financial performance indicators. A company with a solid CSR strategy generally has high ESG scores; conversely, successful ESG reporting often reflects a well-structured CSR approach and sustainable corporate management.