Pragmatic insights and strategies for the real world
ESG & CSR: It is all about Value
ESG and CSR are words that are increasingly present in business today, often used interchangeably and too often used in a confusing and unclear manner.
The simple reality is that they are all about value. About integrating and aligning business value, social value, and environmental stewardship. And doing it in a way that creates value and is economically sustainable.
Just to be certain everyone understands the terms, let me expand on them.
ESG stands for Environment, Social and Governance and how a business addresses those issues. CSR stands for Corporate Social Responsibility.
At the highest strategic level CSR and ESG are all about creating value; period. They should not be confused with charity and philanthropy which are more about transferring value from a business to the recipients of the charity and philanthropy.
When a business manages ESG and CSR strategically it will closely examine its policies and activities to identify and analyze those that have social, community and environmental impact. The primary objective is to minimize and mitigate negative impacts, and optimize and integrate positive social, environmental, and business impacts.
We will go into more detail on how to do this in future columns, or you can scan the code below for more detailed writings on this.
ESG and CSR are not just terms that have inundated business lexicon, they have very real financial and business value implications.
Stakeholders of all types, including financial, regulators, customers, employees, communities and others are increasingly interested in the social and environmental impacts a business creates while it is producing profit for its shareholders.
There is a growing expectation that a business should create a positive social impact and be an effective steward of the environment at the same time as it pursues shareholder value and profitability.
With the rapidly growing global concerns around climate and sustainability, this expectation will continue to increase.
Businesses that fail to meet this expectation for ESG and CSR performance face increased business risk, whether from local communities, regulators, customers and markets or other key stakeholders. In short, ESG and CSR are critical business issues and failure to address them can create formidable and event debilitating challenges.
Investors and financial institutions recognize that businesses that are not addressing ESG and CSR issues are riskier investments in today’s climate-challenged global environment. Investors are responding by creating specialized pools of investment capital that is only available to businesses that can demonstrate their ESG and CSR performance. Some estimates put these specially targeted capital pools at up to 35% of private, institutional investment.
As well, most investors and fund managers (up to 80%), even for mainstream capital, are incorporating ESG performance into their investment decisions
ESG and CSR performance is not simply a ‘nice to do’ business gesture, it is becoming a clear, mission-critical component of successful business strategy. Strategic leaders and companies are seeking to align and integrate social impact, environmental stewardship and business value creation. This applies to businesses across all sectors and in all global geographies.
ESG, Sustainability & CSR should be as much a business value driver as it is a social and environmental value driver. If it gets out of balance it creates risk and makes the CSR and indeed, even the business itself, potentially less sustainable.
Business is about creating value. CSR is also about creating value; value for society, for
environment and for shareholders.
Thanks for reading
Wayne Dunn
Founder and President
