Back in the day, way before Sustainability or ESG concepts hit the mainstream, the ‘go to sustainability practice’ of many brands was Corporate Social Responsibility (CSR).
In 1953, Howard Bowen (considered as the father of CSR) defined it as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.” In 1970s, US companies began talking about Social Contract that the profit-oriented business sector ought to fulfil. In 1980s, companies began actively incorporating CSR activities in their operations. It was the 1990s that brought forth the widespread use of CSR as part of corporate business processes. More recently, UNIDO defined CSR as a “management concept whereby companies integrate social and environmental concerns
in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-Approach”), while at the same time addressing the expectations of shareholders and stakeholders.” (www.unido.org)
What does CSR look like in practice?
In practice, when compared to ESG, CSR addressed the corporates’ social
responsibility engagement but less on environment or governance. Even when they practiced environmental or governance “giveaways”, such were reported under the broad topic of CSR.
Given the continued CSR practices by companies over a long period of time,
consumers expected (and continue to expect) at least CSR (instead of ESG) to be
adhered by their favorite companies as a personal criterion of brand loyalty. If
consumers find that the company is not ‘even on CSR’, then such brands were
abandoned or fallen out of favor.
In the well-known 2015 study by professors from Dartmouth’s Tuck School of Business, it was found (when they “measured behavioral loyalty in response to attitudes about CSR”) that perception of CSR activities by the brands improved buy-in from the consumer-end. “…communicating your corporate social responsibility initiatives will improve customer attitudes toward your business. However, evaluating the response to your CSR based on customer behavior as well as attitude reveals a more complex, but overall still positive, picture.” (https://www.ideasforleaders.com/ideas/do-csr-initiatives- enhance-customer-loyalty).
Among the brands Dartmouth professors focused were Honda and Chevron, two global giants.
“Honda improved the perceived value of its brand by developing more fuel- efficient vehicles…When compared to numbers from four years ago, Honda’s sales increased by 28 percent since launching these newer models. This is in part due to higher consumer demand for more environmentally friendly cars..” (https://customerthink.com/do-csr-initiatives-play-a-role-in-customer-loyalty/)
“As the state of California continues to experience a serious drought, Chevron
decided it could help by selling the 500,000 barrels of wastewater it extracts on a
daily basis. When purified, this salty water could be used to water crops and
allows farmers to remain profitable. While it may seem like a small gesture, it’s
an act that positions Chevron as caring.” (https://customerthink.com/do-csr-
initiatives-play-a-role-in-customer-loyalty/)
In the 2015 Dartmouth study, brands that engaged with local communities (E.g: Selling local products), employee fairness and community support were seen by consumers as “CSR positive.” Interestingly, environmental engagement was not received with same enthusiasm as it receives today.
“…‘environmental friendliness’ received mixed reaction, and was even a negative
for one customer segment.” (www.ideasforleaders.com)
CSR became a buzzword around 2013-15 and later “Sustainability” started taking over as the corporate mantra of sustainability / social responsibility. It was the UN that originally coined “Sustainability” in 1980s, which was later “taken over” by the
corporates when reporting on their CSR engagements.
CSR differs from ESG in several ways but mainly, it is about management of social
responsibility aspect from the corporate’s culture and “internal side” On the other hand, ESG is a decisive criteria for external investors when they invest in the company-and therefore has a strong impact vis-à-vis financials and equity. For this reason, ESG reporting has become an important measure of compliance unlike in CSR. CSR builds accountability while ESG tries to quantify it. CSR does not play a role in sustainability assessment while ESG is assessed.
