Insights

Summary: ESG has increasingly become a priority for investors, employees and stakeholders. Yet it’s a concept that is not always well understood and is often plagued by common misconceptions. Our ESG primer is designed to help you gain a baseline understanding of what ESG is, including how ESG differs from corporate responsibility, and a breakdown of ESG factors and their potential value for middle market companies.   

The Evolution of ESG from Philanthropy and CSR 

While the concept of ESG is relatively new—having first been coined in 2004—the idea that organizations should be concerned with more than profits has long been a theme. Philanthropists like John D. Rockefeller and Andrew Carnegie laid the foundation for corporations sharing the wealth more than a century ago.  

As social expectations towards corporate behavior have evolved, organizations have increasingly taken ownership of their impact on society and aligned their philanthropic efforts with their business objectives. We’ve seen the use of many different (and overlapping) terms to describe these broad activities that support the dual mandate of doing well while doing good, perhaps the most common being Corporate Responsibility (commonly referred to as CSR).  

Commonly considered the predecessor to ESG, and as a general rule of thumb, CSR is focused on making organizations accountable while ESG makes their efforts measurable.  

In today’s business climate, demand for corporate accountability and transparency has become a key consideration for investors, employees, customers and other stakeholders; as a result the ESG framework has gone mainstream and is now a commonly used assessment marker to evaluate an organization’s sustainability initiatives.  

Decoding the terminology: What is the difference between CSR and ESG?  

CSR and ESG are related but not the same and there is still some common confusion around these two terms. Here are the key differences between the two concepts:  

  CSR  ESG 
What is it?   Making a positive impact on the world   The application of criteria that helps creates long-term value  
How is it best described?  Doing good in addition to doing well  Doing well by doing good 
What does the acronym stand for?  Corporate Social Responsibility  Environmental, Social & Governance 
Who primarily drives it?   Generally shareholder-centric. Self-regulated   Generally stakeholder-centric.  External framework.  
CSR
ESG

Scope 

Broad

Specific and defined


 
Examples

Community investments  

Volunteering  

Sustainability initiatives  

Philanthropic causes 

Reducing carbon footprint 

DEI initiatives 

Corporate Governance programs 

Sustainability programs with clear reporting parameters 

Reporting 

No universal measurement criteria 

Not often quantifiable 

Typically reported in annual report or on website  

Qualitative  

Specific measurement criteria & frameworks 

Tied to performance criteria 

Quantitative

Strategic Alignment 

A strategic initiative – often tied to organization branding and culture

Part of core business strategy  

Internal Responsibility  

Sustainability 

Marketing  

Board 

C-Suite & Finance team  

Breaking down ESG  

ESG at its core represents a set of non-financial factors that are used to evaluate companies and nonprofit organizations. These criteria may vary by industry, entity type, geography as well as by an organization’s unique goals and priorities. As you might expect, ESG breaks down into three core criteria: Environmental, Social and Governance.   

Below, we take a closer look at each of these pillars, what each area could look like in practice, as well as the potential opportunities to build value. 

Commitment to ESG across all three pillars helps build social and economic value. 
  Environmental  Social   Governance 
Definition  How an organization’s activities impact their local and global environments  The quality of a company’s relationships with its employees, customers, suppliers and communities  Policies and practices that guide an organization’s leadership 
In-action  Programs to quantify and reduce carbon and greenhouse gas emissions, water consumption, energy use and waste production  Programs focused on supporting citizenship efforts, DEI initiatives, and supplier diversity efforts  Clear communications, transparency, accountability and regular review of policies to align with values 
Social Value  Lessening your environmental impact and setting an example for other organizations to do the same  Strengthening ties to the communities where your people live and work  Providing stable employment through good governance practices and a commitment to core values 
Business Value  
  • Cost savings 
  • Enhanced brand reputation 
  • Improved ability to attract and retain employees 
  • Enhanced brand reputation 
  • Improved ability to attract and retain employees 
  • DEI fosters innovating thinking and problem solving, which can bring material benefits 
  • Cost savings 
  • Improved risk management 
  • Stronger organizational efficiencies 

Why ESG matters 

While there is currently no mandated framework for ESG in the U.S. yet, embedding ESG considerations into your organization—across your culture, your processes and your overall business model—offers a long list of benefits for both your bottom line and the communities you serve.  

This is the first in a series of articles BPM is developing on the importance of ESG. We explore the business benefits of building out an ESG program in the next piece in this series.  

Watch this space for future pieces. 




Related Insights
Subscribe