In public and in business, the demand is becoming louder and louder that companies must play an active role in sustainable development. And companies themselves are also increasingly concerned with their role in the current societal sustainability transformation. Bertelsmann’s “Sustainability Transformation Monitor” (2023) shows that sustainability has become more important for around 84 percent of German companies and will continue to gain importance in the future

Companies rely on different concepts to anchor sustainability in their company and manage it successfully. The new management approaches serve as a guide for company leaders and their management to proactively shape sustainable development. The new management perspectives are thus gaining more and more real weight in companies, as they directly influence business models, corporate strategies and concrete management decisions

ESG (Environment, Social, Governance) and CSR (Corporate Social Responsibility) have emerged as particularly prominent concepts in this new management canon. CSR has been established in the academic and business discussion for some time. For some time now, however, there has also been increasing talk of ESG. Both in practice and in the academic debate, this leads to questions, not to say uncertainties. Is the concept of ESG more effective than CSR? Do the two perhaps contradict each other? Or are the two in the end merely synonyms for one and the same concept? In concrete terms, the Babylonian confusion surrounding CSR and ESG needs to be cleared up in order to support seriously intended efforts for sustainable development and to provide orientation in the chaos

What is ESG?

ESG encompasses environmental, social and governance issues. ESG is an umbrella term that refers to criteria used by stakeholders (primarily investors) to assess a company’s impact on society. ESG has been increasingly in the spotlight since 2006, when the United Nations launched the Principles for Responsible Investment (UNPRI). as a result, 63 investment companies agreed to include these ESG criteria in their financial assessments. In concrete terms, this means that many investors now look not only at a company’s financials but also at its ESG rating when evaluating investments. This incentive and pressure from the financial markets means that more and more companies from various sectors are publishing an annual sustainability report in which the companies also disclose their ESG measures and key figures

ESG usually has a strong compliance orientation in this context. There are also historical reasons for this: For example, the roots of ESG can already be found in the anti-apartheid movement, which at the time campaigned for a ban on new investments in South Africa. The anti-apartheid movement was one of the first examples of the relevance of social issues for shareholders in addition to economic and financial concerns. This broader view of corporate behaviour goes to the heart of ESG. ESG is primarily about capturing a broader range of information in order to assess the future viability of companies as holistically as possible and to make investments accordingly in a profitable long-term manner

In the company, compliance-driven ESG manifests itself in the fact that the areas of environment, social affairs and corporate governance (read: ESG aspects) must be implemented efficiently and consistently. The company-wide transfer, enforcement and review of ESG aspects currently pose major challenges for companies. The already high regulatory requirements in the ESG area continue to rise sharply. Examples include the EU Taxonomy, the Supply Chain Duty of Care Act and the EU’s Corporate Sustainability Reporting Directive (CSRD), all of which will hit business in full force over the next few years

The efficient implementation of ESG measures in a company depends heavily on the extent to which the workforce is willing to support these measures and integrate them into daily activities. In concrete terms, compliance with ESG requirements depends to a large extent on the belief in their legitimacy and moral correctness. Successful ESG thus also needs flanking approaches that create and promote organisational freedom to reflect on the role of the company in society and its responsibilities for sustainable development

What is CSR?

CSR stands for corporate social responsibility as self-management. CSR is an umbrella term that describes how companies, whether small or large, can fulfil their social, environmental, ethical and, last but not least, economic responsibilities towards society

CSR is closely linked to corporate action and often also has a moral connotation. Historically, CSR emerged from the responsibility debate. Industrialists in the USA, such as Andrew Carnegie and John D. Rockefeller, donated billions to philanthropic causes in the 20th century. In 1953, Howard Bowen published the book Social Responsibilities of the Businessman, in which he argued for corporate social responsibility. Since then, research and development of CSR has continued. CSR now serves as a basis for companies to manage their responsibilities to society. Governmental agencies such as the EU see CSR as the concept for corporate contribution to sustainable development. In this context, companies are fundamentally responsible for their impact on society and are required to manage it responsibly

CSR refers in particular to the company’s practices, policies and values and how they relate to social, environmental, ethical and economic responsibility. These principles are usually laid down in a statement of corporate purpose. They are not externally prescribed or reviewed. Instead, the company’s leadership, management and employees develop these principles in close dialogue with their stakeholders and jointly commit to their observance. Ideally, these principles develop into a fundamental part of the corporate culture and thus form the basis for entrepreneurial decision-making and action

Complementarily effective

CSR and ESG are complementary in this sense. Both approaches are equally necessary for the realisation of sustainable corporate governance. Both the external perspective and measurement as well as the internal structures and values of corporate governance. In the case of ESG, companies are – to put it somewhat bluntly – relieved of their (own) responsibility for sustainability, since sustainability is externally prescribed and regulated. In the case of CSR, on the other hand, companies and in particular their employees are (potentially) overburdened with this responsibility, as companies largely have to formulate and manage this responsibility themselves – and are thus fundamentally responsible for all its impacts. The combination of ESG regulatory systems and company-managed CSR thus seems to be an approach that relates ownership and external control

As a dialectical pair, the two concepts can best develop their effectiveness for society and the company in an integrative interplay. This is summed up in the following formula: “CSR needs ESG – ESG needs CSR”. Accordingly, a differentiated institutional design that is adapted to the potentials and possibilities (“smart”) is required with regard to the establishment and review of ESG rules and, at the same time, the facilitation of organisational freedom to deal with corporate responsibilities in the sense of CSR. Accordingly, the successful realisation of sustainable enterprises combines the two concepts with each other and understands them as having a complementary effect. This integrative view is becoming increasingly important, especially in order to realise the entrepreneurial opportunities of sustainable development

CAS for Board Members

The CAS Board of Directors and ESG of the BFH Wirtschaft addresses current demands on board members. The increased legal requirements, innovative technologies and new sustainability demands of employees, customers and investors also require more and more from the board of directors. The CAS covers legal, ethical, technological and economic aspects of a sustainable organisation and work of the board of directors. Concrete best practices, innovative governance approaches and new management perspectives are taught. If you are interested in these topics as well as new leadership approaches in sustainability, digitalisation and new work, then register directly or contact Prof. Dr. René Schmidpeter

This article was first published in “Verantwortung – Das Magazin für Nachhaltigkeit, CSR und innovatives Wachstum” by the FAZ Institute.