By Apalka Bareja and Aishwarya Rajput
Introduction
In the contemporary business environment, where sustainability and ethical conduct are no longer peripheral concerns but central pillars of corporate strategy, two interconnected yet distinct concepts frequently dominate discussions: Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG). While often referenced interchangeably, a nuanced understanding of their fundamental differences—encompassing their purpose, target audience, and practical implementation—is paramount. For businesses striving to genuinely embed responsible practices, for investors seeking impactful and sustainable opportunities, and for policymakers crafting effective regulatory frameworks, discerning between CSR and ESG is not merely academic; it is strategically essential.[1]
This article explores how CSR and ESG differ delving into their origins, frameworks, metrics, Indian regulatory landscape, and strategic relevance in the modern corporate ecosystem.
Defining the Pillars: Purpose and Scope
At the core of understanding CSR and ESG lies a clear distinction in their fundamental definitions and overarching purposes:
A. Corporate Social Responsibility (CSR)
CSR represents a voluntary and often philanthropic commitment by an organization to conduct its operations in a socially responsible and ethical manner. Its primary focus is on a company’s broader community impact, encompassing diverse initiatives such as:
- Sustainability efforts:Addressing environmental concerns beyond strict regulatory compliance.
- Philanthropy and community development:Investing in local communities through donations, volunteer programs, or infrastructure projects.
- Employee welfare:Enhancing workplace conditions, diversity, and employee well-being.
- Ethical business practices:Adhering to high ethical standards in all dealings.
CSR programs are largely driven by a company’s internal values, cultural ethos, and leadership vision, and are not consistently dictated by external standards or strict accountability frameworks. They often serve to enhance brand reputation and foster goodwill.
B. Environmental, Social, and Governance (ESG)
In contrast, ESG constitutes a structured, measurable, and distinctly externally-oriented framework. It serves as a comprehensive lens through which to evaluate a company’s performance across three critical dimensions:
- Environmental (E):Assessing a company’s impact on natural systems (e.g., carbon emissions, waste management, resource efficiency, biodiversity).
- Social (S):Evaluating a company’s relationships with its stakeholders (e.g., labor practices, human rights, community relations, data privacy, product safety).
- Governance (G):Examining the internal system of practices, controls, and procedures that guide a company’s decision-making and ensure compliance with the law and ethical standards (e.g., board diversity, executive compensation, shareholder rights, anti-corruption policies).
ESG analysis relies heavily on data-driven metrics and standardized disclosures, making it particularly relevant to investors, regulators, and credit rating agencies who utilize it to assess a company’s long-term financial stability, sustainability risks, and ethical profile.
From Discretionary Practice to Regulatory Imperative
The distinction between CSR and ESG is perhaps most pronounced in their relationship with regulatory frameworks[2]:
| CSR: Voluntary Practice and Discretionary Initiatives | ESG: Increasing Regulatory and Investor Mandates |
| Traditionally, CSR initiatives have been characterized by their self-governed and discretionary nature. Companies typically select CSR projects based on their corporate values, the strategic vision of their leadership, or as a component of their brand positioning efforts. Critically, there are historically no mandatory reporting norms for CSR activities in many jurisdictions, offering flexibility but often leading to inconsistency and a lack of comparability across different industries and companies.
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By stark contrast, ESG is rapidly evolving from a voluntary consideration into an integral component of regulatory and investor requirements. A growing number of global and national mandates now necessitate formal ESG disclosures, transforming ESG into a crucial compliance tool across numerous jurisdictions. Notable examples include:
· EU’s Corporate Sustainability Reporting Directive (CSRD): A comprehensive directive mandating detailed sustainability reporting for a broad range of companies operating within the EU. · India’s Business Responsibility and Sustainability Report (BRSR): Introduced by the Securities and Exchange Board of India (SEBI), requiring top listed entities to report on their ESG performance, moving beyond traditional financial reporting. This shift signifies ESG’s transition from a “nice-to-have” to a “must-have,” driven by increased stakeholder demand for transparency and accountability.
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Measuring Impact: Qualitative Narratives vs. Quantitative Evidence
The methods used to assess the effectiveness and impact of CSR and ESG activities also highlight their fundamental differences:
CSR: Qualitative Impact and Narrative Reporting
CSR often relies on qualitative reporting through narratives, success stories, and case studies. Examples might include detailed accounts of specific volunteer programs, the impact of a tree plantation drive, or the positive outcomes of scholarship initiatives. While highly effective for brand building, fostering goodwill, and communicating social commitment, this approach may inherently lack the objectivity, standardization, or consistency required for rigorous, comparable evaluation of real-world outcomes.
ESG: Quantitative Evidence and Performance Benchmarks
ESG, conversely, is built upon a foundation of measurable indicators, data points, and standardized performance benchmarks. Companies leverage a suite of globally recognized reporting frameworks to quantify and disclose their ESG performance, making the data transparent, auditable, and “investor-ready.” Key frameworks include:
- Global Reporting Initiative (GRI): Provides comprehensive standards for sustainability reporting, covering a wide range of economic, environmental, and social impacts.
- Sustainability Accounting Standards Board (SASB): Focuses on financially material sustainability information relevant to investors across 77 industries.
- Task Force on Climate-related Financial Disclosures (TCFD): Offers recommendations for companies to disclose climate-related financial risks and opportunities.
- International Sustainability Standards Board (ISSB): Working to develop a comprehensive global baseline of sustainability disclosure standards.
- Carbon Disclosure Project (CDP): Operates a global disclosure system for companies, cities, states, and regions to manage their environmental impacts.
- Other emerging frameworks: Continually evolving to meet complex reporting needs.
Where Does India Stand?
India’s Position in CSR Compliance
India became a global pioneer in CSR regulation with the Companies Act, 2013, making it the first country to legally mandate CSR spending.
Key Highlights:
- Companies meeting certain net worth, turnover, or profit thresholds are required to spend 2% of their average net profits (past 3 years) on CSR activities.[3]
- Reporting through Form CSR-2 is mandatory.
- Eligible activities are listed in Schedule VII[4], covering areas like education, health, gender equality, environmental sustainability, and rural development.
- CSR implementation and audit are overseen by the Ministry of Corporate Affairs (MCA).
India’s Position in ESG Compliance
India is also rapidly advancing on the ESG regulation and disclosure front, particularly for listed companies.
Key Framework:
- The SEBI-mandated BRSR (Business Responsibility and Sustainability Reporting) replaced the older BRR format starting FY 2022–23 for the top 1,000 listed companies.
- BRSR aligns with global standards like GRI and TCFD and covers:
- Environmental metrics (energy, emissions, water use)
- Social indicators (employee welfare, community development)
- Governance factors (board composition, ethics, grievance redressal)
- The upcoming BRSR Core framework (from FY 2024–25) mandates assurance and applies to supply chains, encouraging ESG adoption even among unlisted vendors and MSMEs.
SEBI also proposes ESG rating providers be regulated, bringing transparency and consistency to ESG scores in India.
- Key Distinction Areas
| AREA | CSR | ESG |
| Focus | Ethical intentions, voluntary efforts
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Risk, compliance, sustainability metrics |
| Measurement | Qualitative (stories, reports)
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Quantitative (KPIs, scorecards, data) |
| Reporting | Non-standardized, flexible
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Standardized, regulated |
| Audience | Internal (employees, communities)
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External (investors, regulators, analysts) |
| Motivation | Ethical reputation, social impact
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Financial materiality, stakeholder accountability |
Conclusion
As global stakeholders push for greater transparency, ethical behavior, and long-term sustainability, businesses can no longer afford to treat CSR and ESG as optional. CSR and ESG represent two ends of the same spectrum- one rooted in voluntary values, the other in verifiable action.
For Indian businesses, the evolving regulatory landscape led by the Companies Act for CSR and SEBI’s BRSR mandate for ESG signals a paradigm shift toward integrated, accountable, and impact-driven sustainability. To stay ahead, companies must use CSR to build trust internally and ESG to show impact externally, while aligning both with global goals. The future belongs to businesses that not only act responsibly but also prove it with transparency, measurable outcomes, and a clear sense of direction.
[1] Available at https://timesofindia.indiatimes.com/readersblog/ethical-encouter/esg-csr-two-sides-of-a-coin-51923/