Given the most recent example of American exceptionalism that manifested in the ESG (environmental, social, and governance) backlash of 2023/24, we wanted to see if and how the turmoil impacted how companies talk about corporate sustainability. ESG was once seen as the saving grace that would encompass all the intricacies of corporate sustainability – an organization’s purpose, how that purpose advances the business, and its good in the communities and world in which it operates…all of it.
Our recent analysis of corporate sustainability reports from 2022 to 2023 does reveal shifts in the use of terms. In conjunction with corporate sustainability and ESG investing being turned into a political football, the landscape continued to become increasingly complex. Companies are still (or again) transitioning between terms such as ESG, CSR (Corporate Social Responsibility), Sustainability, and Impact.
This diversity in terminology appears to reflect a step backward. On the contrary, it’s a significant evolutionary leap.
The resurgence of various terms across the board indicates that the drivers for change are broader than the U.S.-centric criticism. Corporate sustainability is more than environmental, social, and governance data. The “best fit” terminology for a company is complex; it depends on an organization’s objectives and who it is communicating to.
The Shift in Terminology
An analysis of 30 Corporate Eco Forum members’ corporate sustainability reports from 2022 and 2023 shows:
2 companies left ESG behind: This suggests a potential disillusionment with or shift away from ESG frameworks.
4 companies moved from Sustainability to CSR: This indicates a rebranding or refocusing of efforts under the CSR umbrella.
2 companies transitioned from CSR to ESG: Reflecting a trend towards integrating broader governance factors.
2 companies shifted from CSR to Impact: Highlighting a focus on measurable outcomes and social benefits.
CSR: Corporate Social Responsibility
Corporate Social Responsibility (CSR) has been a longstanding concept in corporate sustainability. It emphasizes a company’s responsibility to contribute positively to society. CSR initiatives often include philanthropic efforts, community engagement, and ethical business practices.
The movement of some companies from Sustainability to CSR suggests a desire to return to more traditional, established practices. CSR initiatives tend to be more tangible and direct, often involving clear community benefits and philanthropic activities. However, CSR has sometimes been criticized for being too superficial or for allowing companies to engage in “greenwashing”—creating a facade of sustainability without substantive impact.
Sustainability
Sustainability is a broad term that encompasses various aspects of maintaining long-term balance. It includes not only environmental stewardship but also economic and social dimensions. Sustainability efforts are aimed at meeting the needs of the present without compromising the ability of future generations to meet their own needs.
The shift from Sustainability to CSR by some companies could indicate a perceived need for more focused and specific initiatives. Sustainability as a concept can be vast and sometimes abstract, making it challenging to measure and communicate effectively. Companies might find CSR’s more concrete actions and outcomes easier to manage and report.
Impact
The term “Impact” focuses on the tangible and measurable outcomes of a company’s actions. Impact-driven strategies emphasize the direct effects of corporate activities on society and the environment. This approach is often associated with social enterprises and organizations that prioritize social and environmental returns alongside financial performance.
The transition of companies from CSR to Impact reflects a growing emphasis on accountability and measurable results. Unlike CSR, which can sometimes be more about the intent and less about the outcome, Impact demands clear evidence of positive change. This shift indicates a maturing approach to sustainability, where companies are not only concerned with doing good but also with proving the effectiveness of their efforts.
Comfort over complexity
In our search for comfort, we’ve neglected corporate sustainability’s complexity. The evolving terminology of corporate sustainability reflects the dynamic nature of the field and the diverse priorities of organizations. This doesn’t mean a company can’t adhere to multiple or all of these terms. Just as we will eventually embrace that there will likely never be a completely homogenous reporting standard, we must understand that each term serves a purpose and carries a specific meaning. This may not be the magic solution some were hoping for, but companies now have opportunities to refine their approaches and achieve their objectives.
Will the frequent changes in terminology and focus areas contribute to confusion surrounding corporate sustainability? Well, yes, but what else in new? Different stakeholders—investors, customers, employees, and regulators—will have varying expectations and understandings of what these terms mean. This inconsistency can lead to challenges in communication and alignment of sustainability goals.
To navigate this confusion, companies should:
1. Define and Communicate Clearly: Organizations need to clearly define their sustainability terms and frameworks. Transparent communication about what each term entails and how it aligns with the company’s mission and values is crucial.
2. Align with Standards and Frameworks: Adopting recognized standards and frameworks, such as the Global Reporting Initiative (GRI), the United Nations Sustainable Development Goals (SDGs), the International Financial Reporting Standards (IFRS) Sustainability Standards), and European Sustainability Reporting Standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD) can help ensure consistency and comparability.
3. Focus on Material Issues: Companies should prioritize the sustainability issues that are most material to their business and stakeholders. This focused approach can help streamline efforts and make sustainability initiatives more effective and impactful.
4. Engage Stakeholders: Involving stakeholders in the development and implementation of sustainability strategies can foster better understanding and support. Regular engagement helps ensure that the company’s efforts are aligned with stakeholder expectations and needs.
5. Measure and Report: Establishing clear metrics and reporting mechanisms is essential for tracking progress and demonstrating impact. Regular reporting builds credibility and accountability, helping to mitigate the risk of greenwashing.
If you’re lost in the maze and trying to show how your efforts are benefiting the business, employees, communities, and the environment – get in touch with our team to find the best path.
