Updated: Nov 8, 2022
I confess. I’m a word nerd. And a strange savant of acronyms. I believe strongly that words matter. And as I delved into the world of business as a force for good I quickly became intrigued by the different terms and their acronyms used to refer to business practices and policies intended to have a positive influence on the world.
As I shared in my previous blog post, an expansive review of 200 sustainability reports published by U.S. S&P 500 companies conducted by the CEO advisory firm Teneo found numerous terms in use, as evidenced by the reports’ titles. This is their breakdown:
33% used ESG (Environmental, Social, Governance).
31% used Sustainability.
13.5% used Corporate Responsibility.
7% used CSR (Corporate Social Responsibility).
Beyond the terms, I’ve also learned that these terms are interpreted in myriad ways. And these interpretations, tend to limit the reach of each — their reach in regard to what they encompass and to whom they speak, or the size and makeup of their audience.
Wading into the (alphabet) soup
I’ve decided to wade in these soupy waters and share my interpretation of these terms and what their usage may say about an organization’s priorities. I fully accept that my interpretation may be challenged. Actually, I hope I am challenged; let’s have a dialogue!
But first a little context setting. As summarized below, the role of business in society has been ever-changing. It's been examined, defined, redefined, and defined again starting in the post-WWII era, through numerous world conflicts, economic cycles, environmental disasters, civil rights and labor protests, and, yet again in this post-pandemic/chronic endemic period.
A brief (business & society) history lesson
1953: "Social Responsibilities of the Businessman" is published.
It's author, economist Howard Bowen, posits that it's "the obligations of businessmen*" to pursue policies, make decisions, and take actions "that are desirable in terms of the objectives and values of our society." [emphasis added]
* Remember, this was 1953.
1970: Economist Milton Friedman puts forth the "Friedman Doctrine," in which he states that a business' social responsibility is to increase profits. Period.
Friedman argued that a company has no social responsibility to the public or society; rather, its only responsibility is to its shareholders.
2019: The Business Roundtable challenges the Friedman doctrine (and in so doing somewhat reverts to Bowen's position), redefining the purpose of a corporation to be one that promotes "an economy that serves all."
The Roundtable's president said the Statement affirms the essential role corporations can play in improving our society, when CEOs are truly committed to meeting the needs of all stakeholders.
Historically, it’s often been an “investors and shareholders versus society,” as if investors and (comprised of) individuals, and as if profitable businesses and societal good can’t co-exist let alone lift each other up.
(This dichotomy is worthy of further exploration, but I’m not the most qualified to do so when compared to the expertise of others, starting with Alex Edmans, Professor of Finance at the London Business School. If you're not familiar with his work, I encourage you to check it out.)
Interpreting the terms
To help with the interpretation, I've used Wikipedia’s definition for each as a starting point, reviewing each term in the order of usage frequency as I highlighted above.
Definition: ESG (Environmental, social, and corporate governance) is an umbrella term that refers to specific data designed to be used by investors for evaluating the material risk that the organization is taking on based on the externalities it is generating.
The data produced can also be used within an organization as metrics for strategic and managerial purposes. Also the investors may use ESG data beyond assessing material risks to the organization in their evaluation of enterprise value, specifically by designing models based on assumptions that the identification, assessment and management of sustainability-related risks and opportunities in respect to all organizational stakeholders leads to higher long-term risk-adjusted return. Organizational stakeholders include but not limited to customers, suppliers, employees, leadership, and the environment.
Early in my exploration of business as a force for good. I considered ESG to be the framework used for measuring an organization’s efforts in the realm of CSR. And Wikipedia’s definition supports this.
However, in practice, I believe those who use the term ESG appear to prioritize risk management and cost mitigation, taking an ROI-driven approach to operating within a world increasingly focused on the environment and human rights. The language spoken by those entities who operate under the ESG banner is that of legal, finance and investment.
And there is absolutely nothing wrong with that. Particularly if an ESG-guided organization's actions are taken with consideration to — as Wikipedia’s definition calls out — “all organizational stakeholders… [including] but not limited to customers, suppliers, employees, leadership, and the environment.”
Definition: Sustainability is a societal goal that broadly aims for humans to safely co-exist on planet Earth over a long time. Specific definitions of sustainability are difficult to agree on and therefore vary in the literature and over time. The concept of sustainability can be used to guide decisions at the global, national and individual level (e.g. sustainable living). Sustainability is commonly described along the lines of three dimensions (also called pillars): environmental, economic and social.
This term features prominently in the reporting world with the establishment in 2011 of the Sustainability Accounting Standards Board (SASB, for those who yearn for another acronym). To quote again from Wikipedia:
Investors, lenders, insurance underwriters, and other providers of financial capital are increasingly attuned to the impact of environmental, social, and governance (ESG) factors on the financial performance of companies, driving the need for standardized reporting of ESG data.
The Wikipedia page features three visuals to represent Sustainability. My favorite presents the three dimensions of sustainability — environmental, economic, and social — as concentric circles, with sustainability at the intersection of all three.
With its three dimensions, the term Sustainability as defined here is appropriately holistic. The visualization of a (healthy) environment, (strong) economy, and (thriving) society coming together to create a sustainable future is powerful. However, in practice, “Sustainability” is largely interpreted to refer solely to the environment. or at least to prioritize the environment over other societal concerns.
Two more terms to go… but since they’re so similar I’ll combine the two into a single category…
Definition: Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices.
The applicability of CSR within a business goes far beyond its giving program to encompass operating as an ethical business. In this way, CSR not only encompasses the environment and society, but also corporate governance and general business practices. That’s likely why a combined 20.5% of the reports analyzed used the terms “Corporate Responsibility” or “Corporate Social Responsibility” in its title. It’s also why some consider CSR to be a term that applies to businesses that have as their primary purpose operating as a force for good.
And the winner is…
Yes, it would m ake sense for me to, at this point, declare a winner in this battle of lexicon. Going into this competition my money was that CSR would continue as my preferred term. It broadly represents that businesses, like individuals, have a responsibility to society. And that many elements go into the creating and maintaining a thriving society, including nurturing a healthy environment, respecting human rights, operating ethically, investing in a healthy workforce, and, of course, profit-making.
But can I award CSR (or the shorter Corporate Responsibility) the gold medal? After all, the far-too-common interpretation that CSR is synonymous with (and limited to) corporate giving is self-limiting.
Yet I can’t award ESG (the most frequently used term) the gold either: Its alignment with measurement, financial performance and investing feels "off" to me. And as long as that lens remains, the focus will likely be on providing a quantifiable, hard-dollar justification for operating a business as a force for good.
Does that make Sustainability the winner? Well, it has some advantages. First, it’s a single word so it doesn’t contribute to the alphabet soup problem. It also reinforces that individuals and organizations are united in the need for a (healthy) environment, a (strong) economy comprised of sustainably profitable businesses and a (thriving) society in order to have a sustainable future.
But…. I’m concerned that the word “sustainability” is inextricably linked solely to the environment. Those of us who work in the HR space intuitively “get” what it means to support a sustainable workforce and a healthy population (in a fiscally responsible manner). But I’m not sure that beyond our realm people think that way.
So if I can’t pick a winner, what do those of us who value clarity and believe in the power of words do? Perhaps in this case what term we use is less important than what we're working toward — that the alphabet letters floating in the soup are less important than the soup itself. And just maybe, the fact that there are many ways to think about how businesses can operate (and are often operating) as a force for good means we’re making progress.
Let’s start a dialogue. Please share your comments and ideas regarding this post, ideas for future blog posts, and any other thoughts you may have either in the comments section or by leaving a note on our Contact Us page.