How businesses can give back to the society: CSR, ESG, SDG

Introducing the concept of Corporate Social responsibilities (CSR), Environmental, Social, and Governance (ESG), Sustainable Development Goals (SDGs), and Triple Bottom Line.

If you are a designer, you may have heard the term social design or designer’s social responsibilities. Before moving on to the designer’s social responsibilities, I would like to introduce social responsibilities that are expected out of companies. Not design companies, but any company in general.

Patagonia, the outdoor apparel company, is perhaps one of the companies well-known for being socially responsible. They tell consumers not to buy unless they really need it, and promote consumers to repair, reuse and recycle cloth. Besides donating a percentage of its sales, Patagonia also fights for its workers’ rights and wages. 

 Don’t Buy This Jacket. Source: Researchgate       

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) refers to a commitment to improving societal well-being through business practices and resources [1]. CSR is a form of business self-regulation which aims to contribute to societal goals, meaning that CSR business decisions are voluntary, although some of the regulations became mandatory in certain governing bodies [2]

Businesses are giving their profit back to society. But why? From a strategic point of view, they gain brand reputation from CSR activities and eventually contribute to more profit. For many companies, like Patagonia, CSR is more than just a marketing strategy. It’s the core of their brand and the reason why they exist in the first place. 

The concept of CSR may seem like a clique now that every company attempts to practice it. But how did it begin? Which company started it? 

The concept of CSR started in the mid-to-late 1800 after the Industrial Revolution when businesses are more concerned with employees and how to make them more productive [3]. One example is the invention of the Model T in 1913 by Henry Ford. He was able to produce the fully functional car at a fraction of time and cost by inventing the moving assembly line. The workers were insulted and not happy. In an attempt to attract workers, Ford doubled the wage from $2.25 to $5 a day which was far more than the industry standard [4]. He also set up a ‘Sociological Department’ to attempt to create the better working condition for workers. 

The Ford assembly line in 1913. Source: Wikimedia Commons/public domain

Since 1880, companies have been practicing philanthropy.  However, it was not until 1950 that CSR formed its shape when Howard R. Bowen published the book “Social Responsibilities of Businessman” in 1953. Bowen was the first to define what CSR means and raised critical questions such as “What societal responsibilities may businesspeople be asked to bear?”

Patrick Murphy (University of Michigan Business Review, 1978) classified four CSR eras as follows. 

Patrick Murphy’s classification of four CSR eras

The modern concept of CSR is often recognized by Carroll’s CSR Pyramid which states that corporate social responsibility encompasses the economic, legal, ethical, and discretionary (philanthropic).

Carroll’s pyramid of CSR. Source: Carroll (2016)

Environmental, social and corporate governance (ESG) 

Although CSR seems like a good concept, Economist Friedman criticizes that the social responsibilities of business are analytical loose, and lack rigor.  Instead of CSR, there is a more concrete measurement of social impact; which is the ESG. Environmental, social and corporate governance (ESG) are the standard and strategy used by investors to measure company behavior and future financial performance [5]. By taking into consideration economic, environmental, social, and governance benefits, ESG's investment philosophy values long-term growth. We could see from the table that the ESG framework is much more concrete compared to CSR. 

Here is an example of ESG practice from E-mart, the largest retailer in South Korea. E-mart introduces Mobile Receipt in 2017 [6]. The receipt is not automatically issued, and you can only view it on the E-mart mobile app. The effort resulted in 100 million pieces of paper saved, which is equivalent to annual greenhouse gas emissions by 488 passenger cars or the annual carbon absorption of 64000 pine trees. The important point here is that ESG impact can be evaluated in a much more concrete way. 

E-Mart 'Stores without paper receipts' campaign. Source: E-mart

Evaluating the environmental impact of paper receipt reduction. Source: Shinsegae Group News Room

Sustainable Development Goals (SDGs) 

The Sustainable Development Goals call for actions from the United Nations Member States for peace and prosperity of the people and the planet, now and in the future [7]. SDGs were released in 2015 as part of the 2030 Agenda for Sustainable Development, and it consists of 17 goals in areas such as education, health, poverty, climate change, etc. SDGs require measures not only from corporates but also from individuals, research institutions, and governments at regional and national levels. 

SDG. Source: UN

The differences between CSR, ESG, and SDG

  • CSR - Private business self-regulation aims to contribute to societal goals 
  • ESG - An evaluation approach for investors to identify a company’s future growth by considering environmental, social, and governance benefits.
  • SDG - Common goals for humanity to achieve by 2030, set by the UN General Assembly 

CSR and ESG focuses on corporates, while SDG focuses on government and the public. Despite the differences, all measures move us forward to a better and more sustainable future. 

Triple Bottom Line

This concept of sustainability is also known as the “Triple Bottom Line” or 3P(profit, people, and planet). Triple Bottom Line is a framework to evaluate business performance, not only financially, but also by measuring social and environmental impact. 

  • Economy  - Profit 
  • Society - People 
  • Environment - Planet 

Triple Bottom Line 3P Formulation. Source: Kisacik & Arslan (2017)

Social responsibilities have become more than just a nice thing for a business to do, but a necessary factor for business success. When it comes to changes, such as switching from paper to mobile receipts, there are definitely frictions from consumers and there will be inconveniences. Companies need service designers to make sure that customer experiences are as delightful as possible. Most importantly, ESG efforts from companies can’t stop here.

With climate change and tensions on sustaining essential resources, companies have to keep thinking ‘what else can we do for a sustainable future?’.