101 Guide: ESG, CSR, Sustainability, & Sustainable Supply Chains

Key concepts and background to growing ESG standards across supply chains

What’s CSR? Where does it come from?

CSR (Corporate Social Responsibility), are principles relating to how companies should behave and interact with society.

Traditionally, ‘the business of business is business’ approach suggested companies should only be responsible to their shareholders, and existed only to generate profit.

Newer concepts like ‘inclusive capitalism’ and ‘social licence to operate’ suggest that businesses should take a more nuanced approach to how they interact with social, ethical, and environmental issues. Companies’ should consider how they can positively impact their direct stakeholders — and even the world in general — rather than just obeying the law and focusing solely on making profits.

CSR principles have been widely adopted in most large businesses, and is increasingly viewed as an important and necessary component of businesses’ ‘good governance’.

What’s ESG?

ESG (Environmental, Social and Governance) principles are essentially the practical expression of CSR principles.

CSR principles are generally broad concepts which companies should strive towards. ESG principles are the more granular, actionable standards which turn CSR concepts into live business practices. For example:

  • A CSR principle may be that ‘businesses should minimise their environmental impact’.
  • The corresponding ESG principle would be that ‘Company ABC will reach net zero emissions by 2030’.
  • Company ABC may then create a set of ESG procedures which help it to periodically reduce, and also offset, its emissions, in order to reach that goal.

ESG standards range from environmental compliance, modern slavery standards, health and safety, data protection, to diversity and inclusion.

Where Do ESG Standards Come From? Why have they grown so quickly?

ESG’s initial growth was led by investors, particularly in listed companies. Investor groups sought to invest funds only in business which met ESG and CSR principles — these investors adopted a ‘consciencious capitalist’ mindset, wanted to make money and do good. They also argued that long-term returns were better in businesses which followed ESG standards.

ESG compliance is now firmly entrenched in most large companies, as they seek to meet ESG Investors’ expectations. Activist ESG Investors hold large companies to account when they fail to meet those expectations. Moreover, consumers have boycotted companies which don’t live up to ESG standards.

In parallel, governments and regulators have created laws and regulations which require compliance with certain ESG principles. This is particularly the case for issues like Modern Slavery, Privacy, and other areas of Human Rights law.

A real complexity to ESG compliance, is that for a company to meet ESG standards, it must ensure its suppliers, B2B customers, and partners also meet ESG standards. This means that even small businesses are increasingly required to live up to ESG standards, even though they may not directly have ESG Investors or supply to customers with ESG expectations.

As a result, the need to meet — and continue to comply with — ESG standards is spreading rapidly throughout all sectors of the business world.

What’s meant by ‘Sustainability’?

Sustainability is traditionally associated just with environmental sustainability — in other words, the impact a business, product or activity has on the natural world. Sustainability is used more broadly in a commercial and supply-chain context to refer to businesses which act consistently with ESG standards.

What are Sustainable Supply Chains?

Sustainable Supply Chains are where all businesses, from start to finish, follow leading ESG principles — the whole supply chain is ESG compliant. Multinationals and governments are increasingly seeking to make their whole supply chains sustainable. At ESG Pathway, we’ve seen requirements to meet ESG standards appearing in most supplier contracts with multinationals over the past few years, and the prevalence and breadth of these obligations are growing rapidly.

As a result of the desire for Sustainable Supply Chains, many big businesses are exploring adoption of concepts like ‘supply chain traceability’, and ‘product stewardship’ (check back soon for more articles on these new trends).

LEARN MORE

ESG Pathway helps businesses of all shapes and sizes comply with ESG standards, and continue to meet ‘best practices’ in this rapidly-evolving field.

Contact sales@esgpathway.io or go to esgpathway.io to learn more.

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ESG Pathway

ESG Pathway

Bringing ESG best practice to all businesses