Starting in the 1950s business leaders began embracing a model called Corporate Social Responsibility (CSR) that was implemented to show, as well as address, their deep concern for the wide array of challenges facing society.  These business leaders provided financial support for important social causes, acknowledging at the same time that their actions were mutually financially beneficial for their corporations as well as for the nonprofit community, citing the well-known phrase, “Do well by doing good.”  The trend revealed that companies that focused on supporting philanthropic initiatives also became more profitable by attracting loyal consumers who appreciated their values and their adherence to ethical behavior.

As a result, the CSR concept continued to grow in strength through the following decades, gaining popularity with both the business and nonprofit communities. As Wikipedia reports, this philosophy was important because it encouraged business leaders to engage in "actions that appear to further some social good, beyond the interests of the firm and that which is required by law." At Investopedia.com the definition expands to include: “Corporate social responsibility, often abbreviated CSR, is a corporation's  initiatives to assess and take responsibility for the company's effects on environmental and social wellbeing. The term generally applies to efforts that go beyond what may be required by regulators or environmental protection groups.”

But at the May 2018 annual conference for Nonprofit Women in Leadership hosted by Fairleigh Dickinson University, keynote speaker Nina Stack, President of the Council on New Jersey Grant Makers, introduced a different term that was unfamiliar to some of us when she mentioned the shift from CSR to ESG.

So what is ESG – and what is its’ appeal?

The acronym ESG stands for Environmental, Social and Governance, a new set of standards guiding the investing behavior of socially conscious corporations and individuals. This approach refines the more general CSR attitude in order to focus specifically on those causes in three major areas - environmental, social and governance. These critical pillars encompass challenges such as climate change (environmental), human rights concerns (social) and board diversity (governance). 

What’s behind the new movement?

An article entitled ‘Capitalism and the Rise of Responsible Growth’ published by Merrill Lynch, addresses the reason for the increasing interest in the more targeted ESG philosophy, stating, “For all the prosperity that global capitalism has brought to so many people, though, the world remains beset with social and environmental challenges, from income inequality to water scarcity to climate change. Now individuals, societies and capitalists themselves are asking whether the system that won that epic battle over values and freedom in the 20th century can fully live up to its ideals in the 21st. Can private enterprise harness its awesome strength and innovative potential in ways calculated not just to increase sales, grow the bottom line and reward shareholders, but also to address some of the world’s great problems?”

In the past, when private companies talked about helping the environment or easing poverty, “people’s immediate assumption was that they were doing charity,” says Christopher M. Hyzy, chief investment officer at Bank of America Global Wealth & Investment Management.

But charity may no longer be the driver in today’s corporate financial investments.

As CSR was a strong and positive attempt to help the world by encouraging corporations to “do well by doing good,” ESG takes that investment attitude one step further in a more aggressive approach. “Evidence is building that concern for environmental, social and governance (ESG) practices isn’t just good for the world, but are good for a company’s financial health — potentially enhancing returns and lowering its stock volatility. In fact, we’ve found that ESG factors overall can enhance rather than detract from returns, especially for larger companies,” says Savita Subramanian, head of U.S. Equity and Quantitative Strategy at Bank of America Merrill Lynch Global Research.

This win-win situation is likely to encourage the evolution of ESG as a framework for investing among corporate leaders and individuals who seek to make smart financial decisions. They can accomplish this by focusing on these essential, well-defined areas. Looking ahead to future corporate conversations, leaders who rely on ESG criteria to make educated financial judgments are encouraged to stay away from investments in companies engaged in coal mining, for example, and likewise to avoid investments in companies that are recognized for their workplace controversies such as discrimination, animal welfare or other troubling social, environmental and governance concerns. Instead, corporate leaders are turning to those organizations that seek to identify innovative, dynamic and practical solutions to these hurdles.

What could this mean for the nonprofit community?   

As CSR gained momentum, nonprofit leaders seized the opportunity to partner with their for-profit colleagues, encouraging them to invest in the nonprofit organization’s mission. They reminded them that by doing so, (i.e., by doing good) they would likely profit financially (i.e., doing well) by enhancing their own reputations and brands as companies deeply committed to improving society.   

Today, the move to embrace ESG reflects a decision by corporate partners that being acknowledged and praised for ‘charitable giving’ isn’t the ultimate goal. Instead, the corporate community now recognizes the real advantage of organizations and causes that meet the ESG criteria is that they represent, in fact, solid financial investments that will result in measurable ROI and future profits for the companies that engage with them.

Nonprofits that operate in the environmental, social and governance spaces can tighten up their mission and vision, emphasize the scope of their efforts, their sustainable impact, their influence and their ability to attain future goals in order to invite more interaction with, and funding from, corporate investors and strategic partners. 

If you are seeking further information on Environmental, Social, Governance, you can check out these two sites, among others:

https://www.ml.com/articles/capitalism-and-the-rise-of-responsible-growth.html www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp