Corporate social responsibility and sustainability - Esg dri...

Learning Outcomes

After reading this article, you will be able to define corporate social responsibility (CSR) and sustainability, distinguish ESG drivers, and identify the legal and ethical responsibilities of organisations to various stakeholders. You will also understand the main principles and benefits of ESG reporting, explain the role of stakeholders in shaping responsible business strategy, and describe the reporting standards and requirements that organisations may face in relation to social and environmental sustainability.

ACCA Business and Technology (BT) Syllabus

For ACCA Business and Technology (BT), you are required to understand the significance of corporate social responsibility and sustainability initiatives for all types of organisations. This topic is important to understand how business practices impact stakeholders and the wider environment. You should focus your revision on:

• The definition and importance of corporate social responsibility (CSR) in modern organisations
• The organisation’s responsibilities to achieve appropriate standards of CSR
• Analysis of internal, connected, and external stakeholder needs for CSR objectives
• Social and environmental duties of organisations to various stakeholder groups
• Drivers behind ESG (Environmental, Social, and Governance) initiatives in business
• The principles and frameworks of ESG and sustainability reporting

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What does the acronym ESG stand for, and how does it relate to sustainability in business?
2. List two key differences between traditional financial reporting and ESG/sustainability reporting.
3. Which stakeholder group would be most interested in a business’s environmental practices: employees, local community, or shareholders?
4. True or false? CSR includes only activities required by law.
5. Name one globally recognised framework used for sustainability reporting.

Introduction

Businesses today are expected to look beyond short-term profits and consider their social, environmental, and governance impacts. Corporate social responsibility (CSR) addresses a firm’s duty to operate ethically and make decisions that benefit employees, communities, the environment, and wider society, not just shareholders. In recent years, ESG (Environmental, Social, and Governance) factors and robust sustainability reporting have become critical. Regulators, investors, customers, and other stakeholders increasingly demand disclosure of how organisations manage risks and opportunities linked to climate, social justice, and ethical governance.

Key Term: corporate social responsibility (CSR)
The ongoing commitment by a business to operate ethically, contribute to economic development, and improve the quality of life for the workforce, local community, and broader society.

Key Term: sustainability
The principle of meeting present needs without compromising the ability of future generations to meet their own needs, focusing on environmental, social, and economic dimensions.

Key Term: ESG (Environmental, Social, and Governance) factors
Criteria used to assess a business’s performance in areas relating to environmental protection, social responsibility, and governance standards.

What Drives CSR and ESG in Business?

Organisation-wide responsibility is now an expectation rather than an aspiration. The primary drivers for adopting CSR and ESG practices include:

• Regulatory requirements: Increasing government rules on emissions, waste, worker rights, and anti-corruption.
• Investor expectations: Investors seek transparency on non-financial risks and long-term value creation.
• Market competitiveness: Responsible practices can boost brand reputation and customer loyalty.
• Stakeholder pressure: Employees, communities, and NGOs campaign for fair and sustainable business.
• Risk management: Anticipating and addressing ESG issues reduces legal and reputational risk.

Organisations that ignore these factors risk fines, loss of investor trust, and loss of market access.

Stakeholder Expectations and Needs

Stakeholder groups—such as employees, shareholders, customers, suppliers, government, and local communities—all have unique interests in how an organisation handles social and environmental responsibilities.

Worked Example 1.1

Scenario:
A manufacturing firm plans to expand near a residential area. The company adopts a new environmental policy, promising to reduce emissions and actively communicate with local residents.

Question:
Which stakeholder groups benefit from this policy, and how does this relate to CSR?

Answer:
Local communities benefit through reduced environmental harm. Employees may benefit from improved workplace health and engagement. The policy reflects CSR by considering the impact of business decisions on society and the environment.

Principles of CSR and Sustainability

Effective CSR is built on these key principles:

• Ethical conduct (acting openly, honestly, and fairly)
• Respect for human rights
• Environmental stewardship
• Commitment to employee wellbeing and diversity
• Transparent reporting and accountability

Key Term: stakeholder
Any individual, group, or organisation affected by, or able to affect, the actions of a business.

ESG Reporting: Purpose and Key Areas

ESG reporting refers to the disclosure of information related to an organisation’s environmental, social, and governance performance. The main objectives are to:

• Provide transparency to investors and stakeholders
• Demonstrate compliance with regulatory or market expectations
• Identify and communicate non-financial risks and opportunities

Typical ESG report sections:

• Environmental: Energy use, emissions, resource consumption, pollution, waste management, and climate change actions.
• Social: Labour practices, community engagement, health and safety, human rights, and diversity.
• Governance: Board structure, ethics policies, anti-corruption measures, executive compensation, and shareholder rights.

Worked Example 1.2

Scenario:
A company’s ESG report shows a 20% reduction in carbon emissions over two years but reveals no progress on workforce gender diversity.

Question:
Which ESG pillars are addressed, and which need further attention?

Answer:
The company demonstrates environmental progress but needs to improve in the social area, specifically diversity and equality initiatives.

Sustainability Reporting Standards and Frameworks

Organisations may follow recognised reporting frameworks to guide the structure and content of their ESG disclosures. The most widely used include:

• Global Reporting Initiative (GRI): Guidelines for environmental, social, and economic reporting.
• Sustainability Accounting Standards Board (SASB): Industry-specific standards for reporting on financially material ESG topics.
• Task Force on Climate-related Financial Disclosures (TCFD): Focused on climate-related financial risk and opportunity reporting.

Key Term: sustainability reporting
Public communication of an organisation’s environmental, social, and governance performance and impact, often following recognised standards.

Managing and Reporting ESG Risks and Opportunities

Effective ESG and sustainability reporting requires organisations to identify, assess, and respond to material risks and opportunities.

Common steps include:

1. Assessing material ESG issues relevant to the business
2. Setting measurable goals (e.g., emission targets, diversity ratios)
3. Monitoring and measuring performance over time
4. Disclosing progress to stakeholders

Worked Example 1.3

Scenario:
An international retailer receives negative publicity after being linked to suppliers accused of poor labour conditions.

Question:
What ESG risks are present, and how should the company respond through ESG reporting?

Answer:
The company faces social and governance risks (labour practices and supply chain oversight). It should investigate supplier practices, implement stricter procurement standards, and disclose corrective actions and ongoing monitoring in its ESG report.

Exam Warning

Some exam questions require you to distinguish between CSR obligations that are required by law and those that are voluntary. Be prepared to provide examples of both, and remember that strong CSR often goes beyond compliance.

Benefits of CSR and ESG Reporting

Benefits include:

• Enhanced reputation and trust with customers and investors
• Greater access to capital and financing options
• Improved risk management and robustness
• Attraction and retention of talented employees
• Competitive advantage in markets where responsible practices are valued

Summary

CSR and ESG practices guide organisations to act ethically and manage their impacts on people, planet, and prosperity. Stakeholder demands, regulation, and market competition drive these efforts. Transparent reporting on ESG issues helps organisations demonstrate accountability and manage non-financial risks. Recognised frameworks like GRI and TCFD assist businesses in structuring disclosures that meet stakeholder expectations.

Key Point Checklist

This article has covered the following key knowledge points:

• Define CSR, sustainability, and ESG factors in business
• Identify key drivers behind organisational commitment to CSR and ESG
• Outline responsibilities to internal, connected, and external stakeholders
• Describe the main principles and content of ESG and sustainability reports
• Name leading ESG reporting frameworks (GRI, SASB, TCFD)
• Explain the steps in identifying, managing, and communicating ESG risks
• Recognise the business and societal benefits of strong sustainability practices

Key Terms and Concepts

• corporate social responsibility (CSR)
• sustainability
• ESG (Environmental, Social, and Governance) factors
• stakeholder
• sustainability reporting