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Are corporate diversity initiatives and environmentally friendly manufacturing practices only PR stunts? For over 90% of the S&P 500 companies, ESG isn’t just marketing–it’s a key part of governance and operations. But where does ESB fit within existing compliance frameworks like GRC? Understanding ESG vs. GRC can help businesses integrate sustainability with risk management and regulatory compliance.
Comparing ESG and GRC isn’t exactly apples to apples. One framework centers on environmental issues, and the other prioritizes regulatory compliance. Before you can decide which approach is the best fit for your organization, you need to understand key differences in context.
The acronym ESG is short for environmental, social, and governance. Adopting an ESG approach means integrating human rights concerns, green initiatives, and worker-friendly policies into your organization’s identity.
Eco-friendly businesses implement policies and processes that contribute to the well-being of Earth’s natural resources instead of harming them. Common issues include waste management, pollution, greenhouse gas emissions, carbon, climate change, deforestation, and water use. A green business model tries to make a positive impact on the environment, such as by reducing GHG emissions or investing in renewable energy initiatives.
Socially conscious businesses care about communities, people, and global cultures. Some examples are contributing to or founding programs to support youth education, healthcare for at-risk groups, or microloans for female or minority-owned businesses. The social pillar is broad, ranging from inclusivity and diversity commitments to fair trade and human rights concerns.
Governance has two meanings in ESG. The first refers to creating the necessary policies, processes, roles, responsibilities, and resources for ESG initiatives to succeed.
The second concerns the organization’s approach to governance itself. Unlike traditional “profit at all costs” business models, ESG looks at executive compensation, shareholder rights, and company management differently.
Instead of following top-down decision-making, an ESG-focused company is more likely to take low-level stakeholders into account when designing processes or setting policies.
GRC is a compliance- and risk-focused framework. The acronym stands for governance, risk management, and compliance. When making decisions, a company following GRC considers the following factors first and foremost:
GRC is especially important for companies that need to meet complex regulatory standards, such as HIPAA and HITRUST in healthcare, ISO 27001 for fintech, and NIST SP 800-171 for government contractors.
At first glance, it can seem like ESG and GRC are practically polar opposites. On the surface, GRC encourages businesses to make regulators happy, while ESG is more about making consumers and everyday people happy. A deeper look shows that both ESG and GRC involve governance and risk mitigation, but ESG expands it to include social and environmental factors.
As the impacts of climate change become more apparent around the globe, many governments are implementing regulations related to emissions, energy efficiency, and waste management — all part of ESG. As this trend grows, it means the compliance pillar of GRC and the environmental pillar of ESG both focus on the same thing. Building environmental considerations into company operations is a forward-thinking approach that helps enterprises stay compliant with current and incoming legislation.
Regulatory bodies are also strengthening consumer rights regarding data processing, privacy, and purchasing power. The FTC and DOJ have taken on behemoths like Google, Amazon, AT&T, Facebook, and Apple.
The Consumer Financial Protection Bureau recently sued Capital One for tricking customers into losing out on over $2 billion in interest payments. Meta has had to pay several GDPR fines to Ireland’s Data Protection Commission, including for illegally processing teen data and for changing consent terms retroactively.
How can you comply with all of these consumer-friendly legal decisions and rules? An ESG framework helps your business meet them, which is also good for GRC.
The ESG’s eco-friendly focus is perfect for enterprises looking to expand into the EU market. The EU requires businesses to follow the Corporate Sustainability Reporting Directive and the Sustainable Finance Disclosure Regulation. In this case, ESG becomes an essential part of GRC.
The SFDR impacts financial businesses and insurers to share accurate ESG metrics, such as environmental impacts and risks. The CSRD applies to all large organizations and requires detailed disclosures of sustainability targets and progress, including emissions data.
In the past, there appeared to be a disconnect between what consumers said and did when push came to shove on price. Now, there’s a huge shift in buyer behavior.
Gen Z looks for brands that prioritize transparency, honesty, environmental concerns, and people. The difference in spending approaches 30%. Considering the up-and-coming buying power of Gen Z, it’s no surprise many brands that used to exclusively worry about GRC are starting to implement ESG.
Some aspects of ESG require large changes, but there are many leverage tools you already use with GRC.
Don’t make the mistake of “ESG-washing” your business. A half-hearted approach that’s only surface-deep doesn’t impress customers or meet EU standards. Don’t antagonize your main customers, but pick sides and stay firm when you find an issue they’re passionate about.
Don’t do more work than you need to. Perform a gap analysis to determine how far your GRC program needs to go for ESG compliance. Take advantage of opportunities to save money.
Don’t trudge blindly into social or environmental positions. You still need to think about your bottom line. Prioritize actions necessary for regulatory compliance and risk mitigation first, then move to measures with the greatest ROI.
Calculating social impacts can be complicated because they often require qualitative risk assessments instead of quantifiable metrics. To ensure the necessary accuracy, use recognized industry benchmarks and consistent measurements. The Global Reporting Initiative’s modular standards are used by many organizations for environmental and human rights reporting.
Instead of fighting between ESG vs. GRC, combine both frameworks smoothly by customizing them to your business. Accurate data is key. Compliance platforms like Compyl streamline GRC compliance and ESG implementation by delivering actionable metrics on your people, data, and operations. Contact us to discover how it works.
