The Muamalat Newsletter Vol. 2 2024

FEM eNewsletter | December 2024 66 andCSR arises fromdifferences in their scope and application (Seow, 2024e). CSR is abroadconcept, encompassing a wide variety of corporate activities aimed at societal benefit—ranging from environmental initiatives to ethical labour practices and charitable contributions. It is often perceived as a holistic approach to corporate responsibility that addresses both social and environmental concerns. ESG, on the other hand, is more narrowly focused on quantifiable and reportable metrics, particularly in the context of financial performance. ESG reporting is highly structured and standardized, with companies required to disclose specific indicators, such as carbon emissions, labour policies, board diversity, and executive compensation (Seow, 2024a). These ESG metrics serve as a tool for investors to gauge the risks and opportunities associated with a company’s sustainability efforts, often linking directly to the company’s financial performance. This difference in emphasis—CSR’s focus on societal impact and broad responsibility versus ESG’s focus on financial performance and investor-related risk—contributes significantly to the confusion between the two frameworks. In this context, CSR often appears more comprehensive but less standardized, while ESG offers a precise, investor-centric approach with clearly defined metrics. This divergence, especially in how the frameworks are applied, underscores the challenges researchers face in studying corporate sustainability. Understanding the nuanced distinctions between CSR and ESG is crucial for both academics and practitioners to effectively navigate this evolving landscape. The ESG framework is well-defined, comprising three distinct pillars—environmental, social, and governance (Seow, 2024d). In contrast, the CSR framework is less clear-cut, with ambiguous boundaries. This lack of clarity allows room for scientific debate, particularly around the question of whether corporate governance should be considered part of CSR. After all, how can a company’s social responsibility be divorced from its governance practices? While some scholars maintain that CSR and ESG are fundamentally different, it isundeniable that theysharesignificant overlaps, particularly in the environmental and social domains (Gerard, 2019). Both frameworks encourage companies to tackle issues such as climate change, resource efficiency, labour rights, and community involvement. These overlaps make it challenging for researchers to draw sharp distinctions between the two when examining corporate sustainability practices. A common complication arises when companies disclose information without clearly categorizing it as CSR or ESG. Often, it falls on the end users to interpret how these disclosures should be classified. For example, a company might report on its efforts to reduce carbon emissions, and such information could be seen as relevant to both CSR and ESG frameworks. This ambiguity can complicate scientific research, particularly when researchers use ESG metrics as a proxy for CSR activities, potentially leading to inconsistencies. The confusion is further compounded by the lack of standardization in CSR reporting. Unlike ESG, which is increasingly governed by regulatory standards and frameworks shaped by investor demands, CSR remains largely voluntaryand lacks a uniform reporting structure. This inconsistency makes cross-study comparisons difficult, as CSR data can vary widely between firms and regions, further muddying the waters for researchers trying to draw generalizable conclusions. The overlap between CSR and ESG has significant consequences for scientific research, especially when studying the determinants and outcomes of sustainability disclosures. Frequently, scholars investigatingCSRendupworkingwithESGdata,and vice versa. This blending of frameworks can lead to methodological errors and misinterpretations, as studies may unwittingly conflate CSR activities with ESG metrics. To complicate matters further, both CSR and ESG research often relies on similar theoretical frameworks—such as stakeholder theory, legitimacy theory, and institutional theory— to explain why firms engage in sustainability efforts. While these frameworks are applicable to both CSR and ESG, their shared use can blur the distinctions between the two concepts, leading researchers to apply the same analytical lens to disclosures that, in reality, reflect different motivations and goals (Seow, 2024e). This ambiguity also poses challenges for interpreting research findings. For instance, studies examining the link between sustainability disclosures and financial performance may produce different outcomes depending on whether the disclosures are framed within a CSR or ESG context. As a result, researchers struggle