21 Corporate Social Responsibility- why and how

1. Learning Outcome

2. Introduction

3. Meaning and Definitions

4. Key Drivers behind Corporate Social Responsibility

5. CSR Initiatives

6. Challenges for CSR

7. Recommendations

8. Companies Act 2013 and CSR

9. Summary

1. Learning Outcome:

After completing this module, the students will be able to:

Understand the concept of corporate social responsibility Describe key drivers behind CSR
Discuss various challenges for CSR
Explain major provisions under Companies Act 2013 regarding CSR

2. INTRODUCTION

3. MEANING AND DEFINITIONS

Corporate Social Responsibility (CSR), as per the World Business Council, means that companies should behave in ethical way and contribute to economic development while enhancing quality of life of employees and their families as well as of local community and the society at large.

UNIDO defined CSR as a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.

The well accepted definition of CSR is not a common term. MNCs prefer sustainable development or sustainable business whereas many Indian companies talk about responsible business or three Ps (People, Profit and Planet) while incorporating CSR in their core business strategies.

Till very recently CSR was considered as philanthropic activity but now a days, it has become an integral part of organisation’s business strategy. A company is now responsible for providing more benefits than just profits to its shareholders. It is expected to treat its employees well, preserve environment, develop sound corporate governance, support philanthropy, foster human rights and respect cultural differences. It will create a positive impact on the communities, societies, cultures and environments in which companies operate. Shareholders, customers and clients get attracted towards companies that demonstrate social responsibility.

Today the concept of CSR has undergone a drastic change. Social as well as environmental issues are integrated into companies’ missions and strategies. Companies take keen interest in making their stakeholders aware about their CSR activities. Across the world, business organisations have undertaken CSR initiatives in the areas of healthcare, water conservation, rural welfare, poverty alleviation, education, environment protection, community development projects, culture and heritage, bio-diversity, disaster management and relief, green environment, product responsibility, good governance, waste management and gender equality.

Many business enterprises have been involved in CSR for decades. The Tata group of companies, the Birlas and some PSUs have set up hospitals, schools, colleges and carry out developmental work to improve quality of life of employees and communities around them. However, it is only in the past few years that CSR has been viewed as a significant business activity and part of company’s core strategy.

4. KEY DRIVERS BEHIND CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility has gained momentum with greater consumer awareness and involvement in social issues. Consumers are increasingly demanding that organisations should act in a responsible manner and have started to base their purchase decisions on this criterion. Many consumers or consumers’ voluntary associations are now refusing to buy products made through child labour, or even boycotting products made by those companies that have caused environmental damage. Activists also draw attention to various social issues such as environment pollution, child labour and product safety.
Another key driver is the increasing importance of corporate market reputation in the valuation of a company which is slow and difficult to build but easy to destroy as happened in Coca-cola company’s case.
Shrinking financial resources of government has led to the exploration of voluntary initiatives by corporates for handling civic issues.
People now not only consider salaries and benefits. They also seek out employers whose work practices and philosophies match with their own philosophies and desired practices. In order to attract and retain talented employees, organisations are under great pressure to improve their working conditions, maintain employee dignity and follow ethical practices.
Investors have changed the way they evaluate companies’ performance. They now make decisions based on criteria that include social and ethical concerns. As per reports of Social Investment Forum in US in 1999, there was more than $2 trillion worth of assets invested in portfolios that used screens linked to social responsibility and the environment.
There is demand for more transparency and accountability on the part of companies. Disclosure of information through formal and quick reporting is also essential for the companies. With more open and honest disclosure, trusting relationships can be built with the stakeholders.
According to some experts, a company can undertake CSR project in response to any crisis or adverse publicity that it may suffer. The purpose for initiating CSR projects/ activities can vary between philanthropy and ideas of corporate citizenship. In India, the expectations of people from corporate houses have grown tremendously with demands focusing on tackling unemployment, fighting inequality, poverty alleviation or forcing companies to take affirmative action on environment protection.
Companies Act 2013 has made it compulsory for companies of certain size to spend a certain portion of their net profits for CSR activities as mentioned in schedule VII of the Act.

5. CSR INITIATIVES

There are many examples showing ways through which Indian businesses or MNCs have been finding solutions to social problems and thus, creating economic value and competitive edge in the process.

Infosys has set up Development Centres (DCs) dedicated to healthcare and education, and for skills development and community welfare.

IBM collaborated with Tribal Development Department of Gujarat under its Corporate Service Corps (CSC) programme for a project aimed at improving livelihood of tribals living in Sasan area of Gir forest.

Coca Cola has taken up various initiatives such as restoring groundwater resources, rainwater harvesting and going in for sustainable packaging and recycling in the communities where it is operating.

Various multinational companies have their CSR wing dedicated for carrying out community development and CSR activities in the area of their operations. In other companies, CSR supports welfare activities of some NGOs or social organizations. In some companies, CSR is handled by their HR department. They appoint professionals from rural development, social work and other developmental fields to manage CSR projects or activities of the company.

Companies located in rural areas where their operations directly affect the environment around them such as manufacturing, mining, power generations etc. undertake rural development projects, rehabilitation of displaced communities, environment issues and so on as CSR projects.

6. CHALLENGES FOR CSR

CSR practitioners face numerous challenges in initiating or managing CSR activities. The foremost problem is shortage of funds followed by lack of employees’ co-operation and lack of its understanding as well. Lack of expertise and absence of trained people are other problems for reduced CSR initiatives. Organisations, working on small scale, take less interest in CSR activities and some of them if ever undertake CSR activity, do not make adequate efforts to disclose it to the public. Thus, they lose public faith on them.

General public does not take much interest in participating or contributing to CSR activities of companies due to little or no knowledge about it.

Media can help in informing people at large about CSR activities or projects taken up by the companies. It can sensitize people and make them aware of the various benefits of CSR to them. But, media is not doing enough in this regard.

Times of India group conducted an online survey by using questionnaire on CSR with a sample size of 250 companies engaged in CSR. A total of 82 organizations, comprising of 11 public sector undertakings (PSUs), 32 private multinational organizations and 39 private national agencies, responded to the questionnaire. The survey elicited responses from organizations about challenges for CSR initiatives in different parts of the country. These responses were categorized by research team and are explained below:

Lack of Community Participation: Local community is less interested in participating to CSR activities of companies. The major reason behind this is that local communities have little or no knowledge about CSR. Adequate efforts have never been made to make these communities aware about CSR and to develop their confidence about such activities or initiatives. There is lack of communication between the community and the company at the grassroots.

Need to Build Local Capacities: Capacity building of local non-government organizations is required. There is shortage of trained and efficient organizations (NGOs) that can significantly contribute to the ongoing CSR activities or projects of companies. This seriously limits the scope of CSR activities.

Non-availability of Well Organized NGOs: Well organized non-government organizations are not available in rural and remote areas. Therefore, it becomes difficult to assess real needs of the community and work with companies in true sense to ensure successful implementation of CSR activities. NGOs should be motivated to work with corporate houses by building their capacities to undertake development projects at local levels.

Visibility Factor: Media can help in highlighting good cases of successful CSR initiatives. It can spread good stories and sensitize local community about various CSR initiatives of organisations. This apparent influence of gaining visibility, popularity and branding exercise most often leads various NGOs to involve themselves in event-based programs. In such attempt, they usually miss out real and meaningful grassroots interventions.

Transparency issues: Lack of transparency is the major issue highlighted by the companies participated in the survey. They argued that local implementing agencies never make considerable efforts to disclose sufficient information about their programs, impact assessment and funds utilisation. Lack of transparency on various issues has negative impact on the process of trust building between local communities and companies, which is necessary for the success of any CSR program at the local level.

Lack of Consensus on Implementing CSR Issues: Local agencies and companies have lack of consensus regarding CSR projects. This often results in duplication of efforts by corporate houses in areas of their intervention. Moreover, local implementing agencies compete with each other rather than building collaborative approach on real issues. This factor makes it difficult for companies to undertake impact assessment of their CSR initiatives from time to time.

Narrow Perception towards CSR Initiatives: Non-government organizations and Government agencies often define CSR initiatives as more donor-driven than local in approach. This reflects their narrow outlook towards CSR initiatives of companies. As a result, it becomes difficult for companies to decide whether they should contribute or participate in CSR activities at all in medium and long run. Many a times, it is observed that partnerships between all stakeholders including local communities, the Government, private sector and society in general are not effectively operational at grassroots level in the CSR domain. This often creates barriers in implementing CSR initiatives.

7. RECOMMENDATIONS

In order to strengthen the future of CSR in India and to reap its far reaching benefits, the following recommendations are listed for serious consideration by concerned stakeholders.

Awareness about CSR amongst the general public should be created to make CSR initiatives more effective. A significant role can be played by media in highlighting the great efforts made by corporate houses for the upliftment of society. It will create positive impact on public and encourage other corporate houses to join the league and help in addressing issues like access to health care, education and livelihood opportunities for more people in India through their innovative CSR projects.

Companies should involve their stakeholders for building meaningful and long term partnerships. This would create a strong image and brand identity. Every member of the organization should be encouraged to involve in company’s CSR projects.

There is a need to review existing policies and strategies for CSR initiatives to evolve more meaningful visions for companies themselves and enlarge their contributions to reach to local communities. Conferences, seminars and training can help in disseminating and generating new knowledge and information in this sector. Hence, these should be organized by companies.

Collective efforts and co-operative attitude of local communities, business houses, government and general public are necessary to make CSR initiatives a grand success.

Companies involved in CSR usually carry out the projects in the areas of education, environment, health, unemployment, women empowerment, child labour, disaster management etc. In many such cases, it is observed that there is duplication of efforts on similar projects in the same geographical location as is happening in education sector. This induces a competitive spirit amongst companies. Non-government organizations and different corporate houses should consider pooling their resources and building synergies for implementing best CSR practices. This will enhance the positive impact of their initiatives on the lives of common people and will also make these efforts more rewarding.

Only medium and large corporate houses are involved in CSR activities. The involvement of small enterprises in CSR domain is needed to have wide geographical coverage. Awareness campaign can encourage small enterprises to involve more actively in CSR initiatives and play a significant role in addressing various social or developmental issues.

Many CSR programs or initiatives are taken up in urban areas. Companies should also consider their interventions in rural areas on health, unemployment, education, child labour and girl child as this will directly benefit rural people. Moreover, a major proportion of Indian population lives in rural areas. So, CSR projects in rural areas will lead to wide coverage and more social and economic development.

The Government should consider rewarding corporate houses for implementing projects that effectively cover the poor and the underprivileged. Recognition, fiscal incentives, tax exemptions and benefits will encourage enhanced voluntary participation of more corporate houses in CSR activities.

CSR as a subject or discipline should be made compulsory at all business schools, colleges and universities. It will help in sensitizing students about social and development issues and also about the role of CSR in helping corporate houses strike an effective balance between their business and societal concerns.

An accreditation mechanism should be set up for companies through an independent agency for institutionalizing CSR efforts in the main business framework of the companies.

8. COMPANIES ACT 2013 AND CSR

The ministry of Corporate Affairs had introduced Corporate Social Responsibility Voluntary Guidelines in 2009. These guidelines have now been incorporated within the Companies Act 2013 and have obtained legal sanctity. Clause 135 of Companies Act 2013 provides that every company having a net worth of rupees five hundred crore or more, or a turnover of rupees one thousand crore or more or having a net profit of rupees five crore or more, during any financial year shall:

Create a ‘CSR Committee’ which will be having three or more directors and one of whom must be an independent director.
Allocate at least two percent of net profits* exclusively for implementing CSR activities.
Formulate a ‘Corporate Social Responsibility Policy’ that will provide details about which activities will be undertaken by the company, and the amount or budget that will be spent on them. Moreover, this should also be displayed on company’s website.
Report the details of all CSR initiatives undertaken by the company, at the end of each year, in Directors’ Report and on company’s website.
(The two percent CSR spending is required to be computed as two percent of the average net profits made by the company during every block of last three years. Further, the net profit will be before tax and will not include profits arising from branches outside India).

8.1 Scope of CSR Activities

Schedule VII has mentioned the ten areas where the amount earmarked for fulfilling CSR can be spent:

I. Eradicating poverty, hunger and malnutrition, making available safe drinking water and promoting sanitation (this will also include contribution to Swach Bharat Kosh).

II. Promotion of education including vocational skills and livelihood enhancement projects.

III.Promotion of gender equality and women empowerment; setting up old age homes and other facilities for senior citizens and various measures for upliftment of economically backward class.

IV.Ensuring environmental sustainability, ecological balance, animal welfare, conversation of natural resources and taking measures for maintaining quality of air, soil and water (It also includes contribution to Central Government’s Clean Ganga Fund).

V.Promotion of traditional arts and handicrafts; protection of national heritage and culture; setting up public libraries.

VI. Measures undertaken for exclusive benefit of armed forces veterans, war widows and their dependents.

VII. Training to encourage regionally recognised, rural or Paralympics sports.

VIII. Contribution to Central Government’s fund for socio-economic development or to Prime Minister’s National Relief Fund.

IX. Contributions provided by tchnology incubators.

X. Projects for rural development

XI. Development of slum area (declared or notified as slum area) [added 06/08/14]

8.2 Guidelines for CSR policy

The rules of the new Act have clarified about what the CSR policy should and shouldn’t include:

The policy should mention CSR projects/programmes to be undertaken by the company during the implementation year. It should also specify modalities of execution and implementation schedule for each project/programme.
In specifying CSR projects or programmes, the policy should give preference to local areas around a company.
There may be integration of business models with environmental and social priorities and processes through CSR projects/programmes to create shared value.
It needs to be clear that any financial surplus generated through CSR activity will not be treated as part of business profits of a company.

9. Summary

In today’s fast expanding and media savvy world, companies are no longer expected to provide just good quality products at reasonable prices. They should also strive to make their activities environmentally sound, follow high labour standards, mitigate poverty and reduce human rights abuses and thus carrying out social responsibilities in a broader perspective along with profit motives. Corporate Social Responsibility (CSR), as per the World Business Council, means that companies should behave in ethical way and contribute to economic development while enhancing quality of life of employees and their families as well as of local community and the society at large. Corporate social responsibility has gained momentum with greater consumer awareness and involvement in social issues. In India, the expectations of people from corporate houses have grown tremendously with demands focusing on tackling unemployment, fighting inequality, poverty alleviation or forcing companies to take affirmative action on environment protection. Shrinking government funds, more demand for transparency, increasing importance of corporate market reputation in the valuation of a company are other factors responsible for increasing importance of CSR. Companies Act 2013 has made it compulsory for companies of certain size to spend at least two percent of their average net profits of last three years for CSR activities as mentioned in schedule VII of the Act. Such companies are required to form CSR committee and CSR policy and report the details of all CSR initiatives undertaken by the company, at the end of each year, in Directors’ Report and on company’s website.

Factors like lack of community participation, non-availability of well organized NGOs, lack of transparency on the part of local implementing agencies, lack of consensus on implementing CSR issues, narrow perception towards CSR initiatives act as barriers in implementing CSR initiatives. Awareness about CSR amongst the general public, involvement of various stakeholders in company’s CSR projects, reviewing existing policies and strategies for CSR initiatives, involvement of small enterprises in CSR domain, pooling of resources and building synergies by NGOs and corporate houses will help in making CSR initiatives more fruitful.

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Few important sources to learn more about Corporate Social Responsibility:

C V Baxi & Rupamanjari Sinha Ray, Corporate Social Responsibility, Vikas Publishing.
Howard R. Bowen, Social Responsibilities of Businessman, University of Iowa Press, 2013
Keith Davis, ‘Can Business Afford to Ignore Social Responsibilities’, California Management Review, Spring 1960.
P. Kotler and N.Lee, Corporate Social Responsibility: Doing The Most Good for Your Company and Your Cause. Wiley India Pvt. Ltd. New Delhi, 2008
P.S.Sethi, ‘Dimensions of Corporate Social Performance: An Analytic Framework’, California Management Review, 17, 1975.