Shreya Bansal elaborates upon the concept of Corporate Social Responsibility (CSR), and its attached significance within the social realm due to its myriad befits to the citizenry at levels such as environmental etc.
She emphasizes upon the fine line of a difference between CSR and Corporate Philanthropy and other provisions pertaining to CSR.
Corporate Social Responsibility (CSR) is one of the most important developments of the 21st century. It may become the key to winning over the consumers, a chance to give back to the society and building a socially responsible reputation of the corporate that will stand the tests of time. The Indian Companies Act, 2013 has provisions on CSR which are mandatory for certain category of companies. By mandating CSR, India has become the first country in the world to legislate it. In the competitive times of today where the consumers are expecting a lot from the business, it has become important to imbibe CSR in the regular business activities. It has become essential for the management to embrace the social responsibility of the corporate and look into the bigger picture where the corporate works not only for profit maximisation of the shareholders but for benefit maximisation for its stakeholders.
What does Corporate Social Responsibility (CSR) entail? The definitions of CSR are varied; but generally it encompasses the notions of corporate philanthropy, holding business accountable, building essential social infrastructure, creating business value, corporate sustainability etc. As per UNIDO,”Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.” CSR keeps in mind the interests of not only the shareholders but all the stakeholders of the business. Corporate philanthropy that is, donating to charitable causes has always been prevalent among the businesses but CSR is a wider term that encapsulates corporate philanthropy as well as economic, legal and ethical responsibility of organizations.CSR relates to governance needs, social prosperity, poverty reduction, climate change, disaster resistance, sustainable development and corporate governance.
CSR can also be understood from the ‘Triple Bottom Line (TBL)’ approach. John Elkington coined the phrase in 1994. TBL adds two more bottom lines; social and environmental concerns to the economic concerns. The three together are known as “Profit, People, Planet” or “the three pillars”. The organization should not solely focus on its financial condition but also the social, economic and environmental impact it has on the society. The modern view on CSR, Stakeholders model of CSR focuses on the interests of all the stakeholders namely the shareholders, employees, customers, suppliers, government and the society. Environmental concerns also form a part of CSR. An organization has to address the environmental implications of its operations and should focus on maximizing energy efficiency and elimination of waste and emissions.
The question that arises is why do businesses need Corporate Social Responsibility and what drives businesses to CSR? The main argument put forward for CSR is that business/organization is a part of the society; it derives inputs from it and produces output for the society. Every organization is dependent on the society for its survival and thus shares a responsibility to contribute towards its betterment. Due to globalization, cut-throat competition and advancements in information technology, there is increased awareness on CSR concerns such as HR management practices, environmental protection, health and safety which propel the companies to invest in CSR as CSR initiatives enable the corporate to engage in a more meaningful dialogue with the stakeholders .The emergence of the concept of corporate citizenship which states the institutions are citizens and have civic responsibilities creates a socially responsible business conscience . Various international legal instruments and guidelines have been developed to guide the corporate towards the practice of CSR such as SA 8000, OECD guidelines, The Global Reporting Initiative, ISO 26000 etc. There is pressure from various groups such as consumer groups, supplier associations, environmentalists and social workers which induce the businesses to embrace social responsibility.
A properly implemented CSR concept can bring along a bundle of competitive advantages, such as enhanced access to capital and markets, increased sales and profits, operational cost savings, improved productivity and quality, efficient human resource base, better decision making and risk management processes, thus fulfilling the long term objectives of the business. When a corporation voluntarily responds to social expectations, there is no need of government intervention. It builds a greater brand loyalty and enhances the reputation of the corporate in the public. An effective CSR strategy not only attracts customers but also passionate and committed workforce who want to associated with a corporate that is socially responsible. In addition to this, Employee engagement in CSR activities can prove really advantageous in improving the morale of the employees.
Some people argue that CSR is vague concept and dilutes the motive of profit maximization. But in the age of brutal competitiveness, the companies have to adopt CSR practices in order to remain viable in the future by building confidence of the public in their brand. CSR is fast becoming a concept that gives a competitive edge to the corporate. Giants in the corporate world follow extensive CSR strategies that guide them to the top of the pyramid. For example – Dell supports over 4,615 charities around the world. Dell Youth Connect provides technology and educational facilities in 11 countries.
The Dell Social Innovation Challenge provides funding and mentorship to college students to further projects that help solve social problems. Companies like PG&E, Google, Apple, Sony etc. take social responsibility very seriously because they view it s a way of giving back to the society and establishing a connection with the people.
If we talk about India, CSR is not a wholly new concept to India. Indian scriptures have melded CSR with religious laws such as “Dharamada”, “Zakaat”, prescribing a part of wealth for charity and sacrifice. Indian business houses such as Tatas, Birlas, Mahindras, and Bajajs have put this ideology into action by setting up charitable trusts, hospitals for community development. Organizations in India have been quite sensible in taking up CSR initiatives and integrating them in their business processes. Infosys is aggressively involved in a variety of community growth programs. In 1996, the company created the Infosys Foundation as a not-for-profit trust to which it contributes up to 1 percent of profits after tax every year. Tata Group in India has a range of CSR projects for community development. It is a leading provider of maternal and child health services, family planning, and has provided 98 percent immunization in Jamshedpur. ITC presented its first sustainability report in 2002 and spent 1.2% of its net profit on CSR activities in 2014.
Indian organizations such as CII, FICCI, and Ministry of Corporate Affairs promote CSR in the country. The major development is of course the inclusion of provisions on CSR in the Indian Companies Act, 2013. The provisions which apply to every company having a net worth of 5 crore or more, or a turnover of 1000 crore or a net profit of 5 crore or more during an financial year state that the company shall constitute a CSR committee which will recommend a CSR policy to the company and monitor it from time to time. Also, the board of every company should endeavour to spend at least 2% of the average net profits of the company during the 3 immediately preceding financial years for CSR. There are activities that are listed in the Schedule VII of the Act that can be specified as CSR activities.
The introduction of CSR provision in the Companies Act is a welcome step as it will provide impetus to the companies that fall under the purview of the provisions to undertake CSR activities during current financial year. This will boost the social projects and community development under the expert guidance of the companies. It will foster partnership of companies with NGO’s.
According to me, CSR is not only boon to the companies for building brand image but is extremely beneficial to the society. It’s a win-win situation. By keeping in mind its social responsibilities, the company not only appeals to socially conscious consumers and employees but also contributes to making a difference in the real world. In the age where there is public distrust in the companies due to scams and unethical behaviour, CSR projects executed in an honest and transparent way will go a long way in generating goodwill of the organization. It is the rise of such moral conscience in the corporate world that will lead to prolific development and growth of not only the company but all its stakeholders.
b) Corporate Social Responsibility in India, India Briefing (July 10, 2012)
Link – http://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/
a) Handbook on Corporate Social Responsibility in India
Link – http://www.pwc.in/assets/pdfs/publications/2013/handbook-on-corporate-social-responsibility-in-india.pdf