It is no longer enough for businesses to simply buy and sell their products and services without considering the world in which they operate. The term “corporate social responsibility” came into common use in the late 1960s and early 1970s after many multinational corporations formed the term stakeholders, which meant those on whom organization activities have an impact. It was used to describe corporate owners beyond shareholders as a result of an influential book by R. Edward Freeman, Strategic Management: A Stakeholder Approach in 1984. Companies must voluntarily do business in an economically, socially and environmentally responsible manner to be sustainable over a long period of time. Corporate social responsibility (CSR) refers to business practices involving initiatives that benefit society.
Sunil Misser, Head of Global Sustainability Practice, PwC said, “Corporate social responsibility is not just about managing, reducing and avoiding risk, it is about creating opportunities, generating improved performance, making money and leaving the risks far behind.”
Definition of CSR
According to the United Nations Industrial Development Organization, Corporate Social Responsibility is defined as a business management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives, while at the same time addressing the expectations of shareholders and stakeholders.
The distinction between CSR and Philanthropy/Charity is that CSR is part of a business strategy. Business operations, supply chain, and human resource are all affected by a company’s CSR policy, which is not true for its philanthropic work.
The goal of CSR is to embrace responsibility for the company’s actions and encourage a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.
How did CSR start in India?
CSR has been intrinsic to Indian culture since ancient times. The concept of CSR has been visible in Mauryan history as well where philosophers like Kautilya emphasized on ethical practices and principles while conducting business. CSR has been informally practised in ancient times in the form of charity to the poor and disadvantaged. Indian scriptures have also mentioned the importance of sharing one’s earning with the deprived section of society. In India, religion has also played a major role in promoting the concept of responsibility of businesses and citizens towards nature, animals and disadvantaged sections of the society.
India being an agro-based country after the independence, followed such an economic model that the village as a unit was self-sufficient in every sense. The traders, farmers and the artisans ensured that there was enough employment, food and shelter for every individual of the village. No individual would go hungry or shelter-less. The community was strong enough to look after each other as well as the biodiversity around them.
This trait started reflecting in bigger businesses as they emerged. The businesses essentially invested in the community surrounding them, their wellness as well as their happiness. This was a way of the businessmen to give back to the community, and it was profitable to the business itself as happy and healthy employees equal good business productivity.
With the advent of the industrial revolution, industrialist families such as Tatas, Birlas, Modis, Godrej, Bajajs and Singhanias supported and spent huge amounts for public welfare under their CSR expenditure, by setting up foundations, educational institutions and healthcare organisations.
The concept of trusteeship provided by Mahatma Gandhi further imprinted CSR in the DNAs of Indian business leaders of the time. According to this concept, capitalists should act as trustees (not owners) of their property and conduct themselves in a socially responsible way.
Mahatma said, “Supposing I have come by a fair amount of wealth—either by way of legacy or by means of trade and industry—I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community.”
The evolution of CSR has been very intrinsic to the cultural development and evolution of Indian society. This is why it was not very difficult for India Inc. to accept mandatory CSR law.
Is CSR compulsory for companies in India?
India became the first country in the world to make CSR compulsory. In India, Corporate Social Responsibility has been made mandatory through provisions under Section 135 of the Companies Act, 2013. According to the law, a company needs to spend at least 2% of their average net profit made during the 3 immediately preceding financial years for CSR activities.
Who is eligible for CSR?
The CSR law or more popularly known as the CSR mandate, which came into effect from April 2014, applies to every company registered under the Companies Act, 2013, and any other previous companies law qualifying following conditions.
– Having a net worth of rupees five hundred crores or more, or
– Having a turnover of rupees one thousand crores or more, or
– Having a net profit of rupees five crores or more, during a financial year.
How does CSR work in India?
The eligible companies are required to formulate a CSR Committee, in order to carry out the programs or activities as approved by the Committee. The programs or activities under CSR in India are carried out through a registered trust, society or company. As per the law, the CSR activities that only benefit employees of the companies and their families do not qualify as CSR expenditure.
In case a company fails to spend the said amount within a year, it will have to transfer the unutilised CSR funds to an escrow account and ensure its utilisation within three years. If a company fails to do even that, it will have to transfer the balance amount to the National CSR Fund.
Since its rollout in 2014, CSR expenditure in India has continued to increase year-on-year. In fact, in the year 2017-2018, for the first time, the amount spent by companies exceeded the prescribed expenditure. The cumulative expenditure by the top-100 companies listed on the National Stock Exchange from 2014-2015 to 2017-2018 is about Rs. 26,385 crore as per the KPMG Report. Sectors such as health and sanitation, rural development, education and environment, have recorded the highest number of funds.
The implementation of Corporate Social Responsibility in India has brought various socio-economic and political challenges to good governance under one umbrella and sought for interventions by India Inc. to address the same. While the Act itself has facilitated this process, India Inc. continues to explore the difference in their own style of business and what they are expected as part of CSR in India. At the same time, CSR has also become a space for active policy practitioners and social impact organisations that are trying to find their space in different ways.
What is NOT CSR?
According to the law, the contribution of any amount directly or indirectly to any political party, shall not be considered as CSR activity in India. Similarly, the CSR projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities. In addition to this, any activity which is not in the form of a project cannot be qualified as CSR of a company. Similarly, any CSR project which has not officially been approved by the board cannot qualify as a CSR initiative of that organisation.
How is CSR calculated in India?
No initiative can be claimed successful or unsuccessful as long as there is a scale to measure it against. Impact measurement is extremely important in CSR considering the large amount of funds that are involved in it. There is no standard framework provided by the law for impact measurement of a company’s CSR. This provides corporates with ample space to frame their own impact measurement strategies.
In order to maintain transparency in the CSR spending, the companies also indulge in reporting of their CSR initiatives. This allows the critical eye of the media to inspect and investigate the real impact of a CSR initiative.
Is CSR successful in India?
The CSR mandate is a celebrated law in India. Year over year, the companies have spent more than 2% of their net profits over CSR. The businesses have moved beyond signing cheques for charitable causes and are taking an active interest in causes such as skill training, healthcare, ethical business operations, environmental sustainability among others. More than 50,000 crore rupees have been spent on CSR by March 2019 since the enactment of the CSR law.
However, it has been observed that the amount spent is concentrated in a few states, leaving out the states that require more development in India. Additionally, the sector-wise spend too is not linear with some sectors taking away a larger share of the funds than others. This has brought about discrepancies in national development. Additionally, government interference sometimes causes a slowdown in CSR projects. This is a major contradiction of the intent behind the law. In order to make the CSR law success and optimally utilise the CSR funds for the social and economic development of the country, these loopholes need to be addressed.
What are the types of CSR activities in India?
According to the 8th schedule of the Companies Act 2013, the types of CSR activities that are qualified under the act for the companies to contribute to are:
1. Eradicating Hunger, Poverty and Malnutrition
2. Promoting Education
3. Promoting Gender Equality
4. CSR initiatives related to the environment
5. Protection of national heritage, art and culture
6. Measures can be taken for the benefit and support of armed forces veterans, war widows and families
7. Contributions to the Prime Minister’s National Relief Fund or any other fund set up by the central government, for welfare, development and relief of the scheduled caste, tribes, other backward classes, women and minorities.
8. Contributions or funds provided to the development of technology located within the central government approved academic institutions.
9. Contributions can be made towards rural development projects and slum area development.
Recognition of CSR activities in India
CSR initiatives by India Inc. is officially recognised by the government of India through National CSR Awards. The Ministry of Corporate Affairs, Government of India has instituted National Corporate Social Responsibility (CSR) Awards to recognize companies that have made a positive impact on the society through their innovative & sustainable CSR initiatives.
The objectives of the National CSR Awards include:
– Recognize the companies that have positively impacted both business and society by taking a strategic approach to CSR through a collaborative program.
– Recognize the companies that are leading transformation by integrating sustainability in their core business model.
– Recognize companies for implementing measures for conservation and sustainable management of the biodiversity and ecosystem in the value chain.
– Identifying innovative approaches and employing applications and technologies that will help to build robust CSR programs to further the cause of inclusive and sustainable development.
In addition to this, each year, The CSR Journal conducts The CSR Journal Excellence Awards in order to recognise the CSR initiatives by India Inc.
Role of CSR in India
India is a vast country with a huge population density. It houses the largest number of people living below the poverty line. This is why there is always a shortage of resources and fight for it.
Most numbers of polluted cities in the world are in India. This has a major impact on the health of the people living in the country.
In lieu of these social issues, India is a welfare state. The government keeps making initiatives to aid the poor of the country. Education, health, clean environment, safe place of work have all been recognised as fundamental rights of citizens as per the constitution of India. However, there are always gaps in the government service, which is why often it is unable to benefit all the poor people at the ground level at the right time.
The CSR law works towards filling these gaps. With its expertise in organisational skills, a CSR initiative works in an efficient manner, ensuring that the beneficiaries are affected precisely at the right time. It helps in the holistic development of a society.
Other than this Corporate Social Responsibility also plays a major role in maintaining the communitarian spirit of the country. It encourages participation from all sections of society. It indulges different kinds of organisations in a collaborative framework with a common goal of development. It encourages in developing the spirit of nationalism among the capitalists as well as the community.
CSR plays a major role in addressing the mental health of office going young population of the country. CSR initiatives of a company allow employee participation, which in turn, can work wonders for team building, inculcating leadership and imbibing a sense of responsibility. The happiness factor is a bonus to this.
It also plays a major role in bringing about financial inclusion, social inclusion, education and behavioural change among people of India. While the government can formulate policies for various issues, it is CSR that brings about acceptance of the laws among people.
Corporate Social Responsibility has an opportunity to support the innovative minds of the country as per the law. It can, therefore, support various start-ups in India who can generate more employment as well as solve the social problems of the country. Most importantly, it encourages the youth to take more risks to work to fulfil their dreams along with others and contribute to national development.
Niall Fitzerald, Former CEO, Unilever said, “Corporate social responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it… because it is good for our business.”
Scope of CSR in India
CSR of a company is managed by the brightest minds. A company who is spending a large amount of its funds wants to always ensure that their money is spent well, out of force of habit. In order to achieve this, it is executed by learned and experienced people. Therefore, it has a huge responsibility and scope for the future.
While India is growing at a rapid pace, it is not doing very well in the field of research. Investment in research in education, technology, medicine, space technology, policy formulation and so on is required to encourage indigenous solutions for indigenous problems. CSR can become a cause of revolution in the field of research. India suffers from the problem of brain-drain. CSR has the potential to prevent that from happening.
CSR can play a significant role in addressing the problem of interoperability among government agencies. This will, in turn, improve the efficiency of government services.
CSR has an opportunity to encourage the informal sector as well as the citizens to indulge in social as well as national development. It can work towards helping the citizens of India realise and act upon their fundamental duties and thus educate the population on being responsible citizens.