Not all CSR reports are created equal. These days CSR reports are excessively resembling glossy marketing brochures with no credible impact assessment. Sarang Khanna, Researcher and Analyst at iPleaders, talks about the key areas of focus and important components of CSR reporting.
On 1st April, 2014, India became the first country to have a legal requirement for companies to comply with CSR Rules. Since the new Companies Act of 2013 made the Companies (Corporate Social Responsibility Policy) Rules mandatory, there has been a growing interest among various stakeholders to see the progress and advancements in the scenario.
As per the Companies Act, companies with a net worth of INR 500 Crore or more, or a turnover of INR 1,000 Crore or more, or a net profit of INR 5 Crore or more in a given fiscal year, are required to spend 2 percent of their average net profit of the last three years towards (Corporate Social Responsibility) CSR. With strict and stringent compliance of CSR policies, companies are investing in various sectors to fulfil their obligations and contribute to the world as a result of it.
According to a recent survey report by KPMG, more than 90 per cent companies have spent the allocated funds towards health and education, followed by environment and rural development. Interestingly, chemicals, construction, services, mining, automobile, media, cement and energy and power sector companies have spent more than the prescribed 2 per cent CSR budget in the range of 101 per cent to 119 per cent, according to the same report.
To talk numbers, more than 16,000 companies in India are liable under law to spend 2% of their profits for CSR activities and a total of INR 6,337 crore was spent by Indian MNCs in 2014-15 for CSR activities.
It is clear from the above statistics that CSR is a huge responsibility and the compliance of these rules are of paramount importance for any business today. In fact, so much so, that this itself has given birth to a new industry altogether and teams are recruited for the sole purpose of fulfilling CSR obligations. However, due to a fairly new legislation, the thorough understanding of corporate social responsibility is absent and the demand for learned professionals in this field is shooting up to the skies. Executives rely on these sources to have in-depth understanding of the subject, as having practical knowledge of CSR dealings is undeniably crucial.
What exactly is CSR and what are its major areas and components?
Corporate Social Responsibility (CSR) in a layman’s term refers to a certain set of policies and practices of a company which in a way interlinks multiple stakeholders, which includes the environment and the communities involved. Also, another general interpretation of what would constitute a CSR would also include basically a commitment of the business towards sustainability and development in general. There are a lot of concepts and terms defining and clarifying what CSR is about. One of them is ‘corporate citizenship’, which explains the concept of a corporation or a firm as a citizen which helps in recognizing the rights and responsibilities of a corporation which go beyond their motto of profit maximization.
However, there still doesn’t exist a concrete and a proper definition of what CSR is or what constitutes as important components of CSR. Let us look at some commonly and generally used CSR components that are essential to be included in all reportings:
The emphasis of environmental preservation is on finding economical and sustainable answers for natural resources use to decrease organization’s impact on the environment. In the course of recent years, ecological obligation has extended to include significantly more than mere compliance of all applicable government regulations.
Numerous citizens, ecological associations and leadership organizations now characterize an environmental obligation as including and involving a complete and comprehensive way to deal with an organization’s operations. It incorporates surveying business items, procedures and administrations, wiping out waste and discharges, boosting the effectiveness and efficiency of all resources and assets, and minimizing practicing that may influence the usage and enjoyment in the planet’s assets by future stakeholders.
Business practices can significantly impact the rights and respect of the work force and the communities. The fundamental focus is on creating work environments free from discrimination where imagination and creative learning can thrive within the decent codes of professional behaviour, and where an appropriate equality and balance can be maintained in between work and other aspects of life.
Not behaving responsibly on the issue of human rights could be highly costly in light of the fact that their reputation could be at risk. This is likewise identified and related to globalization and expanding universal trade. It is more like a test for discovering methods for working together worldwide that regards and respects human rights and social equity, and encourage the proper improvement and development of the rising economies. Nations are required to back the security of universal human rights inside their circle of impact and influence beyond any doubt to make sure that their own particular enterprises are not in contradiction to the universal declaration of human rights.
Paying laborers a living wage and shielding them from provocation and harassment of any sort might cost somewhat more in the short run, however in the event that it enhances spirit and diminishes turnover then it will be useful for benefits that follow a couple of years later. Therefore socially capable and stable administration practices might contribute straightforwardly to benefits and profits in the longer run.
Economic & Enterprise Growth:
This is a broader concept and it would include developing local SMEs, community economic development and micro financing. The drive of business visionaries in creating nations can actually be the requisite catalyst to lift up an economy onto an upward development spiral. However, by and large, the absence of an empowering business system and a lack of supporting structures for new organizations can work to undermine entrepreneurial endeavors and attempts.
Multinational organizations/MNCs with their abundance of monetary and administrative aptitude, are being called upon to give a point of convergence of backing and support for local businesses and organizations. In the meantime, MNCs can work to offer governments some assistance with understanding the courses and methods in which an empowering business structure can be produced to fuel household and domestic entrepreneurial endeavours.
Business associations should in general attempt for community economic development (CED) and work towards common financial advantage of involved groups and organizations.
It incorporates flexibility of affiliation and the viable acknowledgment of the right to collective bargaining; the eviction of all types of constrained and forced work; the nullification and eradication of child labor, and the elimination of discrimination in context of occupation and employment.
Employee security is also essential in addressing the issues of diversity, health, safety, training, mentoring, employee relations, wages and benefits in a corporation.
Corporate community inclusion and participation is also another important aspect of CSR reporting. It includes and refers to an extensive variety of initiatives made by organizations and corporations to maximize the effect of their donated cash, time, products, services, administration learning and different assets and resources on the groups and communities in which they work.
When strategically composed and executed, these activities convey the worth to the beneficiaries, as well as improve the reputation of organizations and their brands, and adds values in neighborhood and local communities and as well as globally where they have critical business and commercial interests.
Promoting Better Health Standards:
The work environment is presently perceived as a vital setting for health advancement in the industrialized nations, and interest developing in the part that a business can play as a partner in promoting health development and improvement. Private sector businesses play a predominant part as the driver of the global economic development and globalization is bringing new social and monetary difficulties.
As seen from the statistics above, most companies are choosing to invest in the health sector for the obvious benefits that it has for the community in large and also in turn for their businesses. A healthy environment ensures more productive work culture, decreased wastage of capital, and better investment opportunities. All these CSR initiatives in one way or the other also bring more benefits to the corporations in the longer run.
Additionally, global reporting initiative further suggest disclosures that are highly beneficial in drafting their CSR reports. The g4 guidelines in a way recommend what is to be disclosed in a CSR report. These disclosures might include the following:
Economic disclosure: this involves disclosing the impact the company has made on the economic situations of the stakeholders involved at local, national and international levels.
Ethical disclosure: involves disclosing the company’s code of conduct, values, standards and principles of the company.
Social impact disclosure: it discusses the impact and influence made by the company on the society and the system in which the company operates.
It is clear that the global scenario is that of taking CSR seriously. After India emerged as the first country to make it mandatory, many more countries have followed suit and recognized the need for money minting corporations to give back to the society. For you to be a part of this positive-change-oriented field, you must have practical knowledge that helps you stand out.
Auditing, fund raising, impact assessment, and subsequent increase in brand value due to CSR initiatives are issues that MNCs and other businesses care deeply about. Lawyers, CAs and other professionals have to quickly adapt to the demands of this sector, and we sure hope they do.
Till then, in the hope of a more just and equal world.