This article has been written by Divyani, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho and edited by Shashwat Kaushik.
It has been published by Rachit Garg.
Table of Contents
“A company should have in its DNA, a sense to work for the welfare of the community. CSR is an extension of individual sense of social responsibility. Active participation in CSR projects is important for a company”. – Ratan Tata, Chairman, Tata Group
In today’s present time, businesses have a duty to care more about society while conducting their operations.
It is the responsibility of businesses to shape the future and contribute to the progress of the country for which they need to raise their awareness of ethical values.
The most recent COVID-19 pandemic is a reminder of how interdependent humans are on each other, which was not realised before.
The pandemic also gave businesses a chance to aid in CSR by tackling the urgent social and environmental issues facing the world at the time.
Advocates of corporate social responsibility (hereinafter referred to as “CSR”) believe that in the process of making enormous profits at social costs, businesses and corporations have a moral obligation to give back to society. This implies handling their commercial operations while considering the rights of individuals and the societal, financial and environmental impacts.
What is corporate social responsibility
A quote by Peter Drucker fits the model of CSR, which states:
“Human beings need community. If there are no communities available for constructive ends, there will be destructive, murderous communities… Only the social sector, that is, the non-governmental, non-profit organisation, can create what we now need, communities for citizens… What the dawning 21st century needs above all is equally explosive growth of the non-profit social sector in building communities in the newly dominant social environment, the city.”
The concept of CSR is complex by nature and has a diverse value system.
CSR can be linked to improving the environment and the community in which a business operates. It is a philanthropic endeavour on the part of corporate personalities.
CSR stands for uplifting the lives of the people, the society they live in and the environment rather than having any negative impact on them.
According to the United Nations Industrial Development Organisation (UNIDO) (2022), a company sets a balance between the three aspects of vital importance, i.e., economic, environmental and social, by using a “Triple-Bottom-Line-Approach” simultaneously attending to the demands of its stakeholders and shareholders.
In addition to the primary objective of making profits, the aim of the company should also be to utilise its distinct abilities to support and aid social causes and boost its competitive edge.
One of the most prominent models of CSR is Carroll’s pyramid. According to this model, the concept of CSR is composed of four aspects of social responsibilities. They are economic, ethical, legal and philanthropic.
What is the importance of CSR
The model of CSR portrays the accountability of a business to different groups, such as its stakeholders, its employees, its customers, the general public, the environment and itself.
Over the years, consumers worldwide have moved more towards sustainable living, setting a higher standard for the companies they want to be associated with.
Companies should always strive to build a positive rapport with their clients, as they are a company’s major assets. CSR can help create a positive brand image. Customers are more likely to support businesses that uphold moral values, which strengthens the relationship between the general public and corporations.
Consumers now prioritise a company’s philanthropic efforts when evaluating it, in addition to the quality of the goods and services it offers.
Narayana Murthy, Founder, Infosys, states that: “Investors, customers, employees and vendors have all become discerning and are demanding greater transparency and fairness in all dealings”
The World Economic Forum has labelled this movement as “eco-wakening” and companies are prioritising it. For example, climate change activism is particularly prominent among Generation Z and Millennials.
Given that India has one of the rapidly growing economies in the world, there are many social issues that need to be addressed by the government, such as illiteracy, poverty, healthcare facilities, upliftment of the weaker sections, etc. This in turn has made the businesses participate, contribute to social causes and help make developments in them.
Most of the top corporate bodies in India are engaged in CSR projects. Some of the areas under the project include education, employment generation, health, the upliftment of weaker sections of the society and skill development.
Among others, significant efforts have been made by the Tata Group, Infosys, Bharti Enterprises, ITC Welcome Group, and Indian Oil Corporation.
The importance of CSR can be summarised into the following categories:
Gain in morale and trust of employees
CSR helps create a positive depiction of the company in the eyes of its employees, which helps build and develop their morale and loyalty towards the company. This leads to a workforce that is dedicated, has a sense of purpose and is proud of its employer and, in turn, the organisation as a whole.
Strengthen loyalty of its customers
Companies that work towards CSR have found that they attract greater customer loyalty as they value what CSR stands for.
Greater advantage amidst its competitors
Companies that work towards CSR are found to stand apart and have a competitive edge in the market as they are able to have higher brand recognition and are able to attract and engage top talents.
CSR emphasises accountability to investors
The main goal of investors is to make profits from the money they invest. Businesses that work towards social causes gain attraction from investors. A report from 2016 by Aflac showed that investments made in CSR are looked into by investors from a rather positive perspective as an “indicator of a corporate culture less likely to produce expensive missteps like financial fraud.”
CSR can lead to saving money
The majority of consumers are willing to support social causes and, in turn, pay more for goods produced by brands that are socially responsible and can aid in attracting and retaining talent, as mentioned above. As turnover can prove to cost companies a large sum of money.
Role of different bodies in contributing towards CSR
Role of the government
The willingness of the government and private sector to work together is one of the most efficient strategies to raise national CSR standards among businesses.
Governments are, to an increasing extent, showing their support with respect to international standards.
In the year 2001, an international standard was created by ISO (International Organisation for Standardisation) which set out guidelines as regards social responsibility. The goal of ISO 26000 is to set a consensus that is internationally recognised as to what CSR stands for and what problems it needs to work on. It promotes commitments ranging from purely voluntary actions to collaborative organisational initiatives involving the public, commercial and civil society. In India, the concept of CSR was legally introduced under Section 135 of the Companies Act, 2013, which also significantly increased transparency by demanding disclosure from businesses.
CSR activities are listed in Schedule VII of the Act and remain focused on communities. India is marked as the first ever country to statutorily mandate corporate social responsibility (CSR) for companies within the territory of India as of April 1, 2014. Companies, including foreign firms whose minimum net worth is Rs 500 crores or a turnover of Rs 1,000 crores and a net profit of a minimum of Rs 5 crores, are mandated to spend a minimum of 2% of their profit on CSR.
The government commits itself to the regulation of CSR because its principles align with the policy of the nation.
For example, the Directive Principles of State Policy (DPSP) enshrined in Part IV of the Indian Constitution state that the state shall strive to achieve socio-economic justice amongst its citizens in a democracy like India.
The government, by laying down a minimum CSR standard for businesses to work towards attaining and even surpassing this mark, can lead to the adoption and enforcement of appropriate CSR standards.
Role of financial institutions
A special mention also needs to be made about the role of financial institutions such as banks in contributing to CSR related activities and the significant role they play in a country’s economic operations.
According to the Reserve Bank of India (RBI), there is an absence or minimum cognizance on the issue in the country. RBI encourages Indian banks to support the cause in every possible manner, whether it be through funding for health, sanitation, education, or other initiatives that help fight poverty.
Rana Ashutosh Kumar Singh, DMD & CDO (SBI), states, “SBI is the country’s most trusted bank since more than 200 years, we believe that is the accountability of the bank to contribute towards the betterment of the society.”
Both private and public banks participate in working towards CSR, and Indian banks do well in these activities. Thus, banks in India are making significant contributions towards the upliftment of backward communities and giving back to society in the best manner possible.
Role of NGOs
A non-governmental organisation, as implied by its name, does not function under the government and is not a company whose main aim is profit.
Depending on the type of organisation and the situation, it can be backed by the government, corporations, businesses or private individuals.
NGOs contribute tremendously to work towards the betterment of the environment and society. Some of the areas of work include the education of children, women’s empowerment, contributing to afforestation by planting trees, and poverty alleviation programmes, to name a few.
They hold a pivotal role in society because of their role in helping implement various goals for businesses and other financially assisted programmes.
Given their contribution, it is critical to acknowledge the role of NGOs and their contribution to the implementation of CSR.
Therefore, NGOs have the requisite personnel, outreach, determination, and expertise to aid in bringing about progressive social change.
Role of individuals/volunteers
Volunteer efforts are always appreciated when it comes to working for the development of society.
Corporate volunteerism, also known as employee volunteer programmes, gives employees an opportunity to volunteer themselves to work for non-profit organisations by putting in their time and expertise.
Mr. Ramveer Tanwar, also known as the Pondman of India, deserves special mention for his ongoing efforts to revitalise and restore water bodies throughout the nation, which include ponds, lakes, and wetlands, with the aid of local groups and environmentally friendly or sustainable methods.
Recently, Coca-Cola India has collaborated with Mr. Tanwar and his organisation, Say Earth, to revive the Jalalabad lake situated in Jalalabad, Ghaziabad.
Issues and challenges faced
The companies have to maintain a balance between smooth internal functioning and accountability for their actions externally. Thus, it can be stated that corporate governance goes hand in hand with CSR.
Much work remains to solve the myriad CSR-related challenges and take action rather than just strategising for them.
There is a significant gap between the strategy, implementation, and measurement of the initiatives taken under CSR. In contrast to other industries like marketing or finance, there is no institutional framework to direct or require enterprises to comply with. This requires the business to develop its own plan of action, which could cost both time and money.
Some of the issues and challenges being faced by the corporate bodies are discussed below:
A decrease in the role of the government
There was a dependency of the government in the past on legislation to address different goals of the business sector. As a result of limited government resources and a lack of faith in the government’s ability to function and regulate, alternative voluntary and non-governmental initiatives have emerged.
The way companies view CSR is very limited. They are unable to see the holistic view of its contribution towards sustainable living. It is the responsibility of businesses to embrace CSR in all its aspects and make their investments in a responsible manner.
Lack of expertise
There seems to be a lack of expertise and specialised skills in CSR. It is high time to constitute such an efficient team that can contribute to the progress of the mission.
Relationships with shareholders and suppliers
Stakeholders hold an important position for any organisation, and businesses are making sure that their partners behave responsibly towards society. Some companies have even introduced guidelines with respect to their suppliers to prevent a blemish on their reputation in society.
Lack of sufficient funding, infrastructure, and local capabilities
The CSR project necessitates significant investments in order to be implemented and operated effectively, which means that the organisation must plan and prioritise its investments in accordance with the demands of the project. Also, there is a need to work on infrastructure building and the coming together of various organisations, be they governmental, non-governmental or other local bodies, to contribute to the development of CSR.
Lack of participation from local communities
A major factor in their lack of participation is the fact that the local populations are largely uninformed about what CSR actually stands for. This is also due to the fact that no attempt or effort has been made to bring the program’s awareness to the grassroots level and that it is only limited to urban areas. The communication gap needs to be bridged in order to make progress under the programme.
Many businesses fail to show transparency in their CSR activities, such as the concealment of data, reports on finances, and other evaluations regarding the same, because of which they fail to develop trust and engagement with the public.
Involvement of media
Media should be given importance as they have a significant impact on connecting the public to corporate bodies. They can inform the public about CSR programmes by showcasing examples of projects that have been effective in doing so. It then encourages the advertisement and publicity of the organisation, which attracts non-governmental organisations (NGOs) to take part in their projects and even work in remote locations since these areas are frequently ignored.
A dearth of sound organisational structures of NGOs
There is a dearth of well-organized non-governmental organisations (NGO’s) that can commit to meeting the requirements of the community in remote areas. This can be accomplished by incorporating local communities into projects designed to benefit them and, in turn, draw investment.
Inadequate CSR guidelines
There are no adequate CSR directives or guidelines to direct commercial organisations on the right path. The guidelines should apply irrespective of the size of the organisation so that they can participate equally in the program’s efficient execution.
Lack of proper consensus
There is no formal agreement among the commercial organisations engaged in CSR work, which results in the performance of similar activities, the inability to compare progress results, a competitive rather than a cooperative spirit, and other problems.
Measures which can be undertaken to overcome the hurdles
Challenges and issues are part and parcel of every project undertaken but we need to look for solutions to overcome the barriers to the successful implementation of CSR. Measures that can be undertaken to deal with the challenges are discussed below:
- Businesses need to come together to collaborate, create explicit guidelines, and make sure they are followed diligently.
- They have to take an honest and transparent approach to their efforts. For which setting up a system for giving an account for and reporting CSR methods becomes of crucial importance.
- They must be transparent about their social, environmental, and economic implications, as well as the steps they take to counteract any negative effects.
- Business organisations can interact and take suggestions from their stakeholders, which include communities, customers, employees, government or trade associations, investors, suppliers and shareholders.
- To formulate plans that align with the objectives and priorities of key stakeholders.
- Companies can also make efforts to engage their stakeholders for long term partnership goals to create a stronger image and brand in society.
- Efforts made should be towards sustainable goals. The organisation must focus on organisational learning and innovation, which prioritise sustainability for present and future endeavours.
- Companies are required to work together with non-governmental organisations (NGOs) that have gathered experience working with local communities and are experts in dealing with location specific issues related to society and environment.
In the last few years, CSR has been seen in the context of environment and sustainability because society, NGOs and the government constantly put pressure on corporations for not contributing enough to tackle the burning issue of climate change and other environmental aspects. Because of this, CSR has often been associated with ESG (environmental, social and governance).
Initiatives made with respect to CSR benefit society and, in turn, the organisation as well. Companies are aware that a successful CSR project necessitates ethical business conduct and strong leadership. Although it is pertinent that a company’s primary goal is to generate revenue, corporations may simultaneously perform their obligations to society and the environment by integrating CSR as one of their crucial business investments.
- https://www.business-standard.com/article/companies/india-now-only-country-with-legislated-csr-114040300862_1.html https://www.givingforce.com/blog/does-government-have-a-role-to-play-in-corporate-social-responsibility
- (PDF) Role of NGOs in Implementation of CSR Activities in India (researchgate.net)
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