Business is a going concern; it must seek profit to continue its existence in the long run.
At the same time the entity should also always aspire to contribute towards the society without which it cannot thrive in this sociable world. Since the dawn of the concept of the corporate, responsibility of the corporate has been perceived through many facets in the society and with the advent of modernization and the enactment of new legislations, a befitting term comes into practice: that is Corporate Social Responsibility.
India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment under Section 135 of the Companies Act, 2013 in April 2014.
The Act advocates integrating CSR Activities into the core operations of a company.
As far as the scope is concerned, every corporate with above 5 crores of profit, net worth of 500 crores, or turnover of 100 crores has to spend 2% of their net worth on activities such as sanitation, education, healthcare, and poverty alleviation, among others, which are listed in the Schedule VII of the Rules.
Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger.
In recent times CSR has not only become obligatory for corporates but it has also ushered in a wide gamut of prospects making it competitive.
CSR is an important element of development because companies need to look after their communities, particularly those companies that are operating in the rural areas. It also takes into account the environmental aspect that the businesses might influence based on their operations.
The companies have their motivations for doing CSR such as the genuine care of their environment and society; that would eventually become their source of human capital as well as of raw materials that they need to sustain. Some companies see it as an important element of gaining societal acceptance for their operations. It is especially true for the companies that are operating in the remote areas, such as mining and oil and gas companies. They often come across various communities that are indigenous to that place, and the companies need to live and work with these communities.
Another aspect of it is that the companies should consider CSR as something where they should take voluntary action rather than something that is being strictly regulated. Because it is something that is good for the company too, it’s not something that the company has to do just because of the existing law or because of something else.
At the same time, the companies should not be really forced into CSR, instead CSR should rather involve all the stakeholders such as the government and the civil society at large.
The success of CSR lies in practicing it as a core part of the corporate’s development strategy. It is important for the corporate sector to identify, implement and promote successful policies and practices that achieve triple bottomline results.
The practical implementation of CSR however is faced with a lot of issues and challenges.
First, in the past, to deliver the societal and environmental objectives of the business sector, governments had relied on legislation and regulation. Shrinking government resources, coupled with a distrust for regulations, has now led to the exploration of voluntary and non-regulatory initiatives instead.
Second, there is a lack of consensus amongst the local agencies regarding the CSR projects. This lack of consensus often results in the duplication of activities by the corporate houses in the areas of their intervention. This results in triggering a competitive spirit between the local implementing agencies instead of building a collaborative approach on issues. This factor limits a company’s ability to undertake an impact assessment of its initiatives from time to time.
Third, there is a lack of interest in the local community for participating and contributing to the CSR activities of the corporates. This is largely attributable to the fact that there exists little to no knowledge about CSR within the local communities. This is because no serious effort has been made to spread the awareness about CSR in order to instill confidence and trust in the local communities about such initiatives.
Fourth, it is also reported that there is hardly any existence of well-organized non-governmental organizations in remote and rural areas that can assess and identify the real needs of the community and work along with corporates to ensure the successful implementation of the CSR activities. This also builds the case for investing in the local communities by way of building their capabilities to undertake these developmental projects at the local levels.
Fifth, there are no clear cut statutory guidelines or policy directives that give a definitive direction to the CSR initiatives of companies. It is however believed that the scale of CSR initiatives of companies should depend upon their business size and profile. In other words, the bigger the company, the bigger should be its CSR program.
Sixth, the role of media in highlighting the fruitful cases of successful CSR initiatives should be welcomed as it spreads good stories and sensitizes the local population about the various ongoing CSR initiatives of the companies.
Seventh, there is evidence that the ethical conduct of companies exerts a growing influence on the purchase decisions of the consumers. In a recent survey by Environics International, more than one in five consumers reported having either rewarded or punished companies based on their perceived social performance.
Eighth, investors are changing the way they assess companies’ performance and are making decisions based on criteria that include the ethical issues.
Finally, employees are increasingly looking beyond perks and benefits and seeking out employers whose philosophies and operating practices match their own principles. In order to hire and retain skilled employees, companies are being forced to improve the working conditions and the working environment.
CSR is a notion that aims at achieving a balance of economic, environmental and social necessities, while also meeting the expectations of both shareholders and stakeholders. Over the years we have seen a lot of improvement in the CSR space, and companies are aligning their business strategies to focus on the social good.
The best part about CSR is that even INR 1 spent by a private or corporate sector on a CSR activity would give the company much more mileage in their respective business field. Moreover, it is not just the money but also the human capital of the company which is gets involved in the CSR activities, creating a positive mindset and goodwill all over.
Is your company also involved in CSR activities? Which companies do you know of that are at the fore front of CSR activities?