8 Myths About Corporate Social Responsibility (CSR) Holding You Back

Companies with strong CSR programs outperform competitors, have higher productivity and have happier stakeholders. The data prove it. A study by Porter Novelli found that 88% of employees believe that companies must not solely focus on making profits but it must also positively impact society.?

In India, reports show that CSR activities took a sharp plunge by 64%. In FY 2021 more than 22,000 companies showed CSR spending. In 2022, only 1,619 companies spent on CSR projects.?

Despite data showing that companies taking CSR seriously fulfil and motivate employees better, why don't more companies approach it strategically? Because they are worried about the myths surrounding CSR.?

In this article, we bust some misconceptions surrounding CSR which might be holding back your company’s progress.?

Myth 1: CSR is an expense, not a profit driver?

Creating a strategic CSR program that creates ripples of impact requires investment. But the return on investment is high.?

For example, companies with mission-aligned CSR practices have better employee retention and better safety records, resulting in lower turnover and health costs. Why? Because companies with clear CSR programs that are integrated into the business have more engaged and committed employees. They are motivated and willing to go the extra mile on the company’s behalf.?

CSR has been shown to boost companies' bottom lines in a variety of other ways. For example, a study by Kantar found that companies committed to purpose grew valued 2.5 times more than brands with little or no purpose. Another study showed the link between CSR and improved stock returns.?

CSR performance magnifies innovative output level and efficiency.

Myth 2: All profitable companies are bound to CSR

According to an official notification issued by the Ministry of Corporate Affairs, CSR norms apply to only those companies with a minimum net worth of Rs. 500 crores, a turnover of Rs. 1,000 crores, or a net profit of Rs. 5 crores.?

Under the Companies Act, of 2013, certain classes of profitable companies are required to spend at least 2% of their average net profit of the preceding three financial years on CSR activities in a particular financial year. If a company has not completed 3 financial years since its incorporation, the spending is calculated based on the preceding financial years since incorporation.

Myth 3: Investors don’t care about CSR activities?

Socially responsible businesses appear more attractive to investors. Impact investing permits corporations to create shared value while contributing to social good.?

Today, there are corporate venture capitals, incubators and impact bonds and funds among other various models of impact investing. Each of them is undertaken to create positive social or environmental change alongside financial returns, promoting innovation, sustained change and viability of the intervention. They usually focus on areas, such as agriculture, micro finances, housing, healthcare or education to name a few.

According to a 2016 report by Aflac, investments in CSR are not typically viewed by investors as a waste of money, but 61% of investors consider these activities as a sign of ethical corporate behaviour, which reduces investment risk.

Myth 4: The company will be penalized for unspent CSR funds?

If a company spends less than the mandatory CSR amount, the Board shall specify the reasons for not spending in its report. At first, they will not be penalized.?

If the unspent amount pertains to an ongoing project, it can be transferred to a separate bank account called Unspent CSR Account within 30 days from the end of the financial year. Otherwise, the unspent amount can be transferred to any fund under Schedule VII within 6 months from the end of the financial year.?

However, failure to transfer unspent CSR funds within the prescribed time limit is a civil wrong and attracts penalties.?

Myth 5: It's only philanthropy?

Though many programs utilize foundations and other philanthropic vehicles, the ultimate impact of these programs is more partnership than philanthropy.?

Through non-profit partners, companies can extend the impact of their efforts without needing to specialize in specific topic areas that may be outside the organization’s area of focus. Additionally, these partnerships provide employees with new volunteer opportunities that are connected both to their workplace and their local community. It’s relational, not transactional.

Myth 6: CSR activities are not innovative?

This myth couldn’t be more wrong. There are so many innovations that can be done for a business by implementing CSR practices. Firstly, it's important to take a look at the business and its core values. Then, the possibilities are endless.

Many corporations are now doing their bit to make the young future-ready and here is an example of a company that is empowering the country’s youth.?

IBM has launched an online learning platform SkillsBuild in India which has over 500,000 learners of all age groups, learning and closing the skill gaps in emerging tech. Additionally, the company has created upskilling and reskilling programs for community members in every stage of their learning journeys. These teach technical skills for job roles that involve cybersecurity, quantum computing, cognitive AI, design thinking, and digital marketing. They also offer and human-centred professional workplace proficiencies for resume building, collaboration, presentation, time management – even mindfulness.?

IBM commits to providing 30 million people with new skills by 2030. This will help democratize opportunity, fill the growing skills gap, and give new generations of workers the tools they need to build a better future for themselves and society.?

Myth 7: Companies can do any social activity as CSR?

When corporations decide to pursue CSR activities, Schedule VII of the Act provides an exhaustive list of permissible work.?

The broad categories of activities include socio-economic development, environment conservation, promotion of culture, heritage and sports, the welfare of armed forces veterans, contribution to government-funded R&D projects and universities, funding for rural and slum area development projects and disaster management relief and contributions towards funds set up by the Union Government.?

Myth 8: It is a one-time activity?

A company can make a one-time donation to a cause or participate in a local fundraiser. But that is not CSR.?

Effective CSR activities are tied to a company’s strategic objectives and permeate all aspects of the business. CSR is an ongoing practice that defines how a company treats its employees, its customers, and the communities where it operates. If there’s no real commitment to the program your company is at risk of losing the trust of its stakeholders.