From Tradition to Transformation: CSR in India
MRINMOY PAUL
Global Delivery & Program Leader | GCP | Strategic Transformation | Program & Product Management | PRINCE2? | Six Sigma Black Belt (CSSBB) | Startup Advisor | ESG | Certified Mentor | Independent Director Aspirant ??
Given that businesses depend on societal resources for their effective operation, they bear an additional ethical obligation to contribute positively to society, alongside their responsibilities to customers and shareholders.
Corporate social responsibility is frequently referred to as "enlightened self-interest." Organizations that embrace these values can promote fair trade, enhance labor conditions, support local communities, reduce environmental impact, foster employee engagement, and demonstrate social and ecological responsibility.
This concept operates on the principle of "quid pro quo," which involves a reciprocal exchange. It enables companies to engage in various socially responsible initiatives. In recent years, this approach has gained significant importance within India's legal and social frameworks.
Definition:
Corporate Social Responsibility (CSR) refers to the dedication and actions of an organization aimed at fulfilling societal expectations regarding its economic, social, and environmental performance. According to Kotler and Lee, CSR encompasses the responsibility to enhance community welfare through business practices, voluntary contributions, and the allocation of corporate resources. To support various social initiatives and uphold their CSR commitments, companies engage in activities such as combating hunger, addressing malnutrition, and promoting educational opportunities. The World Business Council for Sustainable Development defines CSR as the ongoing commitment of businesses to act ethically and contribute to economic progress while enhancing the quality of life for employees, their families, and the broader community.
Key Areas Of CSR In India:
1. Education and Skill Enhancement: Numerous organizations are dedicated to educational efforts, ranging from constructing schools to offering scholarships. Programs aimed at skill enhancement are also widely embraced, focusing on boosting employability and fostering entrepreneurship.
Healthcare Initiatives: Corporate social responsibility in healthcare typically emphasises improving access to medical services, organising health camps, and aiding hospitals with essential infrastructure.
Environmental Stewardship: Projects centered on environmental stewardship involve waste management, water conservation, and the promotion of renewable energy sources. Businesses are increasingly acknowledging the significance of sustainable practices for enduring success.
Community Enrichment: Community enrichment includes a variety of activities, such as developing infrastructure, ensuring access to clean drinking water, and supporting local craftspeople. These initiatives strive to enhance the living standards within nearby communities.
Key Benefits Of CSR:
1. Enhanced public perception and brand equity: It is widely acknowledged that a corporation can elevate its public visibility and foster consumer loyalty through active participation in various corporate social responsibility (CSR) initiatives and adherence to ethical business practices. The community values and remains committed to the organization not only for its products and services but also for its CSR efforts.
Expansion of revenue and customer base: Potential and current customers tend to have a favorable view of organizations that undertake significant projects alongside their core business operations. This positive perception often translates into increased revenues, as consumers are more likely to support a company they believe engages in ethical business conduct.
Increased employee involvement: CSR initiatives contribute to the development of a positive public image for a company. Such organizations are often preferred by employees, leading to heightened loyalty and empathy among the workforce. Additionally, employee retention improves as individuals experience greater job satisfaction.
Competitive edge: Companies that actively engage in CSR enjoy a distinct advantage over their competitors who do not. For instance, consumers are increasingly inclined to purchase environmentally friendly products, thereby enhancing sales and revenue for companies that comply with corporate social responsibility standards.
Responsibility Of CSR:
In relation to owners or investors: To maintain a consistent and equitable return on investment, to protect the business's assets, and to keep owners and investors adequately informed regarding the company's progress and financial status.
Regarding employees: To offer fair wages and salaries, to create safe working conditions, to provide ample opportunities for employee growth, and to offer service benefits.
In relation to customers: To adhere to fair trading practices, to address customer complaints promptly and effectively, and to guarantee a steady supply of goods and services.
Regarding suppliers: To guarantee timely payments and to prevent the exploitation of suppliers.
In relation to the government: To fulfil tax obligations honestly and punctually, to avoid corrupt practices, to comply with national laws, and to promote fair trading practices.
In relation to the community and society: To create job opportunities, to foster national unity, to promote high-quality products, to ensure the efficient use of natural resources, and to safeguard the local environment.
Principles Of CSR:
Sustainability pertains to the ability to fulfil the requirements of the current generation while ensuring that future generations can also meet their needs. It is imperative for businesses to adopt sustainable practices, which entails being mindful of the consumption rate of resources in comparison to the rate at which these resources can be replenished.
Accountability signifies the obligation of corporations to recognise and accept responsibility for the effects of their actions on stakeholders and the broader society.
Transparency encompasses the principles of openness, honesty, and the provision of information regarding corporate activities, allowing for an assessment of the organization's impact and performance through its reporting.
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Legal Framework And Regulations:
The Companies Act of 2013 represents a pivotal advancement in the establishment of Corporate Social Responsibility (CSR) within India. Under Section 135 of this legislation, corporations that possess a net worth of INR 500 crore or greater, or achieve a turnover of INR 1,000 crore or more, or report a net profit of INR 5 crore or above in any given financial year are mandated to allocate a minimum of 2% of their average net profits from the preceding three years towards CSR initiatives.
Schedule VII of the Companies Act delineates the various activities eligible for CSR engagement, which encompass a range of social and environmental objectives. These activities include the eradication of hunger and poverty, the promotion of education, the assurance of environmental sustainability, the preservation of national heritage, initiatives benefiting armed forces veterans, and the advancement of gender equality.
Activities That Can Be Undertaken As CSR Initiatives:
The Policy recognises that corporate social responsibility is not merely compliance; it is a commitment to support initiatives that measurably improve the lives of underprivileged by one or more of the following focus areas as notified under Section 135 of the Companies Act 2013 and Companies (Corporate Social Responsibility Policy) Rules 2014:
Major Challenges And Issues:
1. The absence of community engagement in corporate social responsibility initiatives is evident. There exists a notable lack of enthusiasm within the local populace to support these efforts. This deficiency in community backing can largely be traced to a minimal understanding of corporate social responsibility, which hampers awareness and trust in such initiatives. Furthermore, a disconnect between the corporate sector and the local community exacerbates this issue.
2. The necessity for improved local infrastructure is critical. There is a significant shortage of trained professionals equipped to assist companies in their corporate social responsibility endeavours. Consequently, it is essential to strengthen the framework of local non-governmental organizations. This limitation poses challenges for the expansion of corporate social responsibility programs and significantly curtails their effectiveness.
3. Transparency remains a significant concern highlighted by numerous business experts. The reluctance of local governments and agencies to provide comprehensive information regarding their programs, audits, performance evaluations, and budget allocations leads to perceptions of ambiguity among corporations. This lack of transparency adversely affects the essential communication between businesses and local organizations, which is vital for the success of localised corporate social responsibility initiatives.
4. Additionally, it is noted that in remote and sparsely populated areas, there is a scarcity of well-structured non-governmental organizations capable of identifying and addressing the specific needs of the community while collaborating with corporations to ensure the effective execution of corporate social responsibility projects. Strengthening the capacity of local populations to implement reforms further justifies the importance of engaging with them.
History Of Corporate Social Responsibility In India
The concept of corporate social responsibility (CSR) in India has developed progressively over time. Prominent business families such as the Tata, Birla, and Godrej demonstrated social awareness as early as the 19th century, a commitment that continues today, albeit on a larger scale. Between 1960 and 1980, private enterprises became embroiled in corporate malpractices during a period characterised by significant taxation, stringent licensing, and various regulatory challenges faced by Indian companies. During this era, legislation concerning labor rights, environmental protection, and corporate governance was enacted, alongside efforts to incorporate CSR into business practices. Following a gradual easing of licensing restrictions post-1980, companies began to exhibit a stronger willingness to engage in social issues through CSR initiatives.
While the Companies Act of 1956 included specific provisions for CSR, the Companies Act of 2013 introduced a requirement for CSR compliance for certain businesses as outlined in section 135(1). This section should be interpreted in conjunction with Schedule VII and the Companies (Corporate Social Responsibility) Rules established in 2014.
In India, the evolution of corporate social responsibility has traversed multiple phases, encompassing socially responsible production, employee relations, and community engagement. The development of CSR can be categorised into four distinct stages throughout its history.
1. Phase 1 (1850-1914): The initial phase of Corporate Social Responsibility (CSR) is characterised by its altruistic and charitable dimensions. The process of industrialisation, alongside family values, cultural traditions, and religious beliefs, significantly influenced CSR practices. Business leaders utilised their wealth to enhance social welfare by establishing temples and other religious institutions. During periods of famine and drought, these enterprises provided the impoverished and hungry with access to their granaries. However, the onset of colonialism marked a significant transformation in this approach to CSR. Pioneers of industrialisation, including Tata, Birla, Godrej, and Bajaj, founded trusts aimed at community development, educational institutions, and healthcare facilities, thereby promoting the concept of CSR prior to the nation’s independence. The social benefits during this era were largely driven by political motivations.
2. Phase 2 (1910-1960): This era was primarily centered around the independence movement. Mahatma Gandhi urged affluent business leaders to contribute their wealth to assist the underprivileged and marginalised segments of society. His philosophy of trusteeship played a crucial role in facilitating socioeconomic development. Gandhi referred to companies and industries as the "temples of modern India," encouraging entrepreneurs to establish trusts for educational, research, and vocational training institutions, including colleges. These trusts also played a vital role in supporting social reform initiatives, such as women's empowerment, education, and rural development.
3. Phase 3 (1950-1990): During this period, Public Sector Undertakings (PSUs) were established to ensure a more equitable distribution of wealth within society. Corporate misconduct, stemming from industrial licensing regulations, taxation, and restrictions on the private sector, prompted the introduction of appropriate legislation addressing corporate governance, labor rights, and environmental concerns. Given the limited success of PSUs, there was a natural shift in expectations from the public sector to the private sector, which began to assume a more prominent role in driving socioeconomic development. A national workshop involving academics, legislators, and business leaders was convened to discuss corporate responsibility.
4. Phase 4 (1980 onwards) marked the establishment of Corporate Social Responsibility (CSR) as a sustainable business strategy. The nation's economic growth surged due to the influx of liberalisation, privatisation, and globalisation (LPG), coupled with a relatively relaxed licensing framework. Consequently, industrial growth accelerated, allowing companies to enhance their contributions to social responsibility. What was previously viewed as philanthropy is now understood and accepted as an obligation.
Conclusion:
The notion of corporate social responsibility encompasses the duties that local enterprises owe to both the nation and the broader community. It is essential to also incorporate the idea of "individual social responsibility." Ultimately, society bears the responsibility for all actions and inactions.
Corporate social responsibility transcends mere profit generation. Despite India being the first nation to mandate statutory compliance for corporate social responsibility expenditures, numerous challenges remain unresolved. Addressing these issues necessitates collaboration among industry, society, and government.
Businesses face two significant challenges: the necessity for more effective strategies in developing corporate social responsibility and the promotion of such initiatives. To effectively address these challenges, it is vital to ensure transparency and enhance communication among all stakeholders.
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