Is this ‘Corporate Social Responsibility’ or ‘Compliance Statutory Risk’?
When Corporate Social Responsibility (CSR) was introduced in the year 2014 under Section 135 of the Indian Companies Act 2013, we at the Centre for Advancement of Philanthropy (CAP) were among the few who felt that codifying CSR within the framework of the law would be a disservice to the true essence and spirit of CSR. We felt so simply because CSR is not just about giving money. What then is CSR? Read on …
What is CSR?
Corporate Social Responsibility (CSR) is a ‘business oriented’ framework which covers not merely what a company does with its profits, but also how the company made its profits.
Ideally it goes beyond philanthropy and legal compliance and address how the company manages economic, social, and environmental implications. CSR addresses relationships in all key spheres of influence: corporate values, the workplace, the marketplace, the supply chain, the community, and the public policy realm.
CSR is about ensuring human right standards, climate change, sustainable management of natural resources and consumer protection. It is a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment.
Unfortunately, the law has not only missed understanding the true concept of CSR, but worse, excessive legislation has killed the very essence and spirit of CSR, reducing it to simple arithmetic (calculate and spend two per cent of your profits) and corporate compliance (if in default face penalties and jail terms). Would we then be off the mark in questioning whether this is Corporate Social Responsibility or a Compliance Statutory Risk for companies?
From ‘trusteeship of wealth’ to CSR
CSR is not a new concept in India? Business houses like Tata, Godrej and Birla have pioneered and practiced it for over a century. It was not called CSR back then. However, the fact remain that Mahatma Gandhi was instrumental in influencing most industrialists of the pre-independence era to practice ‘trusteeship of wealth’ or using wealth generated by industry for the good of the country and the people at large.
Later, Indian industrialists realized that ‘corporate philanthropy’ had its own advantages in projecting the company as ‘caring & sharing’. This was mostly referred to as ‘cheque-book philanthropy’, which entailed giving ‘donations’ for various welfare and developmental causes.
Unfortunately, recent amendments to the law has once again ushered in the era of ‘cheque-book philanthropy’ with an added rider: “if unable to spend, contribute to any of the funds of the government”
Post major industrial mishaps ‘corporate philanthropy’ was replaced with ‘corporate citizenship’ which entailed looking beyond just donating to acting responsibly in terms of adherence to health, safety, human rights and environmental protection.
Overlooking employees’ engagement
We are now officially in the era of ‘Mandatory CSR’. However, neither Section 135 nor the Company CSR Rules recognise employees’ engagement as CSR.
All over the world, companies proudly report the number of hours contributed by their employees in community services. However, this is not included even by way of a footnote when it comes to CSR reporting under law.
CSR is an invaluable tool for motivating and training employees, as well as giving them a way to build on their skill sets. But, as said earlier, the law does not take employee engagement into account at all!
Global studies indicate that CSR is the optimum way to increase employees’ skills and leadership. CSR allows employees to take on new roles, develop new skills and assume leadership positions that translate well back to their work setting. All over the world, companies are making volunteer opportunities a key ingredient of their CSR programs because of their numerous business-building opportunities.
Ignoring CS & CSV
The world today has moved beyond CSR to Corporate Sustainability (CS) and Corporate Shared Value (CSV). The moot question is whether Section 135 takes into account concepts of corporate sustainability and shared value? In our opinion the answer would be in the negative!
The law does not take into account Sustainable Development which in our view is the big picture with three components – Social, Economic & Environmental. CSR is merely a component of Sustainable Development, especially from the Social Sustainability perspective and this is what the law misses out on.
A good CSR initiative should be based on a very good understanding of the requirements for Social, Economic and Environmental Sustainability, as well as the inter-relationships between the three components.
Sustainable Development is not the same as CSR and CSR is not the same as Sustainable Development. CSR comes from Sustainable Development, and not the other way round.
CSR is simply a platform for contributing to the Sustainable Development process.
What is sustainable development?
Sustainable Development is a business approach that creates long-term consumer and employee value by not only creating a strategy that is aimed towards an Eco-friendly environment, but also taking into consideration every dimension of how a business operates in the social, cultural, economic and environmental. It also includes formulating strategies to build a company that fosters longevity through transparency and proper employee development.
Value Driven Business
Having a ‘social vision’ is integral for the success of a ‘business mission’. Companies desiring to build and sustain brand equity know that discharging social commitments is essential to generating an image in the minds of the people. Indeed, business in the modern global environment is about something larger than just making a profit; it is about ‘Value Driven Business’ and value driven business is about providing products and services that exceed customer expectations, treating suppliers as partners and employees with respect, using eco-friendly technologies and actively supporting innovations that transform the communities around them.
To conclude, giving money to worthy causes is good; but, donating money isn’t a CSR strategy. CSR is an approach to community engagement that utilizes company assets — people, resources, expertise — to enhance community while driving business growth.