Posted On: 2022-01-21 16:26:23
Corporate Social Responsibility is a management concept whereby companies incorporate social and environmental situations in their business operations and interactions with their stakeholders.
By practising corporate social responsibility, also called corporate citizenship, companies can be mindful of the kind of impact they are having on all elements of society, including economic, social, and environmental.
Corporate social responsibility is a wide concept that can take many shapes depending on the company and industry. Via CSR programs, philanthropy, and volunteer efforts, businesses can benefit society while promoting their brands.
For a company to be socially responsible, it first needs to be responsible to itself and its shareholders. Often, businesses that adopt CSR programs have grown their business to the point where they can give back to society. Thus, CSR is typically a method that's enforced by large corporations. After all, the more visible and successful a corporation is, the more responsibility it has to set norms of moral behaviour for its peers, competition, and industry.
Understanding the Four Levels of CSR
The lowest tier of the pyramid represents a business’s first responsibility, which is to be advantageous. Without profit, the company would not be able to pay their workers, and employees will lose their jobs even before the business starts CSR activities. Being profitable is the only way for a business to be able to survive long term, and benefit the community. Additionally, this also suggests that it is a business’s duty to produce goods and services that are needed/wanted by the customers, at a suitable price.
The second tier of the pyramid is the business’s legal obligation to obey the law. This is the most important responsibility out of the four levels as this will show how companies conduct their company in the marketplace. Employment laws, competition with other companies, tax regulations and the health and safety of employees are some examples of the legal responsibilities a company should adhere to. Failing to be legally responsible can be very bad for businesses.
The ethical tier of the pyramid is described as doing the right thing, being fair in all circumstances and also avoiding harm. An enterprise should not only be obeying the law, but it should also do its business ethically. Unlike the first two levels, this is something that a business is not obligated to do. However, it is best for a company to be ethical as this not only shows their stakeholders that they are moral and just, but people will feel more comfortable buying goods/services from the company as well. Being environmentally friendly, treating suppliers/employees properly are a few examples of being ethically accountable.
The top tier of the pyramid, inhabiting the smallest space is philanthropy. Businesses have long been criticized for their carbon impression, using natural resources and more. To neutralise these negatives, they should “give back” to the society they take from. Even though this is the highest level of CSR, it should not be taken lightly as many people would want to do business with companies that are giving back to society. Philanthropic Responsibility is more than just doing what is right, but it is something that holds true to the company’s values, to give back to society.
According to Carroll’s pyramid, a trustworthy business is one that qualifies all the tiers of responsibilities before taking up philanthropy. Without fulfilling the other accountabilities, a business cannot sustain itself.
Why is CSR mandated in India?
On April 1, 2014, India became the first country to legally mandate corporate social responsibility. Indian corporations have never been more accountable for their social responsibility as they are now, ever since the government notified the new regulations in January 2021 underlining the big theme that corporate social responsibility (CSR) is mandatory and a statutory obligation, making India the first country to have this rule. Section 135 of the Companies Act made it mandatory for every company with a net worth of at least Rs. 500 crore, turnover of Rs. 1,000 crore or more, or a minimum net profit of Rs. 5 crore during the immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
On part of the government, it wanted to obtain a cultural change within the companies whereby they become committed towards societal interest and environmental preservation. In the place of this, India became the first country to mandate and quantify CSR into legislation for businesses to attach to.
Apart from this, the requirement also organised the CSR sector wherein there are norms for penalising the companies and the people in charge of CSR activities. This acts as a deterrence for companies that are forced to contribute towards CSR activities. Making it mandatory was also a step towards identifying the movements which can be considered a CSR activity. Previously, the companies used to invest in activities that might not be much advantageous for society. The Schedule VII of the Companies Act, 2013 lists all the activities which will be considered under CSR. The mandate has made the enterprises more committed to social causes and there is also an engagement with the local communities which will ensure inclusive development in the long run. With these regulations, we are sure that society will be benefited in many ways.
In the midst of the Coronavirus (Covid) outbreak, the Service of Corporate Undertakings has suggested that companies' consumption to fight the pandemic will be considered as fair under CSR activities. Assets might be spent on different activities recognised with Coronavirus, for example, advancement of medical care including preventive medical services and disinfection, and calamity the board.
In the year 2021, the Ministry of Corporate Affairs (the “MCA”) notified the amendments proposed under the Companies (Amendment) Act, 2019 (“Amendment Act”) and the Companies (CSR Policy) Amendment Rules, 2021 (“CSR Amendment Rules”). The modifications introduced by the Amendment Act and the CSR Amendment Rules are discussed in the link below:
https://www.mca.gov.in/
CSR in India has traditionally been seen as a philanthropic activity. And in keeping with the Indian tradition, it was believed that every corporation has a moral commitment to play an active role in removing the social obligations, subject to the financial health of the company. In the early ’90s, Mahatma Gandhi introduced the concept of trusteeship helping socio-economic growth. CSR was influenced by family values, traditions, culture and religion. Read our blog on top 5 Philanthropist to understand the ethics of Mahatma Gandhi followed by some of the top businessmen of India
https://filaantro.org/blog/index.php/post/Top-5-Philanthropists-of-India/84
The CSR activities of Indian companies are in line with the provisions of Section 135 with Schedule VII to the Companies Act, 2013. The CSR initiatives of organisations are thrust into creating value in the lives of the communities around its areas of industry and manufacturing processes.
CSR has become a useful tool to work in the line of Sustainable Development Goals (SDGs) with a powerful focus on social interpretation indicated in the CSR projects of the organizations. The SDGs, otherwise known as the Global Goals, are a universal call to movement to end poverty, protect the planet and ensure that all people enjoy peace and prosperity.
Most companies consider society as one of their apex stakeholders and believe in inclusive growth. This year most of the communities persisted in their CSR initiatives in the domain of Education, Health, Livelihood, Rural Development and Social Entrepreneurship.
Mindful business decisions by the Companies have directly and indirectly created importance for numerous stakeholders and helped in improving the lives of the people and species. Businesses in India believed in creating societal value by providing affordable products and services which have assisted in the growth of appropriate and allied industries. Across all its areas of functions of Business, there are inherent connections and interconnections with the instantaneous and long term societal impact.
In FY 2020-21, as many as 1,619 companies have done CSR spend of Rs. 8,828.21 crores. Of these, as many as 1,599 are non-PSUs, while 20 are PSUs. Non-PSUs spent for CSR in 2020-21 stood at Rs. 8,266.93 crores, while the 20 PSUs cumulatively spent Rs. 561.18 crores, as per available official data up to September 30 this year.
Interestingly, in previous years of 2019-20 and 2018-19, as many as 22,531 and 25,099 companies respectively spent Rs. 24,688.66 crores and Rs. 20,150.27 crores towards CSR.
Why is CSR important?
Socially responsible businesses realize that their business practices affect not only their bottom line, but also their workers, customers, local communities, and even human rights.
The United Nations Industrial Development Organization describes some of the common functions of corporate social responsibility (CSR) as including:
Responsible sourcing of materials and supplies
Employee, vendor, customer and community engagement and relations
Adherence to labour standards
Environmental protection and management
Anti-corruption measures
Upholding social equity, gender equity and other human rights goals
Conservation of resources, like water and energy, in production
Organizations today are increasingly judged on the basis of their connections with their workers, their customers, and their communities, as well as their influence on society at large – converting them from business enterprises into social enterprises.”
Some mesmerising figures have emerged from recent studies of the results of CSR:
67% of employees prefer to work with socially responsible companies
70% of millennials say that a company’s commitment to social responsibility influenced their choice to work there
55% of consumers will pay extra for products from companies committed to positive social impact
$17.8 Billion was given to charities in 2017 by socially responsible enterprises.
India is currently home to 3.3 million (33 lakhs) registered NGOs and about one-third are calculated to be fully functional and ready to support the undertaking of the law. However, it looks like the small or marginal NGOs are not likely to reap many rewards. There’s no question that India faces tremendous development challenges and that it’s only by operating together that the government, civil society and corporations have any hope of addressing them.
Corporate social responsibility is a good interchange – for companies, employees, customers, and communities. We are living in an era when customers vote with their dollars and hold companies responsible for their broader actions in the world, and the companies that acknowledge this truth are confident to be more successful than their competitors.
Author : Lubdha Dhanopia
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