Context: It has been a decade since Corporate Social Responsibility (CSR) was enshrined into law.
What is Corporate Social Responsibility (CSR)?
CSR is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.
- Section 135 Companies Act, 2013 - CSR provisions are applicable to companies:
- With an annual turnover of INR 1,000 crore and more
- Or a net worth of INR 500 crore and more
- Or a net profit of 5 crore INR and more
- The Act mandates companies to spend at least 2% of their average net profit in the previous three years on CSR activities.
What are the Benefits of CSR?
- For Companies:
- Gaining the trust of communities
- Attracting and retaining employees
- Enhancing corporate reputation and brand building
- Attract investors as they include ethics as part of their assessment while investing
- Increased profitability as ethical conduct exerts a growing influence on the purchasing decisions of customers
- For Society:
- Better employment opportunities
- Improved standard of living
- Gender & socio-economic parity
- Natural & environmental protection
- For Govt:
- Reduced fiscal expenditure
- Effective corporate governance
- Increased public trust
Few Challenges in CSR
- Failure to Consider Holistic View: Companies still have a narrow perception of CSR. They fail to understand that CSR has an impact on mostly all of the stakeholders of the company and it impacts both society and the environment as a whole - Due to a lack of strategic planning, proper experimentation, innovation, and engagement, companies aren't able to make a meaningful impact on their CSR efforts.
- Lack of capability in many firms to formulate a long-term robust CSR policy leads to failure in giving definitive directions to CSR spending.
- Disconnect with local requirements as there is non-availability of well-organised NGOs in remote and rural areas that can assess and identify real needs of the community.
- Duplication of activities by different corporate houses, which results in competitive approach rather than a collaborative approach.
- Lack trust and interest of the local community in participating and contributing to CSR activities of companies.
- Many CSR initiatives and programs are undertaken in urban areas and localities, leaving the needy and poor in rural areas to miss out on the benefits of CSR.
- Issue of geographic equity as 5 states - Maharashtra, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu account for well over one-quarter of all CSR spending.
- There is lack of an independent agency that can monitor and accreditate CSR efforts.
- Viewed as additional tax which is spent by the firms rather than given to the government. This is in addition to corporate tax which is already one of the highest in the world.
Way Forward
- Cooperation between government and corporates: CSR activities should be better aligned and integrated with Government/local administration systems. They should complement and upscale government initiatives rather than create a parallel system and duplicate efforts
- Community and employee participation: Improving community relations involving employees in CSR can help motivate them and encourage their personal and professional development by inculcating social and ethical values
- Collaboration for efficiency - between NGOs, and agencies involved in environmental and social work will enable better utilisation of CSR funds
- Evaluation and monitoring - periodically to prevent fraudulent activities and complete project within the stipulated time
- Fair and balanced expenditure: Encouraging corporates to spend in neglected areas such as aspirational districts and NER to have regional parity in socio-economic development
- Relaxation and incentives: The government should further provide relaxation and incentives in corporate tax to corporates complying with CSR regulations
- High-Level Committee under the Chairmanship of Injeti Srinivas had made the following recommendations:
- Extending the scope of CSR applicability to Limited Liability Partnerships (LLPs), which are within the purview of the MCA, and to Banks registered under the Banking Regulation Act, 1949
- Companies are encouraged to forge partnerships when creating assets for public purposes. The ownership shall rest with the public and the company may act as a custodian to operate it and make it self-sustaining
- Board of a Company to ascertain the credibility of an Implementing Agency (IA) and carry out necessary due diligence. IAs to be registered with MCA to carry out CSR activities
- International organisations may be engaged as partners for designing CSR projects, monitoring and evaluation as well as capacity building of CSR-eligible companies and implementing agencies
- The Board of a company may engage a CSR professional, if it so desires, and the Government may prescribe eligibility criteria for such professionals
- 5% of CSR-mandated companies be identified on a random basis for third-party assessments on a pilot basis
Conclusion
- The government is responsible for social development. Corporates cannot replace them in this role but can supplement its role. Corporates can make a meaningful contribution especially if there is a platform that allows them to offer the totality of their skills, technology and resources. With rising fiscal deficit and leakages in the welfare schemes, CSR seeks to address the problems of society in a cost effective manner