Revisiting Corporate Social Responsibility

• 19 Dec 2022

This editorial is based on “A plan for better CSR funds to boost rural livelihoods” which was published in The Hindu on 07/10/2022. It talks about Corporate Social Responsibility (CSR) and its potential for rural development.

For Prelims: Corporate Social Responsibility (CSR), Trusteeship, Gandhian Philosophy, Section 135 of the Companies Act, 2013, Hunger, Poverty and Malnutrition, Environmental Sustainability, Clean Ganga Fund, Non-governmental Organisations (NGOs), Artificial Intelligence, Machine Learning, Circular Economy.

For Mains: Activities Included under CSR Category, Challenges Related to CSR Activities in India, Linking CSR with Research Institutions and Sustainable Development Goals.

In developing economies like India, Corporate Social Responsibility (CSR) is seen as part of corporate philanthropy in which corporations augment the social development to support the initiatives of the government.

And in keeping with the Indian tradition, it was believed that every company has a moral responsibility to play an active role in discharging the social obligations.

In the early 20^th century Mahatma Gandhi introduced the concept of trusteeship helping socio-economic growth.

India became the first country to legislate the need to undertake CSR activities and mandatorily report CSR initiatives under Section 135 of the Companies Act, 2013. But current CSR frameworks have some flaws, such as transparency, lack of community participation in CSR activities, and lack of timely audits.

In order to achieve sustainable development, India should streamline its CSR framework and focus on collective betterment through shared responsibility.

Which Companies Fall Under the Purview of Corporate Social Responsibility?

• A company whose turnover is at least 1,000 crores, net worth is at least 500 crores, or net profit is at least 5 crores falls under the CSR provisions of the Companies Act, 2013.
• Under the Act, companies must set up a Corporate Social Responsibility Committee that recommends a Corporate Social Responsibility Policy to the Board and monitors the same.
• The Act also encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.

What are the Activities Included under CSR Category?

• Specified under Schedule VII of the Companies Act 2013, some major activities include:
  • Eradicating hunger, poverty and malnutrition, promoting health care including preventive healthcare and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
  • Promoting education, including special education and employment enhancing vocational skills especially among children, women, elderly and the differently abled and livelihood enhancement projects.
  • Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
  • Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.

What are the Challenges Related to CSR Activities in India?

• Shrinking Role of Government: Governments used to deliver social and environmental objectives in businesses through legislation and regulation.
  • Due to shrinking government resources and distrust of regulations, voluntary and non-regulatory initiatives are getting explored.
• Absence of Clear CSR Guidelines: There are no clear principles and directions about the CSR in India and because of lack of clear-cut statutory guidelines, the level of CSR depends upon the size of organisations, which means bigger the organisation, bigger the CSR programs.
  • This is also a barrier for the small organisations that want to contribute to this field.
• Duplication of CSR Activities: There is a lack of consensus amongst local agencies regarding CSR projects.
  • This lack of consensus often results in duplication of activities by corporate houses in areas of their intervention and results in a competitive spirit between local implementing agencies rather than building collaborative approaches on issue
• Unavailability of Well-Organized NGOs: Due to the lack of recognition of many Non-governmental Organisations (NGOs) in India, corporations have limited options and benefits, and they often partially fund NGOs in order to gain visibility and brand recognition, not realising that CSR serves a more important purpose.
  • Also, the lack of well-organised NGOs in remote and rural areas makes it difficult to identify real needs of the community and ensure successful CSR implementation.
• Lack of Time Bound Audits: The lack of time-bound audits causes many Indian companies to not disclose information about CSR activities they take part in, including funds used for the projects.
  • Also, as a result, these companies fail to create a sense of belonging and connect with society.

What Should be the Way Forward?

• Regular CSR Compliance: Companies should conduct regular reviews of CSR compliance and put in place measures for a more professional approach. They should also set clear objectives and align all stakeholders with them.
  • It is equally important to let their NGO partners know of their business needs.
• Proactive Role of Government: Governments should also address the issue of non-availability of NGOs and raise awareness about the importance of CSR in society.
  • Artificial Intelligence and Machine Learning tools can be used by the government to mine data from mandated reports in order to maintain regular audits.
• Linking CSR with Research Institutions: From Designing sustainable construction materials that are affordable and recyclable, to developing India-centric greening options like novel heat and power management systems.
  • Projects such as these can be enabled through CSR funding and led by higher education institutions that would accelerate the transition from laboratory to actualisation and serve communities in innovative ways.
• SDG with CSR: With India prioritising and achieving Sustainable Development Goals, NITI Aayog has made this mainstream to the national agenda, and now is the time to tie CSR and SDGs together.
  • In this way, India can improve accountability of CSR at the same time moving towards green and sustainable growth.
• Integrated CSR Interface: A national platform, centralised by the Ministry of Corporate Affairs, is needed where all states can list their possible CSR-admissible projects so that companies can determine where their CSR funds would have the most impact.
  • Corporate Social Responsibility Projects Repository on the India Investment Grid (IIG) can serve as a guide for such efforts.
• Replacing End of Life Concept with CSR: Corporate social responsibility should replace end-of-life concepts for products with technologies and regulations that facilitate recycling and reusing.
  • In this way, the life cycle of products can be extended, wastage can be minimised, and pollution reduced. In line, India can transition towards a circular economy.
  • This can be an attempt to realise the vision of a just, humane and equitable society where every action, however small, is driven by this larger sustainable vision.

Drishti Mains Question

Describe how Corporate Social Responsibility can facilitate India to achieve Sustainable Development Goals.