The amount of growth in the corporate world is always more than yesterday. The corporate companies strive for one basic principle i.e. Growth. In the meanwhile, they have other responsibilities too. These responsibilities are related to another emerging principle within the already emerging corporate scenario which is, Corporate Social Responsibility (CSR).
CSR is a management concept whereby the companies integrate their social and environmental concerns into its operations and interactions with its stakeholders. The company endeavor to achieve a balance between its economic, social and environmental imperatives and at the same time address the interest and expectations of its shareholders and stakeholders.
It was held in the Responsible Summit (2013) that, CSR is not a particular programme, it’s what we do every day, maximising positive impact and minimising negative impact. Key CSR issues include environmental management, social equity, labour standards and working conditions, good governance, human rights and the list can continue till the next page.
CSR is generally categorized in four ways:
- Environmental Responsibility: Refers to the environment friendly and sustainable operations by the organizations.
- Ethical/Human Rights Responsibility: Refers to the commitment towards upholding the human rights of the individuals.
- Philanthropic Responsibility: Refers to the goals and commitments of the company for the betterment of the society as a whole.
- Economic Responsibility: Refers to the financial decisions for committing overall good.
Legal Framework of CSR in India
Corporate Social Responsibility can’t exist solely; it needs the backing of a proper legislation for the implementation. The primary law which implements CSR in India is the Companies Act, 2013. Section 135 of the Companies Act mandates that every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more 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.
This committee shall recommend the activities that should be undertaken by the board of directors. Some of these activities are specified in the Schedule VII of the Act, including activities like eradicating hunger, poverty and malnutrition, promoting education, promoting gender equality, ensuring environmental sustainability, protecting natural resources and national heritage, contribution to the PM CARES Fund etc.
The board of directors shall further ensure that the recommendations given by the committee are undertaken by the company. The Board shall ensure that at least 2% of the average net profits made by the company during the preceding three financial years, or if in case the company has not completed its three years then, of the preceding financial year in pursuance of its Corporate Social Responsibility Policy.
If a company is in default in complying with the provisions of Act, the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less.
These provisions enshrined in the Companies Act, 2013 makes this Act a landmark CSR legislation in the whole country. But the Act seems to lack some of the provisions which could have made it perfect for CSR. These loopholes and challenges that CSR faces have been talked later.
Some Important Case Laws
M.C. Mehta and Ors. vs. Union of India (UOI) and Ors (1986)
In this landmark judgement, although the court didn’t talk about Corporate Social Responsibility per se, it stated that if an enterprise is engaged in a hazardous or inherently dangerous activity and harm results to anyone on account of an accident in the operation of such hazardous or inherently dangerous activity resulting, for example, in escape of toxic gas, the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident. The Supreme Court emphasized the importance of environmental protection and community welfare.
Union Carbide Corporation v. Union of India (1990)
The Bhopal gas tragedy highlighted the responsibility of any corporation towards the victims of industrial disasters. The Supreme Court of India upheld that the Union Carbide Corporation shall pay a sum of U.S. Dollars 470 million (Four hundred and seventy Million) to the Union of India in full settlement of all claims, rights, and liabilities related to and arising out of the Bhopal Gas disaster. The judgement reflected the importance of compensation, rehabilitation, and environmental restoration as an integral aspect of corporate accountability.
Importance of Corporate Social Responsibility (CSR)
CSR holds significance for companies in several ways. Some of the many advantages of CSR include:
- Enhanced customer loyalty and satisfaction: Companies responsive to customer needs and committed to CSR are perceived positively, fostering long-term loyalty.
- Refined brand reputation: CSR improves market value and image. According to ZipDo, 76% of companies believe CSR is essential for brand protection.
- Competitive advantage: CSR engagement provides an edge over competitors, enhancing business positioning and brand value.
- Environmental protection and social welfare: CSR aims to reduce harm and carbon footprints, ensuring a healthier environment and benefiting society.
- Better financial returns: CSR builds customer trust and market expansion, leading to improved financial performance and ROI over time.
Corporate Social Responsibility Challenges in India
CSR is growing, but companies face challenges, including:
- Lack of knowledge in public about CSR: A communication gap leads to limited public awareness and participation in CSR initiatives.
- Lack of clear framework for CSR initiatives: Though mandated under Section 135 of The Companies Act, 2013, there is no clear implementation framework.
- Lack of transparency and accountability: Without transparency, companies risk losing trust and appearing insincere in their CSR efforts.
- Short-term and long-term dilemma: Companies may prioritize short-term profits over long-term CSR investments, hindering sustainability.
Top CSR Initiatives by Companies
- Skill Development for Empowering Rural India – TATA Group: Offers training programs in villages to improve livelihoods and bridge the rural-urban skill gap.
- Education and Digital Solutions – Infosys: Focuses on digital literacy by donating smartboards, setting up digital labs, and providing scholarships.
- Rural Development and Sustainable Agriculture – Mahindra & Mahindra: Promotes sustainable farming practices to increase productivity and farmer incomes.
- Improving Healthcare and Well-being – Reliance Industries: Invests in community healthcare initiatives, including COVID-19 free healthcare centers.
Conclusion
We need to understand that our actions have a direct or indirect impact on the society and the environment. The companies, to some extent, have recognized the fact that their activities impact the future sustainability. Corporate Social Responsibility (CSR) has been the talk of the corporate world in the recent decade and companies have made significant efforts to frame their effective policies for the society and the environment. The companies take the steps for framing their respective policies for CSR, but CSR requires the helping hands of the law for its proper implementation.
In India, The Companies Act, 2013 has a complete section dedicated to the principle of CSR. Section 135 of the 2013 Act sets a criterion for the companies and then mandates the companies which fulfil these criterias to invest their part of the profit in CSR. The criteria and the amount that should at least be invested under the Act has been talked earlier. The sectors where the companies should invest are given in the Schedule VII of the Act.
Corporate Social Responsibility becomes the need of the hour looking at the environmental and social conditions of living in the 21st century. Poverty, Gender Discrimination, unequal pay scale, mistreatment of workers, rising global temperatures etc. are the issues which we need to tackle for fostering sustainability and development. CSR holds importance in the modern world for the companies as it fosters positivity among the people for the company and increases the market share of the company. Businesses become more profitable when they invest in CSR practices.
This does not mean that implementing these initiatives does not have its own challenges. The companies face several hindrances while formulating these policies. These initiatives require significant amount of time and cost, which somewhat demotivates the companies. Further, there is also no clear framework for the policies. Although, The Companies Act mandates its implementation, it does not provide the clear set of policies and initiatives that are to be implemented. The policies are left to the discretion of the Company to be framed.
Despite these challenges, CSR does not lose it relevance among the individuals and the companies. Big giants of the corporate world including, TATA Group, Reliance Industries, Mahindra Group and Infosys have been investing in CSR by framing their own sets of initiatives and implementing them properly. Law has been laid down for CSR but is it enough looking at the conditions of the world is the question that CSR asks the Law.
References:
- The Companies Act, 2013
- https://www.cry.org/blog/what-is-corporate-social-responsibility/
- https://benevity.com/resources/types-of-corporate-social-responsibility
- https://www.linkedin.com/pulse/corporate-social-responsibility-legal-provisions-judicial-mujeeb
- https://www.investopedia.com/ask/answers/041015/why-social-responsibility-important-business.asp
- https://thecsrjournal.in/what-is-the-importance-of-csr/
- M.C. Mehta and Ors. vs. Union of India (UOI) and Ors. (20.12.1986 – SC) : MANU/SC/0092/1986
- Union Carbide Corporation vs. Union of India (UOI) and Ors. (14.02.1989 – SC) : MANU/SC/0042/1990
- https://www.cyberswift.com/blog/csr-challenges-and-resolutions/
- https://www.linkedin.com/pulse/top-csr-initiatives-india-leading-example-kadiri-raghu-vamsi-onpbc
- https://www.ipandlegalfilings.com/corporate-social-responsibility-the-extent-advancements-and-challenges-in-india/
