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Corporate Social Responsibility a Review

What we do today and the choices we make today affect the future. We live in a world that is becoming increasingly complex with the passage of time. Global issues have become part of our everyday life. Social, cultural, economic, and environmental issues catch our attention like never before. The liberalisation of the market in the early 1990s and the entry of the MNCs in India also brought in their wake the culture of responsible business.

Profit is no more the sole objective of the profit-making organisations. Along with profit, a responsible and sustainable business also became one of the primary objectives of the organisations. The piece discusses the corporate social responsibility (CSR), with specific focus on India. It begins by giving a broad understanding of the history of the CSR and its applicability, followed by corporate governance, touching upon United Nations Global Compact (UNGC), ISO, and GRI.

Introduction
Though CSR came as an obligatory measure in India only in 2013 by the amendment of the Companies Act, 1956, the concept is not new. The idea of trusteeship advocated by M. K. Gandhi and followed by many companies, was in existence even when there was no concept of CSR. TATA is one of such companies that contributed immensely in the field with its huge philanthropic activities.

As J.R.D. Tata said:

No success in material terms is worthwhile unless it serves the needs or interests of the country and its people.

The government deems CSR as a business contribution for sustainable development. It is a concept in which the company serves the interest of its stakeholders by taking all the responsibility for its act during the course of its business.

There is a great diversity of the definitions of the term CSR, highlighting one or the other of its various dimensions.

According to Michel Hopkins:

Corporate Social Responsibility is concerned with treating the stakeholders of a company or institution ethically or in a responsible manner. Ethically or in a responsible manner refers to treating key stakeholders in a manner deemed acceptable according to international norms.

European Union has defined CSR as:

A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

According to Business for Social Responsibility (BSR):

Corporate social responsibility is operating a business in a manner which meets or excels the ethical, legal, commercial and public expectations that a society has from the business.

During the initial phase of economic liberalization the government often made lucrative offers to foreign companies to attract foreign investment without any proper statutory provisions. Many MNCs entered India without any proper guidelines for them to follow while functioning in India, which resulted in the degradation of ecological, financial, and cultural resources. We live in a global ecosystem where what happens in one country sooner or later affects the other countries as well.

Traced back in the ancient Roman Laws and witnessed in entities such as asylums, homes for the poor and old, hospitals and orphanages, CSR in India came as a stride to make businesses legally responsible. And further, make them conscious of their larger duty towards society.

United Nations Global Compact [1]

The United Nations Global Compact (UNGC) envisions the creation of sustainable companies and stakeholders with ten principles derived from the following the Universal Declaration of Human Rights, the International Labour Organization's Declaration on Fundamental Principles and Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention against Corruption. These principles are divided into four broad categories and then subdivided into ten principles.

The principle states every business should support and respect the protection of internationally declared human rights[2] and make sure that they are not involved in any such activities that are in violation of human rights or abuse of law[3]. Businesses should also uphold the freedom of association and should recognise the right to collective bargaining[4] for the elimination of all forms of forced and compulsory labour[5], abolition of child labour[6] and elimination of discrimination in respect of employment and occupation[7].

Every businesses should also support a precautionary approach to environmental challenges[8] by undertake initiatives to promote greater environmental responsibility[9] and encourage the development and diffusion of environmentally friendly technologies.[10] Additionally it should work against corruption in all its forms, including extortion and bribery.[11]

CSR and Corporate Governance

CSR and corporate governance are inextricable in today's globalised world. Mark Walsh and John Lowry in their joint article stated corporate governance is an increasingly important aspect of CSR to provide the more solid foundations on which broader CSR principles and business ethics can be further enhanced[12]. CSR also known as corporate conscience, corporate citizenship, social performance, or sustainable responsible business is a corporate self-regulation integrated into business model. Governance and business ethics form the basis of Corporate Social Responsibility.

Contemporary discussion of corporate governance tend to refer to principles raised in three documents released since 1990: The Cadbury Report (UK, 1992), the Principles of Corporate Governance (OECD, 1998 and 2004), the Sarbanes-Oxley Act of 2002 (US, 2002). The Cadbury and OECD report present general principles around which business are expected to operate to assure proper governance. The Sarbanes-Oxley Act, informally referred to as Sarbox or Sox, is an attempt by the federal government in the United States to legislate several principles recommended in the Cadbury and OECD report.

With great power comes great responsibility, as Winston Churchill famously said at the, House of Commons in 1906. CSR is based on Triple Bottom Line (TLB) theory. It is the responsibility of an organization for the impacts of its decisions and activities on society, its environment as well as on its own prosperity, known as the triple bottom line (TBL) of people, planet, and profit. This is often referred to as the three pillars of the business entity.

In 1997 Briton John Elkington introduced the term (TBL) which is based on the principle that business entities have more to do with things other than profit-making. Here people (human capital) refer to the society where the business conducts its operations, planet (natural capital) refers to the sustainable environment practices, and profit is shared by all concerned.

As corporations aimed for growth through globalization and by acquiring the MNC status, many encountered new challenges that limited their growth and potential profits. Government rules and regulations, tariffs, environmental restrictions and work environment standards if not followed constitute labour exploitation. These are problems that cost millions of dollars to these MNCs. Some view that ethical issues as simply an additional cost on these MNCs, while others use CSR as a strategic tactic to gain public support for their presence in global markets.

Thus, helping them to sustain a competitive advantage, by using social contributions made by them, provide a subconscious level of advertising. Global competition places a particular pressure on MNCs. It examines not only their labour practices, but also their entire supply chain. From the perspective of CSR it is all government control[13].

Cadbury Greenbury and Hampel Committee reports of 1999 are considered the best code of corporate governance practice. Based on it, SEBI constituted a committee on corporate governance under the chairmanship of Kumar Mangalam Birla, to promote and raise the standard of corporate governance in respect of listed companies. SEBI considered the recommendation and amended the listing agreement by inserting Clause 49 in the listing agreement. These provisions could not prevent some catastrophe in the corporate governance of companies like Enron, WorldCom.

As a result, SEBI felt further need to improve corporate governance standard and constituted a second committee, chaired by Narayana Murti. Based on the recommendation of the Narayan Murti committee SEBI revised Clause 49 of Listing Agreement. The revised clause superseded all the previous circulars and notifications. It was applicable to all the companies seeking listing for the first time and also for the existing companies having paid up share capital of rupees three crores and above or net worth of rupees twenty-five crores or more any time in the history of the company. In 2015 the listing agreement was replaced by SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations.

International Organisation on Standardisation (ISO)

With globalisation the global business practice is intensely influenced. In order to build the trust of the global clients, the domestic companies started practising the global business standard. International organisation on standardisation is such a standard setting body consisting of members from different nation. It was one of the first organizations granted general consultative status with the United Nations Economic and Social Council. It is world's largest developer of global standard.

ISO 26000 provides guidance on how business can operate in a socially responsible way considering the global interest[14]. The standard was formally launched in 2010 after years of negotiations, consultations and discussions with various countries.

Global Reporting Initiative (GRI)[15]

GRI helps businesses and governments worldwide understand and communicate their impact on critical sustainability issues such as climate change, human rights, governance and social well-being. It also facilitates social, environmental and economic benefits considering all the countries. The GRI Sustainability Reporting Standards are developed with true multi-stakeholder contributions considering global public interests.

The four focus areas of GRI are creating standards and guidance to advance sustainable development. It aims to provide the market with leadership on consistent sustainability disclosures, including engaging with stakeholders on emerging sustainability issues. It further aims to harmonize the sustainability landscape by making GRI the central hub for sustainability reporting frameworks and initiatives, and select collaboration and partnership opportunities that serve GRI's vision and mission.

It also aims to lead efficient and effective sustainability reporting to improve the quality of disclosures made using the GRI Standards. It reduces reporting burden. It also aspires to explore reporting processes that aid decision-making. Drive effective use of sustainability information to improve performance are also aimed at by working with policy makers, stock exchanges, regulators and investors to drive transparency and enable effective reporting.

End-Notes:
  1. UNGC, The Ten Principles of the UN Global Compact, The Power of Principles (Sep. 28, 2019, 5:30 PM) https://www.unglobalcompact.org/what-is-gc/mission/principles
  2. United Nations Global Compact, Human Rights, Principle 1 (2004)
  3. United Nations Global Compact , Human Rights, Principle 2 (2004)
  4. United Nations Global Compact, Labor, Principle 3 (2004)
  5. United Nations Global Compact, Labor, Principle 4 (2004)
  6. United Nations Global Compact, Labor, Principle 5 (2004)
  7. United Nations Global Compact, Labor, Principle 6 (2004)
  8. United Nations Global Compact, Environment, Principle 7 (2004)
  9. United Nations Global Compact, Environment, Principle 8 (2004)
  10. United Nations Global Compact, Environment, Principle 9 (2004)
  11. United Nations Global Compact, Anti-Corruption, Principle 10 (2004)
  12. Walsh Mark & Lowry John, CSR and Corporate Governance, RM (ed.) 38, 39 (2005)
  13. Nilima Prakash, Ethical Behavior and Social Responsibility, International Research Journal of Management Sociology & Humanity, 76, 80
  14. International Standard Organisation, ISO 26000 Social Responsibility (Sep. 28, 2019, 7:00 PM) https://www.iso.org/iso-26000-social-responsibility.html
  15. Global Reporting Initiative, About GRI, (Sep.28, 2019, 7:30 PM) https://www.globalreporting.org/Information/about-gri/Pages/default.aspx

The author is a lawyer and certified corporate governance professional.  

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