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CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility

  • Corporate Social Responsibility is a management concept whereby  companies integrate social and environmental concerns in their business  operations and interactions with their stakeholders.
  • Corporate Social Responsibility (CSR) is generally  understood as being the way through which a company achieves a balance  of economic, environmental and social imperatives (“Triple-Bottom-Line-  Approach” as recommended by UNIDO), while at the same time addressing the expectations of  shareholders and stakeholders.
  • In this sense it is important to draw a  distinction between Corporate Social Responsibility, which can be a strategic business management  concept, and charity, sponsorships or philanthropy.
  • Even though the  latter can also make a valuable contribution to poverty reduction, will  directly enhance the reputation of a company and strengthen its brand,  the concept of Corporate Social Responsibilty clearly goes beyond that.

TBL- Triple Bottom Line Approach of UNIDO (United Nations Industrial Development Organisation):

  • UNIDO based its CSR programme on the Triple Bottom Line (TBL) Approach, which has proven to be a successful tool for SMEs in the developing countries to assist them in meeting social and environmental standards without compromising their competitiveness.
  • The TBL approach is used as a framework for measuring and reporting corporate performance against economic, social and environmental performance.
  • It is an attempt to align private enterprises to the goal of sustainable global development by providing them with a more comprehensive set of working objectives than just profit alone.
  • The perspective taken is that for an organization to be sustainable, it must be financially secure, minimize (or ideally eliminate) its negative environmental impacts and act in conformity with societal expectations.

What are the Key Corporate Social Responsibility issues?

  • Environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance, and anti-corruption measures.

Benefits of Corporate Social Responsibility:

  • A properly implemented CSR concept can bring along a variety of competitive advantages, such as enhanced access to capital and markets, increased sales and profits, operational cost savings, improved productivity and quality, efficient human resource base, improved brand image and reputation, enhanced customer loyalty, better decision making and risk management processes.

CSR in India

  • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to The Company Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger.

What is the link between CSR and Sustainable Development?

  • Sustainability is derived from the concept of sustainable development which is defined by the Brundtland Commission as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
  • Corporate sustainability essentially refers to the role that companies can play in meeting the agenda of sustainable development and entails a balanced approach to economic progress, social progress and environmental stewardship.
  • CSR in India tends to focus on what is done with profits after they are made.
  • On the other hand, sustainability is about factoring the social and environmental impacts of conducting business, that is, how profits are made.
  • Hence, much of the Indian practice of CSR is an important component of sustainability or responsible business, which is a larger idea, a fact that is evident from various sustainability frameworks.
  • The UN Global Compact, a widely used sustainability framework has 10 principles covering social, environmental, human rights and governance issues, and what is described as CSR is implicit rather than explicit in these principles.
Which are the tools that can be used to formulate CSR policy in a company?

·         UNGC- 10 principles

·         Section 135 of the Companies Act 2013

·         Triple bottom line approach by UNIDO

 

10 Principles of UNGC (United Nations Global Compact)

The United Nations Global Compact is a United Nations initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation.

The UN Global Compact is a principle-based framework for businesses, stating ten principles in the areas of human rights, labor, the environment and anti-corruption. Under the Global Compact, companies are brought together with UN agencies, labor groups and civil society.

The 10 Principles are as under:

  1. Human Rights

Businesses should:

Principle 1: Support and respect the protection of internationally proclaimed human rights; and

Principle 2: Make sure that they are not complicit in human rights abuses.

  1. Labour Standards

Businesses should uphold:

Principle 3: the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;

Principle 5: the effective abolition of child labour; and

Principle 6: the elimination of discrimination in employment and occupation.

  1. Environment

Businesses should:

Principle 7: support a precautionary approach to environmental challenges;

Principle 8: undertake initiatives to promote environmental responsibility; and

Principle 9: encourage the development and diffusion of environmentally friendly technologies.

  1. Anti-Corruption

Principle 10: Businesses should work against corruption in all its forms, including extortion and bribery.

Section 135 of the Companies Act, 2013

In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.

  • The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore INR and more, or a net worth of 500 crore INR and more, or a net profit of five crore INR and more.
  • It also requires companies to set-up a CSR committee consisting of their board members, including at least one independent director.
  • The Act mandates the companies to spend at least 2% of their average net profit in the previous three years on CSR activities.
  • The Act lists out a set of activities eligible under CSR.
  • Companies may implement these activities taking into account the local conditions after seeking board approval.
  • Surplus arising out of CSR activities will have to be reinvested into CSR initiatives, and this will be over and above the 2% figure
  • The company can implement its CSR activities through the following methods: – Directly on its own – Through its own non-profit foundation set- up so as to facilitate this initiative – Through independently registered non-profit organisations that have a record of at least three years in similar such related activities – Collaborating or pooling their resources with other companies
  • Only CSR activities undertaken in India will be taken into consideration
  • Activities meant exclusively for employees and their families will not qualify

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Roles and responsibilities of CSR Committee:

  • Clause 135 of the Companies Act, 2013 requires a CSR committee to be constituted by the board of directors.
  • They will be responsible for preparing a detailed plan of the CSR activities including, decisions regarding the expenditure, the type of activities to be undertaken, roles and responsibilities of the concerned individuals and a monitoring and reporting mechanism.
  • The CSR committee will also be required to ensure that all the income accrued to the company by way of CSR activities is credited back to the CSR corpus.

Learning from the US: SOX Act

  • The Sarbanes-Oxley Act of 2002 (SOX) is an act passed by U.S. Congress on July 30, 2002 to protect investors from the possibility of fraudulent accounting activities by corporations.
  • The Sarbanes-Oxley Act of 2002, also known as the Corporate Responsibility Act of 2002, mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.
  • The Act was created in response to accounting malpractice in the early 2000s, when public scandals such as Enron Corporation, Tyco International plc and WorldCom shook investor confidence in financial statements and demanded an overhaul of regulatory standards.

Which activities are “considered” and “not considered” under CSR?

NOT CONSIDERED

·         The CSR projects or programs or activities that benefit only the employees of the company and their families

·         One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV programmes etc.

·         Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws, Land Acquisition Act etc.)

·         Contribution of any amount directly or indirectly to any political party

·         Activities undertaken by the company in pursuance of its normal course of business.

 

CONSIDERED

·         Eradication of extreme hunger and poverty

·         Promotion of Education

·         Gender equity and women empowerment

·         Combating HIV-AIDS, Malaria and other diseases

·         Reducing Child mortality and improving maternal health

·         Social Business projects

·         Environmental Sustainability

·         Contribution to PM relief fund and other such state/centre funds

·         Social Business Projects

·         Employment enhancing vocational Skills

·         And such other maters as may be prescribed

 

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