LEVERAGING CSR FOR SOCIAL WELFARE AT THE TIME OF COVID PANDEMIC
Dr. Sudhi Ranjan Dash
The essence of corporate social responsibility lies beneath the concept of 3Ps that is people, planet and profit. The principle of natural justice says it is our moral responsibility to leave that much of resources for our future generations what we have inherited from our ancestors.
It is regularly argued that the primary motivation of corporations should be to make a profit for shareholders; that responsibility for ensuring that political, economic and social objectives are met should rest solely with Governments. Corporations, it is argued, should be required to obey laws and regulations, pay taxes and maintain labour and environmental standards as they exist, but cannot be responsible for solving social problems, achieving full employment or eradicating poverty. Yet it can also be argued that the private sector has both a practical need and a certain ethical responsibility for the well-being of the environment in which it operates, based on its own needs for economic and social stability in which to operate, its needs for skilled and healthy workforces and the benefits it obtains from reduced governmental regulation. It could be argued that expanding markets are only sustainable if they are complemented by a social response to ensure a certain degree of equity. At the level of the individual enterprise, it could similarly be claimed that with wealth comes certain responsibilities. Thus, the private sector in general and transnational corporations in particular might find it in their interests to accept a greater responsibility for promoting an environment conducive to their continuing success. These opposing views lie at the heart of the current global debate on corporate social responsibility, a debate that has intensified in recent years as a result of the growing attention paid to the social impact of globalization and economic and financial liberalization. The growth of the power and influence of corporations has sparked a reaction calling for them to accept commensurately greater responsibilities. This reaction has come particularly but not exclusively from organizations of civil society, which are working to ensure that corporate activities are socially and environmentally sustainable. The growing public demand for enhanced corporate social responsibility has been amplified by the current policy orientation in many industrialized countries, which has reduced the role of the public sector in the economic and social spheres of society; by the increasingly large and unpredictable private capital flows across national boundaries, which have substantially reduced the leverage of Governments, particularly of developing countries, in controlling their economic fate; and by the unprecedented period of strong economic growth in large parts of the industrialized world, which has resulted in spectacular growth of corporate wealth, benefits and influence in political decision-making. The Coalition for Environmentally Responsible Economies developed a set of principles, better known as the CERES principles, which set out a number of guidelines in the area of environmental protection. Another example is the Business Charter for Sustainable Development of the International Chamber of Commerce.
The United Nations has worked to develop a supporting international “soft infrastructure” for encouraging social responsibility and the orderly conduct of business through, for example, the issuance of guidelines on consumer protection in 1985, recently extended to include sustainable consumption. It has also encouraged private sector participation in achieving the goals of the global conferences of the 1990s. To further promote corporate social responsibility, the Secretary General launched, in January 1999, the Global Compact, a major initiative to increase private sector participation in social development. The initiative contains nine principles derived from globally acknowledged and widely recognized declarations and major United Nations conferences. These include the 1948 Universal Declaration of Human Rights, the Rio Declaration on Environment and Development adopted at the 1992 United Nations Conference on Environment and Development, the Copenhagen Declaration and the Programme of Action adopted at the 1995 World Summit for Social Development and the 1998 ILO Declaration on Fundamental Principles and Rights at Work. While it is clear that external monitoring, in particular from consumer organizations and advocacy groups, plays a crucial role in the decision of transnational corporations to adopt standards for socially responsible behaviour, other factors influence the ability of corporations to carry out such commitments. Corporations’ financial scope to implement social and other ethical values in their production can be severely limited in situations of fierce competition or market instability. Some people argue that the propensity to respond to such outside demands – and the extent to which ethical standards are actually internalized in business practice – is linked to the market power of the individual corporations; only when companies hold a dominant position in a market can, they afford to take into account non-profit-related considerations. By the same token, market leaders have great influence over the behaviour of their competitors. If a market-leading company adopts a certain standard it is likely that competitors will do the same. There is thus an added incentive to monitor the behaviour of large market leading companies.
CSR is about companies going beyond legal obligations and their own interests to address and manage the impact their activities have on society and the environment. Therefore, this view includes how companies and their managers interact with stakeholders—those “persons or groups that have, or claim ownership, rights, or interests in a corporation and its activities, past, present, or future”—including customers, suppliers, employees, investors, and the communities in which they operate, as well as the degree to which they endeavour to care for the natural environment.
The amendment to The Companies Act, 2013, has opened up exciting possibilities for corporates to leverage their CSR corpus to back technology-led start-ups and TBIs. Corporates can employ two distinct approaches to disburse CSR corpus effectively either directly from the corporate balance sheet or indirectly through an intermediary such as a foundation, knowledge partner, etc.
To drive meaningful outcomes for these CSR initiatives, corporates need to plug in their non-CSR elements into these programs through mentorship and leveraging the corporates’ tools/kits/products. Not only will this help in increased employee engagement, but also provides an opportunity to leverage these programs as the testing ground for the corporates’ products and solutions.
A collaboration between businesses and NGOs is mutually beneficial for both; businesses benefit from the domain expertise and groundwork of NGOs, while NGOs get access to a sustainable source of funds and strategic resources in turn. The CSR mandate serves as a social contract between businesses and NGOs, providing them an opportunity to leverage each other’s strengths to further socio-economic development. It has helped in forging a resourceful partnership by bringing the two sides together.
Though the CSR mandate gives businesses the option to set up their own philanthropic arm, not all of them are equipped for it. Many businesses do not have the bandwidth to undertake welfare initiatives on their own, for this means they have to build the necessary infrastructure, channelize funds and time towards training employees, hiring people, and getting consultants on board, etc. Instead, they prefer to partner with NGOs. Thus, there is immense potential for NGOs to acquire funds and strategic resources to help maximize the impact of their services.
In directing businesses to spend at least 2 percent of their average net profit for the preceding three years on CSR activities, the Companies Act 2013 earmarks thousands of crores for social initiatives which can be utilized to further social good. The mandate is in its fourth year and there has been a steady rise in CSR spends. According to CII analysis, in FY17, businesses spent Rs. 8,897 Cr on CSR activities, which is 9 percent more than the amount spent in FY 16 (Rs. 8,185 cr). The rise in CSR spends over the last four years shows that the concept is slowly gaining traction with businesses starting to integrate social welfare into their core operations.
In spending Rs. 8,897 cr on CSR expenditure in FY17, the 1,522 BSE-listed companies achieved 92 percent of their targeted expenditure as per the mandate. In a survey conducted by the global consulting leader Mercer, 58 percent of the respondents revealed that they have an annual centralised budget for sustainability activities.
On their part, NGOs should establish themselves as credible organisations. They should abide by high standards of financial transparency and accountability if they are to make the maximum use of this opportunity. The most effective way to do this is to adopt robust accounting mechanisms and make all the information about them readily available in the public domain. Financial transparency is one of the several metrics that businesses take into consideration before partnering with an NGO. Other points that are usually considered include the number of years the NGO has been in operation, its reach, necessary registrations, reputation, etc. With the number of NGOs increasing rapidly, these metrics—the reputation in particular—become indispensable.
Besides benefiting the community and society at large, the services enhanced as a result of CSR-fuelled innovation can also add to the businesses’ brand value. Any good work by a company on the social welfare front is most likely to translate into good business for it.
The world is challenged by several social issues such as hunger, malnutrition, poverty, lack of education, etc., and multi-stakeholder partnerships can go a long way in addressing these issues. In facilitating collaborations between businesses and NGOs, the CSR mandate is laying the foundation for such partnerships to thrive for serving those in need. The CSR mandate bridges the gap between NGOs and businesses and, in doing so, it contributes towards the sustainability of various initiatives by helping both sides make the most of their respective strengths.
This covers companies undertaking research and development into vaccines, medical devices, and drugs related to COVID-19, even if such activity is in their normal course of business. This exemption is allowed up to the financial year 2022-2023. However, the company must make separate disclosures in their annual report and must undertake such research and development in collaboration with others. There is a new requirement for mandatory impact assessment of CSR projects. This requirement applies to companies that have an average CSR spend of INR 10 crore or more in the past three financial years, It must be conducted for all CSR projects that have budgets of INR 1 crore and more; and have been completed one year prior to undertaking the impact assessment and An ‘independent’ agency must be appointed to undertake the impact assessment. The costs of such an agency cannot exceed INR 50 lakh or five percent of the total CSR spend for that financial year (whichever is lower).
Departing from the previous philosophy of ‘name and shame’, the amendments have introduced monetary penalties for the company and every officer in default for non-compliance. A defaulting company is now liable for the lesser of INR 1 crore or twice the amount that should have been transferred to the unspent CSR account or the Schedule VII specified fund. Additionally, a defaulting officer is now liable for the lesser of INR 2 lakhs, or one-tenth the amount that should have been transferred to the ‘Unspent CSR Account’ or the Schedule VII specified fund.