WHITE PAPER ON CORPORATE SOCIAL RESPONSIBILITY- EMOTIONAL CONNECT VS PROFESSIONAL JUDGEMENT
Since the idea of Corporate Social Responsibility (CSR) first arose, there has been continuous debate of the concept and its implementation. Although the idea has existed more than half a century, there is no consensus over its definition. One of the most contemporary definition is from the World Bank Group stating ” Corporate Social responsibility is the commitment of business to contribute to sustainable economic development by working with employees, their families, the local community & society at large to improve their lives in ways that are good for business and development.”
As per Corporate Social Responsibility rules, 2014, CSR is the process by which an organisation thinks about and evolves its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies. Thus CSR is not charity or mere donations. It is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth.
Companies Act, 2013 has introduced mandatory corporate social responsibility. The law has listed out a wide spectrum of activities under CSR as per schedule VII, which cover activities such as promotion of education, gender equity and women’s empowerment, promoting preventive health and sanitation, eradication of extreme poverty, contribution to the Prime Minister’s National Relief Fund and other central funds, social business projects, reduction in child mortality, improving maternal health, environmental sustainability and employment enhancing vocational skills among others.
The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects or programs or activities, excluding activities undertaken in pursuance of its normal course of business. The board of a company may decide to undertake its CSR activities approved by the CSR committee, through a registered trust or registered society or a company established by a company or its holding or subsidiary or associate company. The CSR committee which shall be responsible for decisions on CSR expenditure and type of activities to be undertaken. This committee shall consist of three or more directors, with at least one independent director whose presence will ensure a certain amount of democracy and diversity in the decision-making process.
The company shall give preference to local area and areas around it where it operates for carrying out CSR activities. The CSR projects or activities that benefit only the employees of the company and their families shall not be considered as CSR activities.
Off lately, Corporates have been contributing towards medical expenses in hospital emergencies like heart surgery, etc. to support the underprivileged society who cannot afford the cost. What makes these corporates contribute in such circumstances? Is it sympathy? As the Corporate cannot sympathise, is it the sympathy of the directors? Do they have the Power to do so? Is it right for them to sympathize? Is making contributions to such hospitals was a part of the CSR policy of the company? Have they made the contribution to be in the news or press coverage? Did the publicity actually help them to reach the targeted audience? Did such event affect the employee’s or the stakeholder’s in any way? Was there an emotional Connect or Professional Judgement?
It refers to using the funds of the organisation for social responsibility in a manner which will in return benefit the organisation. Over the past few decades there has been a transformational change in the attitude of being a philanthropist to “strategically driven socially responsible organisations” (performing activities that are advantageous to the community, as well as providing profit through goodwill). Let us now see how organisations of various sectors have been contributing towards the society, which also affects their profitability.
Oil and Gas Sector:
In the oil and gas sector, public sector undertakings have been found to spend the most on development of townships and community, with a special focus on education. They undertake community development in and around their areas of operation. This may be because the communities living close to their area of operation are most affected by negative production externalities. Hence the firms undertake CSR spending in order to reduce the negative effects of their production activities. They organise health camps, which provide free medical check-ups to people. For example, the Indian Oil Corporation runs mobile medical units in Mathura and has setup a nurse training institute in Digboi, Assam. It has also spent a lot on the school education of children who live near their plants and in their townships. A unique joint initiative of Reliance Industries Limited and National Association of Blind, Project Drishti has undertaken thousands of free corneal graft surgeries for the visually challenged Indians from the underprivileged segment of the society. It is the largest corneal grafting surgery project enabled by a single corporate entity in India. Various manufacturing divisions throughout the country have Anti-Retroviral Treatment Centre for AIDS patients.
Iron and Steel Sector:
In the iron and steel sector, the Steel Authority of India Limited (SAIL) has invested in health and education infrastructure for its employees. Many firms spend on skill development programmes, which help in building human capital leading to better employment prospects for people. The firms fund the school education of the children living in the nearby communities and give scholarships for higher education as well. Tata Steel provides continuous curative, promotive and preventive healthcare services to improve levels of health amongst the community.
Companies in the banking sector spend mainly on priority sector areas. (Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture or small scale industries. This is essentially meant for an all-round development of the economy as opposed to focusing only on the financial sector.) They count the 40% mandatory priority sector lending as a part of their CSR activities. However, banks such as Jammu and Kashmir Bank undertake activities other than priority sector lending also. They support schools and provide funds for meeting educational expenses. Studies have shown that banks spend more on education and environment in order to strengthen their image and increase consumer satisfaction (Narwal 2007). Large banks tend to take on more CSR activities to signal better market performance, while relatively less profitable or smaller banks may want to increase their CSR initiatives to build stronger relationships with its stakeholders (Narwal 2007).
In a content analysis study, it has been found that Indian banks differ in their CSR orientation with respect to their ownership structure, number of employees, and date of its incorporation (Singh and Aggarwal 2011). It has been found that there is a significant difference in orientation in the areas of environment and rural development (when comparing banks with respect to ownership), in community welfare and environment and rural development (when comparing banks with respect to number of employees), and in environment and market place (when comparing banks with respect to the date of incorporation of the bank) (Singh and Aggarwal 2011). Indian banks no longer see CSR as charity, but they see it as a way of building their image and marketing their products.
Most of the companies in the automobile sector spend mostly on environmental sustainability, while some like Tata motors focus more on education and skill development. Mahindra and Mahindra focuses more on environment by committing to reduce greenhouse gas emissions. It has introduced various sustainability measures in its plants like xeriscaping, green buildings and water efficient plants. This can be attributed to the fact that the automobile sector is one of the most polluting industries in India.
The Centre for Science and Environment (CSE) has given a very low score to Tata motors and Mahindra and Mahindra in its green rating programme. Hence this may explain their CSR orientation towards environment. While Maruti Suzuki, which has a comparatively higher score in green rating, has spent more on employee welfare than on environment related activities. This suggests that firms which are comparatively more polluting are more driven towards environment in their CSR orientation. This may be to avoid possible future environmental regulations.
Cement industry is one of the most polluting industries in India. Shree Cements which was given a very low rating by the CSE Green Rating programme has focussed more on sustainability. It has adopted the “triple bottom line” approach, where the focus is on profit maximisation, employee welfare and environmental sustainability. In its sustainability report, it has focussed on climate change and reduction of greenhouse gases during production.
Grasim Cements, which has a comparatively higher rating, has focussed more on community development and rural development. Their CSR spending has been directed towards health care, mother and child welfare and education. Gujarat Alkalies and Chemicals Limited (GACL) and Madras Cement Limited (MCL), which are subsidiaries of Ramco Cements, spend on community development and environment. GACL has undertaken clean development mechanism in order to reduce greenhouse gas emissions. Ultratech Cement’s CSR strategy is oriented more towards community development. It has conducted health camps in rural areas around its plants and has encouraged sustainable livelihood through watershed management and environment.
Paper and Pulp Industry:
In the paper and pulp industry, Ballarpur Industries (BILT) has focussed on sustainable development. Its CSR strategy focuses on rural development, with an emphasis on environment and communities. Similarly, JK Paper emphasises on social farm forestry and even publishes a bi-annual environment compliance report. Andhra Pradesh Paper Mills also focuses on environmental sustainability.
In the power sector, firms spend predominantly on community and rural development. They undertake development measures for communities which stay close to their plants through foundation and trusts. They emphasise on the provision of educational facilities and skill development programmes. For example, Jindal Steel carries out its CSR activities through its own trusts, which lead to saving of transaction costs and creation of goodwill in the local area. Public sector units like NHPC and NTPC focus on rehabilitation and resettlement of the communities displaced by construction projects. Since these plants cause damage to the surrounding areas, CSR activities may help in circumventing agitation by the local community and NGOs.
In the consumer durables and fast moving consumer goods industry, companies focus on healthcare and education. The Godrej group supports environmental sustainability by supporting conservation of mangrove forests and undertakes philanthropic activities in the health and education sector. They conduct blood donation camps, conduct cleft lip surgeries with Smile Train, a NGO. Similarly, Hindustan Unilever (HUL) focuses on improving health and well-being and reducing the environmental impact of its production activities. The ITC Choupal Supplementary Education Programme addresses the lack of quality primary education in rural communities. Hence in the consumer durable and fast moving consumer goods sector, we find that companies spend mainly on education and health initiatives.
Companies in the pharmaceutical sector spend mainly on education and health initiatives. Since pharmaceutical companies operate in the health sector and have enough skilled manpower, they conduct many health camps in rural areas. The thrust of their CSR activities is to make healthcare accessible to the marginalised sections of the society. Companies like Aurobindo Pharma, Cadila Healthcare, Sun Pharma and Ajanta Pharma conduct medical camps, while GlaxoSmithKline focuses on the development of communities which reside near their plant.
In the infrastructure sector, firms spend heavily on community development programmes. We have taken firms engaged in construction, engineering, ports, shipping, and road transport under infrastructure sector. These firms spend in the development of rural areas. They support the mid-day meal programmes in schools and skill development programmes for women and youth. When it comes to CSR implementation, we find that these firms undertake CSR mostly through foundations and NGOs.
Though the new Companies Act, 2013, which made spending 2% of their profits on CSR mandatory, came into force only in April 2014, the last couple of years have seen a significant increase in CSR expenditure by firms. This can be attributed to the desire of companies to project themselves as socially responsible.
It can be understood as Philanthropy or Charity. It refers to a circumstance where the contribution is done by an organisation without analysing how much return or impact it will have. We have seen Managing Directors (MD) of various organisations contributing funds towards charity in developing their villages or towns from where they belong. One such Example has been the MD of GMR Group, developing his hometown Rajam, Andhra Pradesh.
Corporate Social Responsibility has a long way to go in the years to come. As stated above, the CSR committee is responsible for decisions on CSR expenditures and the activities to be undertaken. The attitude of Emotional Connect & Professional Judgement will therefore go hand in hand for the CSR committee to allocate funds & take decisions in the long run growth of the organisation.