CSR is called ‘Strategic CSR’ when it is treated as a part of an effective corporate strategy to meet the company’s financial and non-financial goals.
By Vaishali Shah
There is a lot of anticipation around the new Companies Bill which mandates 2% of the net profit of a company, to be spent towards Corporate Social Responsibility (CSR). It will be applicable only to companies with a net worth of Rs.500 crore or more, or a turnover of Rs.1000 crore or more, or a net profit of Rs.5 crore or more during a financial year. If this bill becomes a law then India would become the first country with mandatory CSR requirements.
Before we delve into what are the implications of this proposed law for a business, let us come to a common understanding of what constitutes CSR. As CSR is a dynamic and ever evolving concept it has many definitions and interpretations. According to the first World Business Council for Sustainable Development (WBCSD) CSR dialogue in Netherlands, ‘CSR is the continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’. Thus, CSR becomes a holistic concept which comprises of more than just social and environmental development but also ethics, employee welfare, supplier management, and product life cycle management translating into good governance, transparency and accountability. This concept of CSR is also used interchangeably with the term ‘Sustainability’ by many companies.
A law mandating CSR may seem like a burden or an unnecessary expenditure for many of us, but if we shift our perspective to look at the glass as ‘half-full’ instead of ‘half-empty’ we might be able to make most of these upcoming changes. When we list some of the common challenges for any businesses, it would mostly comprise of employee retention, competition, risk management and marketing & sales. Many of these challenges can be addressed by taking strategic CSR initiatives, such as CSR activities for employee health and safety can help bring about a higher sense of belonging among employees and thus help companies retain talent for a longer period of time and activities for environmental conservation like saving energy, recycling waste, using renewable energy may result into higher efficiency and reduced costs for the company over a longer period of time. Companies undertaking CSR can differentiate themselves from their competitors and reduce unforeseen risks arising out of employee dissatisfaction, activism, fraud, and so on.
CSR is called ‘Strategic CSR’ when it is treated as a part of an effective corporate strategy to meet the company’s financial and non-financial goals. According to the Sustainable Enterprise Quarterly by University of North Carolina, CSR is strategic when endorsed by the firm’s leadership, linked to specific objectives, aligned with core competencies, fully integrated into management systems and incentives, both a risk-mitigating and an opportunity seeking strategy and tied to clear performance metrics. Strategic CSR is thus, a carefully outlined plan made in consultation with stakeholders of the company. A company may hire consultants and industry experts to design the plan and tie-up with Organisations to support and execute their plans.
Many companies have benefitted from undertaking strategic CSR, for example Pharmaceutical companies have given subsidised medicines to rural areas and penetrated into the rural market. Similarly, Britannia’s Navjyoti project was launched to fight iron malnutrition through the supplementation of biscuits with iron increasing its market. Godrej also adopts an innovative strategy where it supports the training of underprivileged women in beauty services thus increasing its beauty product market. IT companies have supported computer training for underprivileged groups to increase the pool of computer literate people in India for example TCS’s Maitree is an advanced computer training course for the visually impaired. For many companies it makes sense to use their core strengths to build goodwill for example, companies providing courier services like DHL and Blue Dart work to provide disaster relief using their existing fleet of vehicles.
CSR tends to urge companies to allocate resources to projects with a longer horizon. Since the benefits of CSR investment are not short term and are larger in scale, it becomes difficult to quantify them. Therefore mandatory CSR may seem like a burden, but it will only urge us to broaden our horizon and strengthen our sustainability. It is the era of accountability where companies need to act responsibly. If the CSR mandate is not passed then some other law is going to take its place, but we can be sure that stricter norms for companies are going to be issued to tackle the over consumption of resources and other ethical issues. Accepting this shift would help us better prepare for the changes that will nurture and strengthen corporate India. Hence, it is suggested that CSR is adopted as a long term strategy instead of merely a legal obligation.
The author is a developmental consultant working on various projects with specialised skills for CSR reporting. She is the founder trustee of Srujna, an NGO which works to provide livelihood access to the underprivileged and has won many global and national competitions.