Unit 6 - CSR

Unit no. 6 - Corporate Social Responsibility

6.1. Concept
6.2. Types and Nature
6.3. Need
6.4. CSR Programs of Some Indian Companies

6.1. Concept of CSR:

Corporate social responsibility (CSR) can be defined as the "economic, legal, ethical, and
discretionary expectations that society has of organizations at a given point in time" (Carroll
and Buchholtz 2003, p. 36).

The concept of corporate social responsibility means that - Organizations have moral, ethical
& philanthropic responsibilities in addition to their responsibilities to earn a fair return for
investors & comply with the law. A traditional view of the corporation suggests that its
primary, if not sole, responsibility is to its owners, or stockholders.

However, CSR requires organizations to adopt a broader view of its responsibilities that
includes not only stockholders, but many other constituencies as well, including employees,
suppliers, customers, the local community, governments, environmental groups & such
other special interest groups. Collectively, the various groups affected by the actions of an
organization are called "stakeholders."

CSR is related to, but not identical with, business ethics. While CSR encompasses the
economic, legal, ethical & discretionary responsibilities of organizations; business ethics
usually focuses on the moral judgments & behavior of individuals & groups within
organizations. Thus, the study of business ethics may be regarded as a component of the
larger study of CSR. Organizations are expected to be efficient, profitable, and to keep
shareholder interests in mind.

The legal responsibilities relate to the expectation that organizations will comply with the
laws set down by society to govern competition in the marketplace. Organizations have
thousands of legal responsibilities governing almost every aspect of their operations,
including consumer & product laws, environmental laws, and employment laws.

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The ethical responsibilities concern societal expectations that go beyond the law, such as the
expectation that organizations will conduct their affairs in a fair and just way. This means
that organizations are expected to do more than just comply with the law, but also make
proactive efforts to anticipate and meet the norms of society even if those norms are not
formally enacted in law.

Finally, the discretionary responsibilities of corporations refer to society's expectation that

organizations be good citizens. This may involve such things as philanthropic support of
programs benefiting a community or the nation. It may also involve donating employee
expertise and time to worthy causes.

Let us understand the concept of CSR:

1. Concept of Corporate Social Responsibility
2. Introducing Mandatory CSR under Companies Act, 2013
3. Activities to be Incorporated.

1. Concept of Corporate Social Responsibility (CSR):

As we learn earlier, the corporate sector has responsibility towards its own business entity,
shareholders & towards society. Thus every corporate unit must have a responsibility for the
upliftment of society which is broadly considered as Corporate Social Responsibility (CSR).

Social responsibility of business indicates norms & obligations of decision making authority
to take appropriate actions which can protect & improve the welfare of society as a whole
along with protecting the interest of business concern.

In present times, the concept is gradually more & more acceptable with changing situations.
Thus social responsibility broadly refers to the obligations & duties of business to the society
as a whole. According to K.K. Andrew, “Social responsibility may be taken to mean intelligent
and objective concern for the welfare of the society.”

Thus CSR is a way through which a company usually attains a balance between economic,
social and environmental activities. Thus, spending on CSR by a company is a simple process
of giving back to the society in which it is doing its business activity and making profits for its
shareholders sincerely.

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2. Introducing Mandatory CSR under Companies Act, 2013:

CSR has been made mandatory under Companies Act, 2013 passed in August 2013 which
replaced the 57 years old Companies Act, 1956. As per section 135 of the Act every company
having net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or a net
profit of Rs 5 crore or more during any financial year will have to spend, in every financial
year regularly, at least 2 % of the average net profits of the company made during the 3
immediately preceding years. Here the term ‘net profit’ shall indicate net profit before tax as
per book of accounts & shall never include profits earned from branches outside India. Here
CSR reporting will have to be done on an annual basis & that too commencing from the
financial year 2014-15. Moreover the modalities suggest that the companies identified for
mandatory CSR spending will have to constitute a CSR Committee of the Board which will
include three or more directors along with at least one independent director.

This CSR Committee will formulate the CSR policy & recommend to the Board for
undertaking activities to be undertaken by the company. It will also earmark the amount of
expenditure to be incurred on CSR activities & will also monitor the CSR policy of the
company and its implementation regularly.

3. Activities to be Incorporated under CSR:

The draft rules suggest the following activities to be included under CSR:
i) Activities related to eradicating poverty and hunger;
ii) Activities related to promotion of education;
iii) Empowerment of women and promoting gender equality.
iv) Reducing child mortality and improving material health;
v) Combating human immune deficiency virus and control acquired immune deficiency
syndrome, malaria and- other diseases;
vi) Promoting employment enhancing vocational skills.
vii) Ensuring environmental sustainability;
viii) Undertaking social business projects;
ix) Contributing towards Prime Minister’s National Relief Fund or any other fund set up
and managed by either central government or state government for socio-economic
development and relief purposes and also to the funds for the welfare of Scheduled
Castes, Scheduled Tribes, other backward classes, minorities and women; and
x) Any other matter as may be prescribed time to time.

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In the meantime, a number of companies have welcomed the new mandatory CSR Act and
they are of the view that this Act will strengthen their CSR initiative and will permit them to
continue with such activities genuinely for a longer period.

However, there are some gray areas within CSR activities. The first confusion is related to
whether an activity comes under CSR or not. Sometimes it is found that the boundary
between normal business activities and CSR activities is hazy.

The second confusion arises in respect of tax implications of the CSR activities. Whether the
CSR spending of certain company will be eligible for tax exemptions or not will be depending
on the discretions of related tax authorities. Similarly, arguments are also made against
those companies involved in CSR activities on our hand but flouting the norms related to
environment, labour welfare etc. on the other.

Arguments For & Against CSR:

For -
 The rise of the modern corporation created and continues to create many social
problems. Therefore, the corporate world should assume responsibility for addressing
these problems.
 In the long run, it is in corporations' best interest to assume social responsibilities. It
will increase the chances that they will have a future and reduce the chances of
increased governmental regulation.
 Large corporations have huge reserves of human and financial capital. They should
devote at least some of their resources to addressing social issues.
Against –
 Taking on social and moral issues is not economically feasible. Corporations should
focus on earning a profit for their shareholders and leave social issues to others.
 Assuming social responsibilities places those corporations doing so at a competitive
disadvantage relative to those who do not.
 Those who are most capable should address social issues. Those in the corporate world
are not equipped to deal with social problems.

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Understanding Corporate Social Responsibility (CSR)

 Corporate social responsibility (CSR) is a self-regulating business model that helps a
company be socially accountable—to itself, its stakeholders, and the public.
 By practicing corporate social responsibility, also called corporate citizenship, companies
can be conscious of the kind of impact they are having on all aspects of society, including
economic, social, and environmental.
 To engage in CSR means that, in the ordinary course of business, a company is operating
in ways that enhance society and the environment, instead of contributing negatively to
them.
 Corporate social responsibility is a broad concept that can take many forms depending on
the company and industry. Through CSR programs, philanthropy, and volunteer efforts,
businesses can benefit society while boosting their brands.
 As important as CSR is for the community, it is equally valuable for a company. CSR
activities can help forge a stronger bond between employees and corporations; boost
morale; and help both employees and employers feel more connected with the world
around them.
 For a company to be socially responsible, it first needs to be accountable to itself and its
shareholders.
 Often, companies that adopt CSR programs have grown their business to the point where
they can give back to society.
 Thus, CSR is primarily a strategy of large corporations. Also, the more visible and
successful a corporation is, the more responsibility it has to set standards of ethical
behavior for its peers, competition, and industry.
 Corporate social responsibility is important to both consumers and companies.
 Starbucks is a leader in creating corporate social responsibility programs in many aspects
of its business.
 Corporate responsibility programs are a great way to raise morale in the workplace.
 In today's socially conscious environment, employees & customers place a premium on
working for and spending their money with businesses that prioritize CSR.
 CSR is an evolving business practice that incorporates sustainable development into a
company's business model. It has a positive impact on social, economic and
environmental factors.

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 "What the public thinks of your company is critical to its success," Schmidt told Business
News Daily. "By building a positive image that you believe in, you can make a name for
your company as being socially conscious."
 As the use of corporate responsibility expands, it is becoming extremely important to
have a socially conscious image. Consumers, employees and stakeholders are beginning
to prioritize CSR when choosing a brand or company. They are holding corporations
accountable for effecting social change with their business beliefs, practices and profits.
 "A robust CSR program is an opportunity for companies to demonstrate their good
corporate citizenship and protect the company from outsized risk by looking at the whole
social & environmental sphere that surrounds the company," said Jen Boynton, CEO of B
Targeted Marketing Co.

To illustrate how critical CSR has become, previous research by Cone

Communications found that more than 60% of Americans hope businesses will drive
social & environmental change in the absence of govt. regulation. Nearly 90% of the
consumers surveyed said they would purchase a product because a company supported
an issue they care about. More importantly, roughly 75% will refuse to buy from a
company if they learn it supports an issue contrary to their own beliefs.

 "The next generation of employees is seeking out employers that are focused on the
triple bottom line: people, planet & revenue," said Cooney. "Coming out of the recession,
corporate revenue has been getting stronger. Companies are encouraged to put that
increased profit into programs that give back."
 In addition to a better company image, sustainable development can help our business
financially e.g., using less packaging and less energy can reduce production costs.
 The emerging concept of CSR goes beyond charity & requires the company to act beyond
its legal obligations & to integrated social, environmental & ethical concerns into
company’s business process.
 Business has today, emerged as one of the most powerful institutions on the earth. Some
of the biggest companies in the world are in fact, bigger in size than some of the
developing countries of the world. Globalization makes the world smaller, and business,
worldwide, is expanding like never before. Companies are expanding their operations and
crossing geographical boundaries.

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 Indian companies too have made their way into the business boom and are today globally
acknowledged as major players. India is currently amongst the fastest growing countries
in the world. The globalization and liberalization of the Indian economy has helped in
stepping up growth rates. Integration of the Indian with the global economy has also
resulted in Indian businesses opening up to international competition and thereby
increasing their operations.
 In the current scheme of things, business enterprises are no longer expected to play
their traditional role of mere profit making enterprises. The ever-increasing role of civil
society has started to put pressure on companies to act in an economically, socially and
environmentally sustainable way.
 The companies are facing increased pressure for transparency and accountability, being
placed on them by their employees, customers, shareholders, media and civil society.
 Business does not operate in isolation and there is today, an increased realization that not
only can companies affect society at large, but they are also in a unique position to
influence society and make positive impact.
 Milton Friedman, Nobel Laureate in Economics and author of several books wrote in 1970
in the New York Times Magazine that “the social responsibility of business is to increase
its profits” and “the business of business is business”. This represented an extreme view
that the only social responsibility a law-abiding business has is to maximize profits for
the shareholders, which were considered the only stakeholders for the company.
However, time has given the term ‘stakeholder’ wider connotations.
 Edward Freeman defines, ‘a stakeholder in an organization is any group or individual who
can affect or is affected by the achievement of the organization’s objectives.’ Thus, the
term stakeholder includes (apart from shareholders), but not limited to, customers,
employees, suppliers, community, environment and society at large.
 These and a host of other such ideas have given rise to the concept of Corporate
Social Responsibility (CSR). The concept of CSR goes beyond charity or philanthropy and
requires the company to act beyond its legal obligations and to integrate social,
environmental and ethical concernsinto its business process. Business for
Social Responsibility defines CSR as “achieving commercial success in ways that honor
ethical values and respect people, communities, and the environment.

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It means addressing the legal, ethical, commercial and other expectations that society has
for business and making decisions that fairly balance the claims of all key stakeholders. In its
simplest terms it is: “what you do, how you do it, and when and what you say.” A widely
quoted definition by the World Business Council for Sustainable Development states
that “Corporate social responsibility is the continuing commitment by business 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”.

Though, there is no universal definition of CSR but the common understanding amongst
most of these definitions concern with how the profits are made and how they are used,
keeping in mind the interests of all stakeholders. The concept of Corporate Social
Responsibility is constantly evolving.

The emerging concept of CSR goes beyond charity and requires the company to act beyond
its legal obligations and to integrate social, environmental and ethical concerns into
company’s business process. What is generally understood by CSR is that the business has a
responsibility – towards its stakeholders and society at large – that extends beyond its legal
and enforceable obligations.

The triple bottom line approach to CSR emphasizes a company’s commitment to operating in
an economically, socially and environmentally sustainable manner. The emerging concept of
CSR advocates moving away from a ‘shareholder alone’ focus to a ‘multi-stakeholder’ focus.
This would include investors, employees, business partners, customers, regulators, supply
chain, local communities, the environment and society at large.

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6.2 Types & Nature of CSR:

Although CSR is a very broad concept that is understood & implemented differently by each
firm, the underlying purpose of CSR is to operate in an economically, socially &
environmentally sustainable manner.

Generally, CSR initiatives taken by a firm fall into four categories:

1. Environmental Responsibility/Efforts/Initiative for Sustainability
2. Philanthropic Responsibility/Inititative
3. Ethical Responsibility / (Human rights/Ethical labor practices) / Diversity Mgmt.
4. Economic Responsibility

1. Environmental Responsibility/Efforts/Initiative for Sustainability:

One primary focus of CSR is the environment. Environmental responsibility initiatives
taken by a firm can involve –
 Reducing pollution,
 Greenhouse gas emissions, and
 The sustainable use of natural resources.

As the awareness of environmental issues grows, businesses that take steps to reduce air,
land & water pollution can increase their standing as good corporate citizens while also
benefiting society as a whole e.g., Cisco Systems, a multinational technology company,
has taken a variety of steps to reduce its carbon footprint, including the installation of
photovoltaic systems at production facilities & developing platforms that allow
employees to work from remote locations rather than commuting to the office.
Businesses, regardless of size, have large carbon footprints. Any steps they can take to
reduce those footprints are considered good for both the company and society.

An example of environmental responsibility is Tesla Motors that design cars combining

style, acceleration and handling with advanced technologies in order to make it more
environmental friendly and reduce pollutions. Tesla cars do not need gasoline refueling
and it can be charged at home.

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2. Philanthropic Responsibility/Inititative:
Philanthropic responsibility means to serve the humanity. This criterion pays attention to
the well-being of the unprivileged or needy people who badly require our support to
sustain on this planet.
Philanthropic initiatives include the donation of time, money or resources to charities and
organizations to social causes & to NGOs at local, national or international levels for
funding educational programs, supporting health initiatives, donating to worthy causes, &
supporting community beautification projects such as causes including human rights,
national disaster relief, clean water & education programs in underdeveloped countries.
Example- No other business tycoon has fulfilled the philanthropic responsibilities better
than Bill Gates. Bill Gates has donated billions of dollars to the Bill and Melinda Gates
Foundation, which supports numerous causes including education, the eradication of
malaria and agricultural developments etc.

3. Ethical Responsibility / (Human rights/Ethical labor practices) / Diversity Mgmt.:

Ethical responsibility is about looking after the welfare of the employees by ensuring fair
labor practices for the employees & also the employees of their suppliers (It means that,
the companies will ensure the use of products that have been certified as meeting fair
trade standards).
 Human rights responsibility initiatives taken by a firm can involve providing fair labor
practices (equal pay for equal work), fair trade practices, and disapproving child labor.
 Ethical labor practices - By treating employees fairly & ethically, companies can
demonstrate their CSR. This is especially true of businesses that operate in
international locations with labor laws that differ from those of the home country.
 Ensuring fair labor practices for employees also mean that, there will be no gender,
race or religious discrimination among the employees & each employee will be given
equal pay for equal work & better living wage compensation.
 As a responsible business leader, it’s important to acknowledge the need for diversity
in the organization/company and be sure to do it right so that everyone feels included.
You should also have stringent protocols that govern what should happen if violations
or complaints of any kind are lodged. That way, you’ll be able to maintain a
harmonious and productive workplace by keeping high morale while building a
reputation as a good company that takes care of its employees.

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4. Economic Responsibility:
The straightforward truth is that companies that do not make money do not remain in
business. However, consumers today believe that profits should not come at the expense
of ethics. Unethical practices may benefit a company in the short term, but their long-
term effects can be disastrous. The 2008 financial crisis is an example of by a few
companies creating the worst financial crisis since the Great Depression.

Economic responsibility is an interconnected field which focuses to strike a balance

between business, environmental & philanthropic practices. Economic responsibility
abides by, the set standards of ethical & moral regulations. In this context, companies try
to find out a solution which can facilitate their business growth & generate profits by
benefitting the community & the society. Here economic decisions are made by
considering their overall effects on society & businesses at the same time.

Economic responsibility focuses on practices that facilitate the long-term growth of the
business; hence, economic responsibility can improve business operations while engaging
in sustainable practices. Economic responsibility for corporations also includes finding and
implementing the most efficient practices for minimizing wasted capital. This may come
in the form of new manufacturing processes that improve efficiency or investing in new
equipment or using a new manufacturing process to minimize wastage.

Sustainability and CSR initiatives will continue to be prevalent in years to come.

An example of economic responsibility is when a company modifies its manufacturing
processes to include recycled products, which could benefit the company by potentially
lowering the cost of materials and also benefit society by consuming fewer resources.

Generally, CSR initiatives taken by a firm fall into four categories:

1. Environmental Responsibility/Efforts/Initiative for Sustainability
2. Philanthropic Responsibility/Inititative
3. Ethical Responsibility / (Human rights/Ethical labor practices) / Diversity Mgmt.
4. Economic Responsibility

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6.3 Need of CSR:

In a way, CSR can be seen as a public relations effort. However, it goes beyond that & can
boost a firm’s competitiveness.

The Need of CSR or business benefits include:

1. Stronger Brand image, recognition & reputation / Better Public Image
2. Increased customer loyalty
3. Operational cost savings/Increase in Productivity & Quality
4. Retaining key & talented employees
5. Easier access to Capital/Funding
6. Avoiding Government Intervention / Reduced regulatory burden
7. Long Term Business Interest
8. Improved Financial Performance

1. Stronger Brand image, recognition & reputation / Better Public Image - CSR adds value
to firms by establishing & maintaining a good corporate reputation/brand equity. Each
firm must enhance its public image to secure more customers, better employees & higher
profit. Acceptance of social responsibility goals lead to improve public image. A company
considered socially responsible can benefit both from its enhanced reputation with the
public as well as its reputation within the business community, increasing the company’s
ability to attract trading partners.
2. Increased customer loyalty - Customers of a firm that practices CSR feel that they are
helping the firm support a cause. Conversion of Resistances into Resources - If the
innovative ability of business is turned to cure social problems, many resistances can be
transformed into resources, thus functional capacity of resources can be increased.
3. Operational cost savings/Increase in Productivity & Quality - Investing in operational
efficiencies results in operational cost savings & reduced environmental impact. Improved
working conditions, reduced environmental impacts or increased employee involvement
in decision making which leads to – increased productivity and Quality.
4. Retaining key & talented employees - Employees stay longer & are more committed to
their firm knowing that they are working for a business that practices CSR.

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5. Easier access to Capital/Funding - The growth of socially responsible investing concept

means companies with strong CSR performance have increased access to capital that
might not otherwise have been available, because investors are more willing to support a
business that practices CSR.
6. Avoiding Government Intervention / Reduced regulatory burden – Regulation & control
are costly to business both in terms of money & energy and restrict its flexibility of
decision making. Failure of businessmen to assume social responsibilities invites
government to intervene & regulate or control their activities. The prudent course for
business is to understand the limit of its power & how to use that power carefully and
responsibly thereby avoiding government intervention.
7. Long Term Business Interest - A better society would produce a better environment in
which the business may gain long term maximization of profit. A firm which is sensitive to
community needs would in its own self-interest like to have a better community to
conduct its business. To achieve this, it would implement social programs for social
welfare.
8. Improved Financial Performance: Socially responsible businesses are linked to positive
financial performances. Improved financial results are attributed to stable ‘socio-political
–legal’ environment, enhanced competitive advantage through better corporate
reputation & brand image, improved employee recruitment, retention and motivation
and a more secure environment to operate in.

Importance of Social Corporate Responsibility

 It aims at consumer protection.
 It aims at protection of local and global environment.
 It ensures respect for human rights.
 It results in avoiding bribery and corruption.
 It promotes adherence to labour standards by companies and their business partners.

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6.4. CSR Programs of Some Indian Companies:

These are the top companies which have incorporated CSR initiatives in their policies
successfully:

1. Tata Chemical - Tata Chemicals Ltd. are committed to serve the national & local deprived
communities, present in their area of operations. Their focus is highlighted in their
initiative program, BEACON, further declassified as:
• Blossom: Promotion and development of native handicrafts
• Enhance: Overall enhancing the quality of life
• Aspire: Education and vocational skill development
• Conserve: Investment in Bio-diversity, natural resource and climate change
management leading to increase in environment sustainability
• Nurture: Health care, sanitary solutions and safe drinking water
2. Ambuja Cements - Committed to providing quality lives to the unprivileged, Ambuja
Cement emphasizes on utilizing the hidden talent of people. It also focuses on generating
goodwill amongst its stakeholders through their community initiatives.
3. Infosys - As a leading software company, Infosys provides programs of quality education
to its citizens, increasing their IT skills and proficiency. They are sensitive towards vigilant
utilization of natural resources, and believe that the use of energy has a direct impact on
the environment.
4. Mahindra & Mahindra (M&M) - Always supporting the enhancement of the quality of
life, education and health, M&M affirm their commitment to the welfare of community,
employees and its stakeholders. One of their recent CSR initiative, “Rise for good”,
supports youth, girls and farmers. The company is committed to run their business with
integrity and responsibility.
5. ITC - Crafting its CSR strategies towards societal sustainability, ITC creates a balance
between its dual mission of providing stakeholder and social value enhancement. Some of
its noticeable efforts are in agriculture sector of the country.
6. Tata Motors - Environmental and societal consciousness go hand in hand, for Tata Motors
Ltd. Their initiatives are centered on health, primary education, skill training, women
empowerment and support services for differently-abled. The programs hold local,
national and global relevance.

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7. Hindustan Zinc Ltd - Harmonious and equitable growth is the aim of the CSR initiatives of
Hindustan Zinc Ltd. They prioritize inclusive growth, and therefore, have an internal
committee and monitoring programs, which are established to keep a check on its social
responsibility measures.
8. Bharat Petroleum Corporation Ltd (BPCL) - CSR is integrated with the core operations of
the company. Bharat Petroleum Corporation contributes to India’s development through
its active participation in the energy sector. Its sustainable involvements are spread over
urban, semi-urban, rural and tribal areas.
9. Coca-Cola Multinational - Coca-Cola aims at both profit and social benefit maximization.
It continuously makes efforts to create a difference through its CSR efforts. It aims to
contribute at least 1% of its annual income to the charitable causes. It also states clearly
in its policies, the necessity to adopt ethical values and practices.
10. UltraTech Cement Ltd - UltraTech Cement Ltd envisions a long-term goal of creating
a sustainable and self-reliant community. Their projects focus on providing educational
and health care facilities, along with promoting sustainable livelihood and capacity
building.

India has entered into a transformative phase, with the active involvement of these
multinational brands, in implementing CSR policies and programs. These initiatives are a
major driving force for collaborative growth and development at business and societal level.

End of Unit. 6

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