CORPORATE SOCIAL RESPONSIBILITY: CRITICAL ANALYSIS

CORPORATE SOCIAL RESPONSIBILITY: CRITICAL ANALYSIS

1. Introduction and the Rise of CSR in India

The idea of Corporate Social Responsibility (CSR) illustrates how a business must pursue profit while positively impacting the environment and society. Although the core concepts of social responsibility have a long history in India, formally establishing CSR practices is a relatively new addition. As Mahatma Gandhi, the father of Indian independence, famously said, “The true function of a businessman is to make a profit, but not at the expense of humanity.” Let’s look at the development of CSR in India through a timeline to understand the development better:

• 2007—The Call for Inclusive Growth: India’s 11th Five-Year Plan (2007-2012) marked a turning point. It emphasized the need for “inclusive growth” that would ensure economic development that benefits all sections of society and not just the upper strata. This national goal focused on the role businesses could play in social development.
• 2009 – Voluntary Guidelines Emerge: Recognizing the growing importance of CSR, the Ministry of Corporate Affairs (MCA) issued the first set of voluntary guidelines on CSR in 2009. These guidelines gave businesses a framework to consider while launching social responsibility initiatives.
• 2010—Parliamentary Recognition: The Parliamentary Standing Committee on Finance, in its 21st report on the Companies Bill, 2010, highlighted the significance of CSR. This report established the foundation for incorporating mandatory CSR clauses in future business laws.
• 2011 – Expanding the Scope: Building on the initial guidelines, the MCA released the National Voluntary Guidelines (NVGs) on Social, Environmental, and Economic Responsibilities of Business 2011. These thorough guidelines covered a greater variety of CSR projects and ideal practices for the industry.
• 2012—Reporting Takes Center Stage: In 2012, the concept of Business Responsibility Reporting (BRR) gained traction. This motivated corporations to disclose their financial outcomes and social and environmental performance.
• 2014 – A Landmark Year: 2014 witnessed a significant shift, with the Companies Act 2013 coming into effect on April 1st. Section 135 of this Act introduced a mandatory CSR framework. It mandated certain companies to establish CSR policies, undertake specific social responsibility activities, and contribute a portion of their profits towards social good.

A 2022 survey conducted by an organization indicated that 88% of global consumers believe companies are responsible for improving the communities where they operate. This growing expectation underscores the importance of CSR for companies operating in India and worldwide.

This timeline shows how CSR has evolved in India, resulting in a legal mandate through the Companies Act of 2013. Now, we will delve deeper into the intricacies of the legal structure, its implications for companies, and the role of government in promoting CSR.

1. The Importance of CSR: Why Should Companies Embrace Social Responsibility?

The Companies Act of 2013 made CSR mandatory, demonstrating the increasing significance of CSR in the Indian Corporate scene. However, there are several strong incentives for businesses to actively incorporate CSR into their operations in addition to legal obligations. Let us together examine a few critical factors:

• Enhanced Brand Image and Reputation: Consumers increasingly align with brands committed to social good. When a company engages in responsible practices, it fosters a positive brand image and reputation, attracting and retaining a loyal customer base.
• Employee Engagement and Motivation: Employees often seek to work for companies that share their values. Companies can boost employee morale, engagement, and productivity by implementing meaningful CSR initiatives.
• Risk Management and Mitigation: Proactive CSR practices can help companies mitigate risks associated with environmental issues, labour practices, and community relations. Potential disruptions and reputational damage can be prevented when corporations address concerns priorly.
• Innovation and Long-Term Sustainability: CSR can drive innovation by encouraging companies to solve social and environmental challenges creatively.  Companies should always focus on sustainability, as it helps foster long-term success and resilience in a dynamic business environment.
• Attracting Talent and Investors: Investors increasingly look beyond financial metrics to assess a company’s social and environmental impact. A strong CSR strategy can make a company more attractive to investors seeking sustainable and responsible businesses.
• Building Social Capital and Fostering Trust: Companies can build trust and goodwill with communities by actively contributing to social development. This social capital fosters a more stable and conducive business environment.

These are just some of the compelling reasons why incorporating CSR has become a strategic imperative for many companies in India. The following section will explore the legal framework established by the Companies Act of 2013 to guide CSR implementation.

2.2 Role of Government in the Promotion of CSR

Government interest in promoting CSR is not new because business objectives cannot be achieved in any given society without government involvement, either voluntarily or legally. The government has a stake in ensuring that CSR objectives are well-coordinated.

In a study conducted in the United Kingdom by Moon (2004), the state’s position in promoting CSR is due to social governance deficits reflecting satellite and marketplace vulnerabilities, and ongoing and evolving societal demands are making government-recognized CSR contributions in the UK. Moon (2004) further illustrated that the effort of the UK government to institutionalize CSR was due to the realization of the government that it could not provide all the solutions to its society in the inner cities and, therefore, wanted the private sector to play a pivotal role. The UK government has since seen the importance of CSR and appointed a minister designated to CSR.

The speech by the then Prime Minister of Britain, Gorden Brown, cited by Moon (2004), illustrates the importance of CSR in the UK. The speech by the then Prime Minister of Britain Gorden Brown (Moon, 2004) highlights the relevance of in the UK of CSR as he asserts that “Today, corporate social responsibility goes far beyond the old philanthropy of the past, by giving money for good causes at the end of the financial year is a responsibility that companies accept for the environment around them. It is a good working practice for companies to engage in their local communities and understand that brand names depend not only on quality, price, and uniqueness but on how they interact with companies’ workforce, community, and environment.” There is more on the role of government in the literature review.

1. Legal Provisions for CSR:

Governments in various countries have incorporated CSR into their legal frameworks. One of the notable examples is India’s Companies Act of 2013, which made CSR spending mandatory for certain companies. Section 135 of the Act requires companies meeting specific criteria to allocate a portion of their profits to CSR activities. This legal provision has led to a significant increase in corporate contributions to social and environmental initiatives. Schedule VII of the Companies Act, 2013, read with section 135, lists down activities that can come under CSR:

While CSR is not legally mandated in the United States, laws such as the Foreign Corrupt Practices Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act incentivize ethical practices and transparency among corporations. The United Nations Guiding Principles on Business and Human Rights also provide a global framework, emphasizing corporate responsibility to respect human rights.

3.2 Judicial Precedents Emphasizing CSR:

1. Indian Petrochemicals Corporation Ltd. v. MC Mehta (1987): In a groundbreaking decision, India’s top court set a new legal precedent: companies causing environmental damage or harming people through hazardous activities will be held strictly liable, no matter the cause. This ruling prioritizes environmental well-being and public safety, forcing industries to take responsibility and compensate those affected.
2. Union Carbide Corporation v. Union of India (1992): The Bhopal disaster forced a reckoning for corporations. India’s highest court clarified that companies must take financial responsibility for victims of industrial accidents, help them rebuild their lives, and clean up any environmental damage they cause.
3. Kiobel v. Royal Dutch Petroleum Co. (2013): A critical US court decision opened a path for suing corporations involved in human rights violations overseas. This ruling highlighted that corporations can be held responsible if they contribute to such abuses, even if they happen outside the US.
4. Rio Tinto plc v. Comisión Nacional de Energía (CNE) (2015): A Spanish court ruled that mining giant Rio Tinto can’t just waltz in and start digging. They must consult with nearby communities before starting any mining projects. This decision highlights the importance of listening to and involving Indigenous people in decisions that affect their land and way of life.
5. Conclusion

Our exploration of CSR in India reveals a dramatic shift from voluntary actions to a legal mandate. Now, businesses must prioritize society and nature’s social and environmental well-being alongside profit making. Embracing CSR not just fulfills a legal obligation but enhances reputation, employee morale, and risk management and attracts investors who are also inclined towards ideal sustainable development. This is a call for collective action—businesses, employees, and consumers to integrate CSR and build a brighter future.