CSR

What is Corporate Social Responsibility?

• The World Business Council for Sustainable Development in its publication
“Making Good Business Sense” by Lord Holme and Richard Watts used the
following definition:
• “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.”
• “CSR is about capacity building for sustainable livelihoods. It respects cultural
differences and funds the business opportunities in building the skills of employees,
the community and the government”

• CSR is about business giving back to society”

• Social responsibility of business may be interpreted as the economic, legal, ethical and discretionary
expectation that society has from business organizations at a given point of time.
• This concept emphasizes that the business should be accountable for its actions which has an impact on
people, environment and the community.
• Hence, organizations have moral, ethical and philanthropic responsibility in addition to their responsibility to
earn a fair return for the investment.
• The economic responsibility focuses on the role of business in satisfying the society’s expectations of
producing goods and services needed and desired by the community at an affordable price after complying
the laws set by the governments.
• The ethical responsibility is concerned with societal expectations that go beyond the economic and legal
requirements such that the organizations will conduct their affairs in a fair way. This means that the
organizations must make proactive efforts to meet the norms of the society.
• Finally, the discretionary responsibilities refer to the society’s expectations that organizations be good citizens
by undertaking philanthropic programs benefiting the community. The relationship between all these
responsibilities is represented in the following diagram.
Ten most socially responsible companies in the world:
1. Statoil–Oslo based oil and Gas Company of which 67 per cent stake is owned by
Norwegian government.
2. Ferrovial–A Spanish conglomerate involved in transportation and urban
infrastructure.
3. Walt Disney Company–An US based entertainment company.
4. Edison–The Milan based oldest energy company.
5. ENI–Milan based Energy Company specialised in oil, gas and petrochemicals.
6. Whole Foods Market–Supermarket chain specialised in organic products in US.
7. Total–A French oil and gas company.
8. Hochtief–Germany’s largest construction company and leader in green real estate
business.
9. Nestle–Swedish largest food manufacturing company.
10. Next Era Energy–Florida Power Light (Tie).
Many driving forces are fostering the evolution of corporate social
responsibility such as:

 New concerns and expectations from citizens, consumers, public authorities and
investors in the context of globalisation and large scale industrial change

 Social criteria are increasingly influencing the investment decisions of

individuals and institutions, both as consumers and as investors

 Increased concern about the damage caused by economic activity to the

environment

 Transparency of business activities brought about by the media and modern

information and communication technologies
The systematic implementation of CSR involves the use of the
following features:

1. Adoption of strong organisational values and norms justifying as to

which behaviours are appropriate toward a variety of stakeholders.

2. Continuous generation of intelligence about stakeholder issues, along

with positive responses to these issues.
 CSR benefits
1. Public expectations: Social expectations of business have increased dramatically since the 1960s. Public opinion in support of
business pursuing social as well as economic goals is now well solidified.

2. Long run profits: Socially responsible business tend to have more and secure long run profits. This is the normal result of the
better community relations and improved business image that is responsible.

3. Ethical obligation: A business firm can and should have a conscience. Business should be socially responsible because
responsible actions are right for their own sake.

4. Public image: Firms seek to enhance their public image to gain more customers, better employees, access to money markets
and other benefits. Since the public considers social goals to be important, business can create a favourable public image by
pursuing social goals.

5. Better environment: Involvement by business can solve difficult social problems, thus creating a better quality of life and a
more desirable community in which to attract and hold skilled employees.
1. Discouragement of further government regulation: Government regulation adds economic costs and
restricts management’s decision flexibility. By becoming socially responsible, business can expect less
government regulation.

2. Balance of responsibility and power: Business has a large amount of power in society. An equally
large amount of responsibility is required to balance it. When power is significantly greater than
responsibility, the imbalance encourages irresponsible behaviour that works against the public good.

3. Stockholder interests: Social responsibility will improve the price of a business’s stock in the long
run. The stock market will view the socially responsible company as less risky and open to public
attack. Therefore, it will award its stock a higher price earnings ratio.

4. Possession of resources: Business has the financial resources, technical experts and managerial talent
to provide support to public and charitable projects that need assistance.

5. Superiority of prevention over cures: Social problems must be dealt with at some time. Business
should act on them before they become serious and costly to correct and take management’s energy
away from accomplishing its goal of production goods and services.
 Arguments Against the Assumption of Social Responsibilities by Business
1. Violation of profit maximization: This is the essence of the classical viewpoint. Business is mostly socially
responsible when it attends strictly to its economic interests and leaves other activities to other institutions.

2. Dilution of purpose: The pursuit of social goals dilutes business’s primary purpose, economic productivity.
Society may suffer as both economic and social goals are poorly accomplished.

3. Costs: Many socially responsible activities do not pay their own way. Someone has to pay these costs. Business
must absorb these costs or pass them on to consumers in higher prices.

4. Lack of skills: The outlook and abilities of business leaders are oriented primarily toward economies. Business
people are poorly qualified to cope with social issues.

5. Lack of broad public support: There is no broad mandate from society for business to become involved in
social issues. The public is divided on the issue. In fact, it is a topic that usually generates a heated debate.
Actions taken under such divided support are likely to fail.
Drivers of CSR
But the key drivers for firms becoming more socially responsible are:
•Government legislation
•customers expectations of firms
•consumer lobby groups
•the extent of costs involved
•the type of industry in which they operate
•the potential for competitive advantage
•top-level corporate culture
• Government legislation
• In many countries across certain industries, the government has imposed
legislation that requires companies to conform and behave in a certain manner.
In this case, however, the organizations impacted by this legislation are only
complying with various requirements because of regulation. They may or may
not be willing to incorporate social responsibility initiatives into their day-to-
day operations of an overall strategy.
• Examples here would include legislation relating to environment, pollution, use
of workers and conditions, product disposal, materials used in production, and
so on. Therefore, this is not necessarily a driver of corporate social
responsibility, but is adopted and followed by companies as it is a requirement
imposed upon them by government.
• Customers’ expectations of firms
• Consumers are becoming more aware of social and environmental issues and the
consideration of the future is becoming slightly more important when consumers
consider purchase decisions. As a result, some consumers will have an
expectation that certain companies behave in an appropriate manner, relative to
society and the communities.
• For instance, Disney has faced significant criticism in the past relating to the use
of low paid workers in developing countries to produce toys, games and
novelties. Likewise, some consumers have been critical of KFC because of the
conditions that their supply chickens are held in. The changing expectations of
consumers has resulted in firms being more responsive to these issues and
adopting a more corporate responsible outlook
• Consumer lobby groups
• In conjunction to the previous driver of corporate social responsibility, the
Internet and social media has made it much easier for consumer lobby groups
to form, to generate attention and adverse media coverage, and therefore
achieve its goals of change.
• Typically, these consumer lobby groups will target large and well-known
companies within industries that adversely affect the environment were
deemed to not provide a of product value. For example, Walmart is often the
target of lobby groups because of their perceived actions and impact on local
communities and business centers. Another example is McDonald’s, who are
frequently criticized for the perceived impact that they may have on obesity
and people’s health.
• The extent of costs involved
• A shift to increase social responsibility may come at a reasonable cost to the
organization. For example, a manufacturer choosing to manufacture its products in
more developed countries or choosing to pay the production workers at much better
salary – rather than “exploiting” unskilled workers in developing countries – will
significantly impact their unit margin and overall profitability.
• However, a bank can shift its customer bank statements from paper-based to
electronic (known as e-statements) on the basis that they are saving lots of paper –
but this has the impact of reducing costs for the organization. Likewise, a major
hotel chain can encourage its customers to reuse their bath towels each day. Again
the hotel can claim an environmental benefit of reduced water and power usage, all
the while delivering themselves a reduction in costs and increase in profitability.
• The type of industry in which they operate
• There are a number of more significant industries where there is greater
pressure an expectation on the firms to become responsible corporate
citizens. Following the Global Financial Crisis, there has been in
increased expectation on banks and other financial institutions to be
more transparent and ethical in their business operations.
• Obviously manufacturing is another industry that has greater pressure
on it – particularly heavy manufacturing where there could be
significant pollution, or large companies deciding to manufacture in
developing countries, or manufacturers who have issues with product
disposal (e.g. mobile phones and batteries and chemicals).
• Potential for a competitive advantage by image
• There are some companies that are attempting to build their core image, or at least parts of
their brand association around their socially responsible behavior. Some companies will
highlight that they are ethical manufacturers – Etiko is one such manufacturer, and bankmecu
is a financial institution that rewards customers with cheaper home loans if they have
environmentally friendly houses.
• In this case, these types of organizations are truly practicing the societal marketing concept.
They are foregoing some profitability in order to contribute to society or to certain
communities.
• Corporate culture and top management values
• Corporate social responsibility is also a reflection of the overall corporate culture and of top
management values. In other words, how important is making a contribution to society to the
senior management of the organization? This will guide how embedded social responsibility
is the overall strategy, or is it simply an exercise in publicity?
Legislations of CSR in India
• Why CSR is mandatory?
• The Companies Act, 2013 provides for CSR under section 135. Thus,
it is mandatory for the companies covered under section 135 to
comply with the CSR provisions in India. Companies are required to
spend a minimum of 2% of their net profit over the preceding three
years as CSR.
• Reason For Introduction of CSR for Companies
• We live a dynamic life in a world that is growing more and more complex. Global-scale
environment, social, cultural and economic issues have now become part of our everyday life.

Boosting profits is no longer the sole business performance indicator for the corporate and they
have to play the role of responsible corporate citizens as they owe a duty towards society.

The concept of Corporate Social Responsibility (CSR), introduced through Companies Act, 2013
puts a greater responsibility on companies in India to set out a clear CSR framework.

Many corporate houses like TATA and Birla have been engaged in doing CSR voluntarily. The
Act introduces the culture of corporate social responsibility (CSR) in Indian corporate requiring
companies to formulate a CSR policy and spend on social upliftment activities.

CSR is all about corporate giving back to society. The Company Secretaries are expected to be
known about the legal and technical requirements with respect to CSR in order to guide the
management and Board.
• How much CSR is mandatory?
• It is mandatory for the companies covered under section 135(1) of the
Companies Act, 2013 to spend 2% of their net profit over the
proceeding three years as per the CSR policy.
• CSR Applicability in India
• The provisions of CSR applies to:
• Every company
• Its holding company
• Its subsidiary company
• Foreign company
• Having in the preceding financial year:
• Net worth > 500 crore
• Turnover > 1000 crore
• Net profit > 5 crore
 Role of Board of Directors
• The role of the Board of Directors is as follows:
• After considering the recommendations made by the CSR Committee, approve the CSR policy for the
Company.
• The Board must ensure only those activities must be undertaken which are mentioned in the policy.
• The Board of Directors shall make sure that the company spends in every financial year, a minimum of
2% of the average net profits made during the 3 immediately preceding financial years as per CSR
policy.
• In case a company has not completed 3 financial years since its incorporation, the average net profits
shall be calculated for the financial years since its incorporation.
• The Board’s Report shall disclose:
• CSR Committee’s composition
• The contents of CSR Policy
• In case CSR spending does not meet 2% as per CSR Policy, the reasons for the unspent amount, and details of the
transfer of unspent amount relating to an ongoing project to a specified fund (transfer within a period of six months
from the expiry of the financial year).
 Transfer and Use of Unspent Amount
• The specified funds for transfer of unspent amount are:
• A contribution made to the prime minister’s national relief fund.
• Any other fund is initiated by the central government concerning socio-economic development,
relief and welfare of the scheduled caste, minorities, tribes, women and other backward classes.
• Contributions made to:
• Public-funded universities
• National Laboratories and Autonomous Bodies (established under the auspices of the Indian Council of
Agricultural Research (ICAR)
• Council of Scientific and Industrial Research (CSIR)
• Department of Atomic Energy (DAE)
• Indian Institute of Technology (IITs)
• Indian Council of Medical Research (ICMR)
• Defence Research and Development Organisation (DRDO) Ministry of Electronics and Information
Technology)
• Department of Science and Technology (DST) engaged in conducting research in technology, science,
medicine, and engineering aimed at encouraging Sustainable Development Goals (SDGs).
• In case of the unspent amount relating to an ongoing project under the
company’s CSR policy, the amount shall be transferred by the firm in less
than 30 days from the end of the financial year to an exclusive account to be
opened by a firm in any scheduled bank.
• The account shall be designated as ‘Unspent Corporate Social Responsibility
Account’, and the funds shall be used towards its obligations under the CSR
policy within a period of three financial years from the date of the transfer.
• In a case where the company fails to utilise the funds at the end of the three
financial years, the funds should be transferred to the specified fund
mentioned above within a period of thirty days upon completion of the third
financial year.
• CSR Committee Applicability
• Every company to which CSR criteria are applicable shall constitute a
Corporate Social Responsibility (CSR) Committee.
• The CSR Committee should consist of 3 or more directors, out of
which at least 1 director must be an independent director.
• In the case of a foreign company, the CSR Committee shall comprise of at
least 2 persons of which one person shall be a person resident in India
authorized to accept on behalf of the foreign company – the services of
notices and other documents. Also, the other person shall be nominated by
the foreign company.
• Duties of the CSR Committee
• The CSR Committee shall formulate and recommend a CSR policy to
the Board.
• CSR Committee shall recommend the amount of expenditure to be
incurred on the CSR activities to be undertaken by the company.
• CSR Committee shall monitor the CSR policy of the Company from
time to time.
• The committee shall establish a transparent controlling mechanism for
the implementation of the CSR projects or programs or activities
undertaken by the company.
• CSR Policy
• CSR Policy elaborates the activities to be undertaken by the Company.
The activities should not be the same which are done by the company in
its normal course of business
• Contents of CSR Policy should be placed on the company’s website by
the Board.
• The activities mentioned in the policy must be undertaken by the
company.
• The Company can join hands with other companies for undertaking
projects or programs or CSR activities and report separately on such
programs or projects.
• The CSR policy shall monitor the projects or programs.
• Accordance With Schedule VII of the Companies Act, 2013
• The Board shall ensure that the activities included by a company in its
CSR Policy fall within the purview of the activities included is
schedule VII. Some activities are specified in Schedule VII as the
activities which may be included by companies in their Corporate
Social Responsibility Policies. These activities are related to:
Sr.No CSR Activities

1 Eradicating poverty, hunger and malnutrition, promoting health care which includes sanitation and
preventinve health care, contribution to the Swach Bharat Kosh set-up by the Central Government for
the promotion of sanitation and making available safe drinking water.
2 Improvement in education which includes special education and employment strengthening vocation
skills among children, women, elderly and the differently-abled and livelihood enhancement projects.
3 Improving gender equality, setting up homes and hostels for women and orphans, setting up old age
homes, day care centres and such other facilities for senior citizens and measures for reducing
inequalities faced by socially and economically backward groups.

4 Safeguarding environmental sustainability, ecological balance, protection of flora and fauna, animal
welfare, agroforestry, conservation of natural resources and maintaining a quality of soil, air and water
which also includes a contribution for rejuvenation of river Ganga.
5 Protection of national heritage, art and culture including restoration of buildings and sites of historical
importance and works of art; setting up public libraries; promotion and development of traditional arts
and handicrafts.

6 Measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed
Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including
widows.
7 Training to stimulate rural sports, nationally recognized sports, Paralympic sports and Olympic sports.
8 Contribution to the Prime Minister’s National Relief Fund, Contribution to the Prime Minister’s National
Relief Fund (PM-CARES) or any other fund set up by the Central Government for socio-economic
development providing relief and welfare of the Scheduled Castes, the Scheduled and backward classes,
minorities and women.

9 Contribution to incubators or research and development projects in the field of science, technology,
engineering and medicine, funded by the Central Government, State Government, Public Sector
Undertaking or any agency of the Central Government or State Government.

10 Contributions to public funded Universities, IITs, National Laboratories and autonomous bodies
established under DAE, DBT, DST, Department of Pharmaceuticals, Ministry of AYUSH, Ministry of
Electronics and Information Technology and other bodies, namely DRDO, ICAR, ICMR and CSIR, engaged
in conducting research in science, technology, engineering and medicine aimed at promoting
Sustainable Development Goals (SDGs).
11 Rural development projects.

12 Slum area development.

13 Disaster management, including relief, rehabilitation and reconstruction activities.

• Fines and Penalties for Non-Compliance
• In case a company fails to comply with the provisions relating to CSR
spending, transferring and utilising the unspent amount, the company
will be punishable with a minimum fine of Rs 50,000 which may
increase to Rs 25 lakh. Further, every officer of such company who
defaults in the compliance will be liable for a punishment which is
imprisonment for a term which may extend to three years or with a
minimum fine of Rs 50,000 which may increase to Rs 5 lakh, or with
both.
• Yes, the CSR provisions apply to a company registered for a charitable
purpose under Section 8 of the Companies Act, 2013. Section 135(1)
of the Act states that every company having the specified net worth,
turnover, or net profits must establish a CSR committee. Thus, section
8 companies must also establish a CSR committee and comply with
CSR provisions when it meets the specified net worth, turnover, or net
profits.