Corporate Social Responsibility: Investing for “Social Good”
The concept of ‘responsible business’ has its roots in ancient history. About 5,000 years ago in Mesopotamia, King Hammurabi decided to hold builders, innkeepers or farmers responsible if their negligence caused major inconvenience to local citizens.
For centuries, many socially conscientious businesses have contributed to social good for philanthropic ventures. The need for businesses to be socially responsible saw a spike with the industrial revolution. And then in 1950, American Economist Howard Bowen coined the term ‘Corporate Social Responsibility’ (CSR). Now in the 21st Century, CSR has become vital, not just for the environment, society, and the world at large, but for company’s societal brand building and reputation.
In the new business landscape, companies are moving far ahead from the age old domain of philanthropy and charity and has now reached a new hallmark of corporate social responsiveness. Companies must voluntarily do business in an economically, socially and environmentally responsible manner to be sustainable over the long term. CSR refers to business practices involving initiatives that benefit society and the environment. In the wake of COVID-19 pandemic, as lives and livelihoods are facing unprecedented challenges, strategizing CSR for ‘social good’ has gained much importance. Also equal focus is given on Employee safety and well-being by promoting social distancing, sanitization drive at workplace on frequent intervals, promoting a culture of Work From Home and only attend office for emergency purposes
A commendable CSR strategy can improve consumer trust, better value chain integration and brand sentiment. Most businesses forge partnerships with NGOs to carry out their CSR activities. However, it is important for the NGOs to be credible. CRISIL’s CSR Yearbook 2019 suggests that given the quantum of finances involved in the CSR, it is important to carry out robust due diligence before appointing an NGO or a voluntary organisation. Project governance and impact reporting are emerging as two major areas to be assessed. Also independent third-party evaluations such as NGO/VO grading should be considered to gauge a potential partner’s ability to drive the desired social impact.
Learn more about CAF India’s due diligence exercise.
CSR in India
India is the only country that makes CSR mandatory for profit making companies. All firms with net worth above ₹500 crore, turnover over ₹1,000 crore, or net profit over ₹5 crore are required under Section 135 to spend at least 2 percent of their annual profits (averaged over 3 years) and establish a CSR committee to oversee the spending. CSR spends crossed the ₹50,000 crore mark in just four years since the legislative mandate was implemented in 2014. The law was further amended in 2019.
Benefits of CSR:
A commitment to corporate social responsibility is no longer optional. Companies need to understand that CSR affects their internal (employee engagement, productivity, turnover rate) and external (increased sales, customer loyalty, brand awareness) growth.
By creating and participating in CSR initiatives, companies have the opportunity to showcase their core values and create trust among employees and buyers. Secondary research reveals that organizations who promote corporate social responsibility (CSR) are reaping the benefits of their good deeds: –
- Brand Building: Corporate social investment can help a company build its reputation as a responsible business, which is conscientious of the society and environment. This can, in turn, lead to competitive advantage. Use of Social Media tools can further amplify the CSR initiatives a company is involved in.
- Help nation achieve its Sustainable Development Goals (SDGs): Thought-driven CSR programmes, which are implemented in a focussed manner have the potential to contribute in achieving country’s SDG targets. The importance of CSR thus increases manifold with the fact that we just have another 10 years to achieve the SDG targets. This way businesses can be an integral part of India’s development story.
- Employee satisfaction: It has been seen that businesses which provide employees with the opportunity to engage CSR work are more satisfied. They realise that they too are doing their bit for the society and environment, which gives them a sense of contentment.
- Alignment of CSR strategies with government schemes: An effective CSR strategy will also make best use of government schemes. In Jharkhand, for Instance, National Stock Exchange supported CAF India in an initiative that linked senior citizens to government pension schemes. Read more about it here.
- Vision to create impact: In the long run, businesses automatically design business models that are sustainable and protect the interests of society and environment.
- Other benefits include improved risk management, enhanced resource efficiency, better value chain management.
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