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Legal Article by - KETAN ASATI (This Article was written by him during his Internship)
Abstract:
Corporate Social Responsibility (CSR) has gradually shifted from the status of a corporate
initiative to an absolute necessity with legal connotations and widely recognized standards.
This article aims to discuss CSR in terms of its interaction with the legal field and its focus on
the company’s legal obligations and adherence to the law. It looks at how the body of laws
and regulations influences CSR endeavours notably the compliance voluntary standards and obligatory reporting, and the legal sanctions for violation of laws. Moreover, the article also outlines the practices for effective implementation of CSR initiatives in business strategies with focus on stakeholders, sustainability, and disclosure. Based on the case analysis of experience and legal cases of successful implementations and failure of CSR programs, this study seeks to explain how organisations can overcome the dilemmas of CSR while fulfilling their legal requirements. This article highlights that CSR for corporations is key to promote integrity, repair an organization’s image, and be of benefit to society in equal measure while at the same time preventing incidences of legal violations.
Introduction:
Corporate Social Responsibility also termed as Corporate Citizenship or Corporate
Responsibility. It’s a way of company to create an overall positive impact on society it
operates in through its social, environmental and economic actions.
It is a responsibility of company towards the well-being of its various stakeholders for its
long-term prosperity and profit. Earlier, CSR was defined mainly in terms of compliance with
legal requirements only but with the changing times and redefined meaning of investing,
companies are now bound to inculcate the CSR in its functioning to appear more appealing to the investors, who are not only looking at the financial performance of companies but also at the non-financial performances too.
Many economists had different views about the concept of CSR, like Michel Hopkins said
that the CSR means to treat the stakeholders ethically and whereas Milton Friedman had
different views, he said “Business of Business is Business”.
The two concepts of the Corporate Social Responsibility and Corporate Governance can
hardly be separated in the today’s going perception of the society. The Corporate Governance and business ethics are the prerogatives that make the concept of the Corporate Social Responsibility probable. Indeed it can be said it is a business approach that produces a sustainable consumer and employee value not only by developing a ‘green strategy’ on natural environment but also by thinking each and every aspect existent in social, cultural and environmentalism on the ways how a business operates.
It must ensure adequate degrees of satisfaction to all stakeholders (consumer, employees,
shareholders, clients, and other related persons) without jeopardizing the existing and
potential stakeholders’ expectations.
Any organisation doing any kind of CSR activities enjoys sustainability of their business in
the following ways;
Reduction in operating costs
Boost in brand image and reputation
Increased sales and customer loyalty
Higher productivity and quality
Access to capital
The Tripple Bottom Line:
CSR is defined as the management of an enterprise’s risks and opportunities that affect the
organization and its stakeholders by having positive impacts in the economic, social, and
environmental fronts referred to as the Tripple Bottom Line (TBL), which is “PPP”- People,
Planet and Profit. By combination of the three the businessmen use it with a tradition known
as ‘the three pillars’ of the business entity. It was in 1997 when Briton John Elkington
advanced the term (TBL) that underpins the argument that business organizations have more
to offer than earn profits for the owners of capital. In this case People (human capital) point
to the Society within which the business operates, Planet (natural capital) point to sustainable
environment management of the business and Profit is distributed among all the concerned.
Historical background of the CSR:
The concept of CSR is not very alien to Indian corporate too. The above-stated concept can
even be dated back to time-beyond-time. The Vedas dictates this simple aphorism: Man can
live isolated, but he cannot exist single. Thus, the task is to establish a progressive
community based on the interaction between individuals and the general interest. To meet
this, there is the need to build value system of individuals to embrace certain level of self-
denial for the greater good of all. A value system is the set of standards for conduct to
improve positive feeling and strong belief of people within the community.
Essentially, it transcends legal issues which are very fundamental. It encompasses issues to
do with acting in the interest of the members of a community as opposed to our individual
wants and needs. Hence, the preservation of our race and its development is the result of right values. Writing in the 4th century BCE, philosophers like Kautilya stressed on ethics of
practicing business. That period, King had a social responsibility towards the society and
merchant had corporate social responsibility where they invested in construction of places of
learnings and worship and many forms of welfare for the poor.
While the essence of business was to generate wealth for the society and its foundation was
based on an economic system, the business men along with their rulers were committed to the principle ‘Sarva loka hitam’ which means ‘omni – benevolence.’. While Indian religion and
mythological characters described the use of ones earning for the benefit of needy section of
the society. In this discussion, you will find that there are various approaches that a firm can
apply to implement social change in society besides engaging other partners who possess the implicit energy to set social change into motion.
For some scholars such as Vedas, it is postulated that the primary objectives of the state were known to be that of peace, order, security and justice. The priority of the political state was most evidently oriented towards the well-being of the population. Scholars have written in their literature of politics and how a King or a ruler should uphold dharma (the moral code),
karma (the pleasures) and Artha (the wealth).
The World Business Council for Sustainable Development in 1999 defined the Corporate
Social Responsibility as a time bound commitment for business towards playing a responsible role and in the process supporting the economic development, and well-being of the work force and their families, the immediate community and the society at a large.
Legal Framework governing CSR:
The Corporate Social Responsibility provision of Companies Act, 2013 is under the section
135 where any company with;
o Net worth of Rs. 500 crore or more, or
o Net Profit of Rs. 5 crore or more, or
o Turnover of Rs. 1000 crore or more
During the immediately preceding financial year, shall comply with the provision of the act
and constitute a CSR committee. However, it is not mandatory for the companies to
constitute a CSR committee where the expenditure needed to be incurred on CSR is not more than fifty lakhs of rupees.
The CSR committee shall consist of 3 or more directors of which at least one shall be an
independent director.
Spending of CSR amount:
In particular, the Board of every company shall ensure that the company and every of its
operating subsidiary spends in every year at least 2 per cent of the average of the net profits
of the company made in the three immediately preceding years, or, where the company has
not operated for a period of three years, in such of the immediately preceding year or years as may be applicable.
The company while spending the CSR amount shall give preference to the local area around
it where it operates. Company may select one or more of the activities, as provided in the
Schedule VII of the act:
Eradicating hunger, poverty and malnutrition
Promoting education
Promoting gender equality
Environmental sustainability
Protection of National heritage
Rural sports
Research and Development project
Slum area development, etc
But the company shall be aware that the following activities do not qualify for the CSR;
Transactions carried out in the ordinary business of the company.
Such activities which are carried out in any country other than India excluding the
training of Indian sports person of any State or Union territory for a national or an
international competition.
Payment of any money, whether directly or indirectly made to a political party
Organisation transactions advantageous towards the company’s employees
exclusively
Sponsorship activities for generating marketing benefits
Activities for the performance of any statutory Compliance under any law in force
within the territory of India
CSR initiatives taken by major corporate houses of India:
1. The Tata group- For more than a century “TATA” is the synonym of trust, loyalty,
quality and philanthropy in India. 42 companies of the Tata group are signatories of
the UN Global Impact in India. The UN Global compact Cities pilot project
programme began in 2004 with one city, the Tata city Jamshedpur, India, and five
other pilot cities have been selected viz, Melbourne city of Australia, Porto Alegre
city of Brazil, the Tianjin city in the People’s Republic of China, Nairobi city of
Kenya and the San Francisco city in USA. Jamshedpur represented South Asia. There
is no other city nominated for this honour except Jamshedpur because Tata Steel has
been implementing outstanding social development programmes and they are actively
participating in the growth and delivering services in this city. Thus, with the help of
this initiative, Tata Steel was able to identify and acquire the best practical solutions
for the present-day urban challenges in the city of Jamshedpur as well as spread word
about the best practices and the most effective solutions with similar counterparts
across the globe. However, while discussing such as the best practices of city such as
the firm’s town division that transacts in municipal and civic facilities has been
accredited with ISO14001 for its Environment Management System; a first in the
whole nation. This pilot programme also covered cases concerning relations of several
subjects and aims at having both human and material outcomes.
One of the group companies i.e. Tata Consultancy Services, as a part of its CSR
policy, has taken up many causes and projects for a better tomorrow and a better
society. According to the Company, talent is distributed fairly in all people, but
opportunity is not. The envision statement of TCS is to be creating a world where
individuals and communities are made socially productive through purpose and
technology while maintaining the standards of integrity, inclusiveness and respect for
human rights. The Company continues to focus on helping people find opportunities
in the digital economy and creating fair opportunities for everyone; women, youth and
any other minorities.
In this regard, TCS has not relented in the society through different CSR activities and
programs being implemented all over the world to support the society’s needs. Thus,
the concentration fields are education and skills, employment and enterprise
development, with reference to the opportunity divide for individuals and groups.
2. Infosys Limited- Infosys Limited has been cited as one of the India’s first movers in
the CSR movement. The majority of its CSR activities have been implemented
through Infosys Foundation that was established in 1996, admittedly before the
India`s legislations on CSR.
Infosys Foundation has been working to address people at the grassroots level and
does bring strong social relevance in India. Infosys CSR concerns have been designed
through the Foundation to address areas of education aid, enhancement of health,
fighting of hunger and malnutrition, care of the destitute and their rehabilitation,
development of rural prospects, environmental control and conservationism and
protection of national and historical landmarks and encouragement and
conservationism of art and culture.
Environmental, Social and Governance (ESG) has been constituted with focus on
climate action at Infosys since 2008-09. The company has made it to be carbon
neutral for the fiscal year 2020 and still maintaining the carbon neutral partner for the
next three years.
Infosys had earlier also agreed to decrease its one and two absolute scope emissions to
net zero by 2040.
3. Adani Enterprises Limited- The corporate philosophy of the Adani Group is ‘Nation
Building’ which is steered by its flashlight ‘Growth with Goodness’. In the context of
the Adani Group’s business development, there are ambitions and objectives in terms
of expanding the size of its ESG activities with a focus on climate preservation as
well as deepening the company’s public engagement with the help of CSR activities
that are based on sustainability, diversity, and inclusiveness.
CSR activities and programmes by Adani Enterprises Limited are arranged under the
social arm called Adani Foundation. Thus, with the special experience of cooperation
with the communities during more than a quarter of a century the Adani Foundation
amplifies the focus on the integrated development initiatives in India. It also considers
that all people, no matter who and where they are – ought to have a fair shake at life,
in terms of equality in opportunity, as much chance as the more fortunate to a better
way of life.
The Foundation has thus evolved over time to meet the existing requirements of the
society and work towards Sustainable Development Goals (SDGs) as needed, may it
be through providing sustainable sources of income, improvement of the results in the
field of health and nutrition and education for all besides solving environmental
problems or giving power to women. Today, thanks to carrying out its activity, the
Foundation gained the significant reach covering 3. Seven million people in 2,409
villages; with 16 states in India.
Conclusion:
CSR can no longer be regarded as an appendix of corporate activity but as a part of
today’s business management system that has been reshaped by legal imperatives and
public demands. The legal aspect of CSR is complex as it incorporates most of the
observance and reporting of the law, in addition to having possible legal consequences
of non-compliance. The law is becoming more intricate and firms need to ensure that
CSR is incorporated as a foundation of the organisation to address both moral
principles and laws.
It means that effective CSR should be supported with stakeholders’ engagement,
long-term organizational commitment to sustainability, transparent reporting and that
CSR objectives have to be integrated into business strategies. Effective CSR programs
noticeable features are the fact that they generate value for both the company as well
as the wider community and create sustainable practices for the firm and it also
improves the image of the firm. It, therefore, remains the duty of companies to first,
meet legal conditions but also follow standards that would benefit the society and,
reduce on risks.
To sum up, CSR can be seen as a responsibility that is not only a moral necessity, but
also has a legal foundation which, in turn, results in the creation of business value.
Thus, CSR, if well integrated with organizational strategies, has several potential
advantages for the firms, such as enhanced credibility with the public, better
competitiveness, and a long-term perspective for the organization. Future
developments of the CSR practice show that corporations must never stop learning
and aspiring to act legal and ethical, promoting improved standards of world and
global social justice.
References:
1. The CSR Journal- https://thecsrjournal.in/top-companies-india-csr-sustainability-
2022/
2. ICSI CS- Professional, CSR & Social Governance-
compan/
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