Policy Brief
A Decade of Corporate Social Responsibility and Beyond [2011-2020]
August, 2021
The United Nations Industrial Development Organization (UNIDO) defines Corporate Social Responsibility (CSR) as a business management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. Corporations achieve a balance of economic, social, and environmental imperatives through CSR while also fulfilling the expectations of the stakeholders and shareholders.
The traditional role of a corporation was only profit maximization and paying its shareholders. But, the increasing ethical debates, discussions around climate change and the role of large multi-nationals in this, and the social costs associated with certain consumer goods have given rise to the concern about what corporations can do for the society. The concept of CSR, however, is not limited to the mere provision of public goods; it also plays a role in growth and development of the region. While most critiques against CSR argue that it is a cost to the company and leads to a reduction in profit, recent research has found evidence of companies implementing CSR activities to be more profitable in the longer run (Hategan, Sirghi, Curea-Pitorac, Hategan, 2018).
Over the years, corporations have come under pressure from development organisations including CSOs and NGOs to take on specific CSR obligations. There are strong arguments in favour and against CSR. CSR is mostly opposed by the advocates of the ‘free market’ on the ground that corporations are not obliged to do altruistic activities and that it would not be profitable for them. This view can be traced back to Nobel Laureate Milton Friedman who was critical of CSR practices. The altruism argument is the most prominent one which claims that corporations are a part of the society, just like individual citizens, and they should engage in “good” practices and build their image as “good corporations”. At another end of spectrum, arguments point out that CSR is a defensive strategy against activists and NGOs in response to their online or offline agitation; also the fact that CSR is a good marketing strategy that corporations can use to generate further revenues.
In a post-Covid world or a world wrecked by the pandemic which has reinforced inequalities and have made the vulnerable more vulnerable, the pressure on corporations is definitely high. Social and economic upheavals, climate change and increasing inequality have put the onus on the corporations to be more inclusive. CSR has been made mandatory in India by law. We will look more closely at the law and what mandatory CSR expenditure is meant for the NER of the country.
The NE is separated from the rest of the country by a 22 kilometres long piece of land, also termed as the ‘chicken’s neck’. The land beyond the chicken’s neck is rich in culture as well as biodiversity. It is, however, also the region which has witnessed one of the least growths and is underdeveloped in most sectors. The absence of a vibrant manufacturing sector in the region, a large population dependent on agriculture, hilly and difficult terrain, years of insurgency, and natural disasters like floods and landslides make the region vulnerable to economic difficulties.
With the recent focus of policies on the NE region, predominantly the Act East policy, and the gaining importance of SDGs, the role of CSR has become increasingly needed in the region. While the law to make CSR is a recent one which came in being in 2014, CSR activities in the country are age old. There is, however, an absence of historical recording of CSR expenditure and inadequate measurement of their impact.
This policy brief is thus an attempt to understand CSR expenditure in the region, the gaps in literature and measurement of its impact, and to bring a new light to the discussion regarding CSR presence and investment in the NER. The region deserves this equally if not more than others, also due to the strategic location of the eight NER states.
The policy brief seeks to bring attention towards the importance of increasing CSR presence and investments in bridging the regional, social and development gaps of the region vis-a-vis rest of the country. The brief also seeks to focus on the various nuances of CSR expenditure, activities and impact within the region and the sectors on which the spending is done.
When China’s Great Sichuan Earthquake happened in 2008, which killed more than 69,000 people and left more than 15 million people homeless, it caused a total destruction of an estimated $150 billion. CSR became a norm in China when corporations offered $1.5 billion in support. When another earthquake struck the region in 2013, major multinationals like Samsung and Apple offered quick support to rebuild the city . The example of China is important here because the growth trajectory of India and China reveal that both are developing countries with very high levels of growth rates. For a major part in the last two decades, China has been the fastest growing country, followed by India.
The above paragraph also reveals that the scope of CSR is indeed huge, but not only in times of natural disasters. CSR can contribute to growth and development of a region. It is also worth pointing out that as the Covid-19 pandemic broke out; the CSR community in India was quick to respond with most committees and boards working overtime to
speed up the internal process.The idea that the role of industry should not be limited to profit maximization but should also contribute to the welfare of the society is not a new one. According to Trusteeship Theory of Business and Stakeholder Theory, businesses should benefit the trustees and the stakeholders of the society, instead of only the shareholders (Kapoor, 2017). With growing interest in this domain, recent research has found evidence of a positive relationship between CSR and firm performance, negating the idea that CSR is nothing but an additional cost to the company. CSR has a role in facilitating marketing, innovation, management, and ownership. India became the first country to legally mandate CSR in 2014. According to new laws in Section 135 of India’s Companies Act, it is mandatory for companies of a certain turnover and profitability to spend 2% of their average net profit for the past 3 years on CSR. Every company registered under the Companies Act, 2013 or any other previous company law is eligible for the CSR mandate if they have a net worth of Rs 500 crore or more.
Companies with a turnaround of Rs 1000 crore or more or with net profit of Rs 5 crore or more during a financial year are also eligible for this mandate. The activities eligible across sectors include hunger and poverty, education, health, gender equality, women empowerment, skills training, environment, social enterprise projects, and promotion of rural and national sports. The CSR activities are carried out through committees that are formed by the corporations and through a registered trust, society, or company. If the CSR activity only benefits the employees of the companies or their families, such expenditures will not be considered CSR as per the law. Further, any activity that is not in the form of a project is not considered CSR as per the law. Also, any CSR activity not approved by the board cannot be qualified as a CSR initiative. Since the law has been relatively new in India, the real impact of CSR cannot be completely measured or understood. According to the CSR journal, it is observed that the amount spent on CSR is concentrated in few states, leaving out states that require development. It is also feared that CSR expenditure can further accelerate the regional differences between states. States which are already developed tend to gain more benefits from CSR activities as compared to states with less number of companies, accelerating the already evident regional economic gap between the high-income states and low-income states. It is also seen that the sector-wise spending of CSR has also been non-uniform with certain sectors taking up more expenditure.
The idea of CSR in developing countries is seen as an accelerator of socio-economic growth. According to the UNIDO, CSR will help these countries attain their Sustainable Development Goals (SDGs) and lead to wellbeing of the society. The North East India Region (NER) has its own set of issues. If we compare the region in terms of its SDG achievement, we see thatAssam, Arunachal Pradesh, and Manipur are still in aspirant category (0-49) as per the first SDG goal of ‘No Poverty’. As per the second goal of ‘Zero Hunger’, Assam, Meghalaya, and Tripura are still aspirant states. As per the third goal and fourth goals of ‘Good Health and Well Being’ and ‘Quality Education’ respectively, Assam and Nagaland are both aspirant states. The region does not do well in the fifth goal of ‘Gender Equality; where all the states including Sikkim are dubbed as non-performers. As per the tenth goal of ‘Reduced Inequalities’, Tripura and Arunachal Pradesh need improvement.
The role of CSR in this region can, thus, be immense. Through this policy brief, we will first look at the CSR spending in each state, compare this along with the rest of the country, understand the areas that CSR activities in the region are most allocated in, and analyze the various challenges and divide in CSR allocation in the region.
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