It’s not altruism but a necessary component of any successful business plan: it may even help mitigate investment risks and boost corporate profitability
Sarah-Jane Littleford | December 1, 2022
With the advent of globalization came a new set of challenges for corporations, notably the duty of ensuring the well-being of all stakeholders while also protecting the planet's natural environment. Although we are dedicated to a faster and more inclusive rate of growth, it is equally imperative that we focus on the issue of sustainability. There can be no development that ignores the ecological costs of economic activity, or that tolerates the depletion and irreversible degradation of natural resources.
However, the way development is viewed in many nations, and our own previous experiences, both imply that this is rather easy to do unless specific actions are adopted at the initial stage. Companies are also in the crosshairs of this bumpy progress, and as a result, their social benefits are being scrutinised more closely than ever. Following the passage of the Companies Act in 2013, the corporate social responsibility (CSR) mandate was formally included in the responsibilities of the board of directors of Indian corporations.
The evolution of CSR in India
The concept of CSR was established long before its mainstream adoption in recent decades. Conscious and conscientious merchants have been a part of Indian society for centuries. Interestingly, several instances of ethical businesspeople are drawn from Indian mythology and ancient history. The concept dates to the late 1800s, when a combination of rising philanthropy and poor labour conditions prompted some companies to re-evaluate their production processes. Some business magnates cut working hours and improved production conditions, thus establishing the groundwork for responsible enterprises. In other instances, these businesspeople were involved in numerous public welfare programmes, such as digging ponds, feeding the destitute, building temples and running orphanages. Based on the available literature, religious, charitable, or other higher-minded motivations were the most common inspirations for participating in such endeavours.
During the medieval period, a similar pattern could be observed as well. Owing to the technological advances made possible by the Industrial Revolution in Europe during the eighteenth century, businesses were able to expand to massive proportions, having a profound impact on the lives of not just their employees, but also the communities in which they operated. Their numbers grew steadily larger, and their influence spread beyond their borders.
Much like the rest of the world, India eventually saw the rise of industrial titans, who invested heavily in areas like education, health and community service. In fact, some of these corporations were even instrumental in India's fight for independence. Prior to India's independence, these business houses, together with British firms, dominated the Indian economy. Businesses' religious, charitable, community service and nationalistic emotions drove many of their voluntary projects throughout this time, making them a hallmark of socially responsible behaviour.
CSR and the extended scope of interest
Typically, a business is deemed socially responsible when it incorporates the socio-environmental context into its economic concerns. CSR has been defined by many academics and professionals. Taking a closer look at these descriptions reveals that CSR is more nuanced than what first meets the eye. Essentially the integration of environmental and social objectives with an organisation's business objectives and operations is known as CSR. In India, furthermore, it refers to a company's promise to improve the quality of life for its workers, their families, the surrounding communities, industry professionals, and the public while also working towards the benefit of the company and its growth.
With an effective date of April 1, 2014, India made history as the first country to enact a law mandating CSR initiatives. Consequently, companies covered by Section 135 are required to comply with India's CSR regulations and are obligated to devote at least 2% of their three-year average net profit to CSR activities. Organisations today are allocating funds to improve infrastructure in underdeveloped areas and address issues such as traffic congestion and air pollution. Some businesses have even coordinated their CSR budgets with the government's overarching goals for its social impact programmes like Skill India and Swachh Bharat.
Alignment of internal and external stakeholders with the organisation's vision
In modern India, CSR is widely supported by investors and other concerned parties, and CSR has become the norm for businesses. Most major firms now recognise the importance of CSR, within the framework of a successful business, for fostering long-term sustainability. In addition, businesses view CSR as a method to be socially accountable to its stakeholders, and the public. It also places an emphasis on the triple bottom line of economic, environmental, and social performance.
The notion of sustainable economic growth, which requires businesses to consider not only the short-term financial implications of their actions, but also the long-term social and environmental impacts, has been associated with CSR at public sector businesses in India. There is a growing awareness among Indian businesses about the need to act responsibly toward the community and the environment, and this has led to a commitment to conducting operations in a socially conscious manner.
In the right hands, CSR has the potential to become a major asset to any company. When organisations invest in developing unique organisational capabilities and researching untapped markets, they can gain a lasting competitive edge. CSR activities that aim to build trust and cooperation between the company and its stakeholders have the potential to improve both the company's bottom line and its social impact. In addition, CSR can help strengthen the organisation’s ties with regulatory agencies, which, in turn, decreases the regulatory burden on businesses, and helps to maintain and improve the company's reputation with customers.
The future of CSR in India
As part of their CSR compliance, India's CSR law requires firms to invest a part of their revenue in areas such as education, poverty alleviation, gender equality and hunger relief. In response to the new law, India's business community is becoming more aware of its broader social duties. Several studies have shown a steady growth in CSR spending by Indian corporations since 2014, and in February this year, Rajesh Verma, secretary of the ministry of corporate affairs, stated that Indian companies had spent over £10 million on CSR since the framework's implementation.
CSR is one of the best ways to generate transformation in India where a profound divide exists between urban and rural populations in terms of wealth and development. The CSR law assures that it is no longer viewed as corporate social aid or altruism, but rather as a necessary component of any successful business plan, one that may help mitigate investment risks and boost corporate profitability. As a result, India could demonstrate the global influence of its approach.
Littleford is Head of Global Responsible Business, Fujitsu.
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