- What is CSR or corporate social responsibility?
- Is CSR compulsory for Indian companies?
- Benefits of a robust CSR program
- What is Clause 135, Companies Act 2013?
- Major duties of the CSR Committee
- How to develop a CSR strategy and policy at your company?
- CSR and SMEs – How can SMEs contribute to CSR?
- Process of CSR policy implementation for SMEs
What is Corporate Social Responsibility or CSR all about?
CSR can be defined as a way by which a company functions towards achieving a balance between economic, social and environmental imperatives. The process by which companies manage their business to bring about an overall positive impact on society is known as CSR.
The main purpose of CSR is to participate in various philanthropic causes, give back some good returns to the community and also spread good social values. Nowadays, a large number of organizations are turning towards CSR for bringing about a difference along with the motive of building a positive brand for the organization. CSR covers social impact, ethics, and the ways by which companies can manage their business processes to have a positive impact on society. Moreover, it can also be said that philanthropic activities performed by companies is a part of CSR and CSR includes a much larger set of activities which can give various strategic benefits in the business.
Some of the major CSR issues can be listed down as engagement of stakeholders, environmental management, and gender balance, human rights, sourcing in a responsible manner, social equity, excellent governance, and implementation of anti-corruption measures, etc. When a CSR concept is well implemented in an organization, it can bring various changes such as improvement in the productivity and in the quality of production, efficient human resource base, increased customer loyalty, improved image of the brand and good reputation of the organization, better decision making, etc.
Some of the very common examples of corporate social responsibility can be listed below.
- Bringing changes in corporate policies for benefits to the environment.
- Making investments that are economically and socially suitable.
- Making improvements in the labour policies of the organization and initiate fair trading.
- Reducing the carbon emissions to stop negative impact on climate.
- Engagement of the organization in charitable activities in the organization.
Is CSR compulsory for Indian companies?
In the world, India is the first country which has made CSR compulsory for its companies. This has been implemented in India with the help of an amendment made in the Companies Act, 2013. This has been implemented since April 2014. Business organizations in India can invest in various philanthropic areas such as poverty, gender equality, education, etc.
According to the amendment made in the Companies Act, 2013 those companies which have a net worth of Rs. 500 crores or more or have an annual turnover of Rs. 1000 crores or more or a net profit of Rs. 5 crores or more than these companies must spend 2% of their average net profits which has been acquired over 3 years on CSR. Before this amendment has been made into the Companies Act, 2013 the contribution of Indian companies towards CSR was voluntary in nature. The expenditure on CSR must be informed to the shareholders of the company. The expenses which are incurred by Indian companies for CSR cannot be used for claiming tax deductions under the heading of Taxable Income. However, there have been certain changes made into the CSR contribution of Indian companies by an amendment made in 2019 into the Companies Act, 2013.
Benefits of a robust CSR program
Let us list down some of the major benefits of a robust CSR program.
Increased employee satisfaction
By CSR program, it becomes quite clear how a company is treating its community. When a company is treating its community well, it would also treat its employees properly. This helps the employees in being much more satisfied and content at work. When your employees are satisfied, they would give in more efforts and it would improve the productivity of the company.
If you are giving your employees an opportunity to volunteer during the work hours, you are contributing to making a great connection with the community. Your employees will feel confident and even motivated by being involved in activities associated with the community. Many employees when are actively involved in the community, turn out to be brand ambassadors. The productivity of your organization will increase when your employees are more involved in the organization and in the community as well.
Public image is improved
Today, those companies which are involved in CSR program will get exposure and their brand reputation is improved in the market. When your company is helping the community, more and more customers will be interested in purchasing your products. This will enhance your public image and your business as well. You can use social media for propagating about your company’s CSR initiatives and let people know about your efforts. This will be beneficial for your business and will improve the reputation of your brand.
Increase in customer loyalty
When your company is involved in CSR initiatives, your customers are going to much more loyal towards your company. Your company’s involvement in community activities and social initiatives will highlight the core values of your company. Your core values will attract your customers towards your organization and they will remain loyal always.
Increase in creativity
If you want your employees to think differently, think out of the box; then program associated with Corporate Social Responsibility is the best way for this. With these initiatives, your employees would feel more motivated, encouraged and can try to do new innovative things. Your employees can find out new methods by which they can solve an internal problem or improve the internal processes of the company. Corporate Social Responsibility will help your employees in understanding their passion for doing certain things differently and bring out the latent creativity within them.
Communities can get involved in the business
There are numerous programs associated with Corporate Social Responsibility where you can invest and incorporate the communities into your supply chain. This will help in generating good livelihood and would increase the income of the community. By this initiative, your company is providing an additional supply chain to the community and helping them economically.
What is Clause 135, Companies Act 2013?
For certain classes of companies, the Ministry of Corporate Affairs has made Corporate Social Responsibility mandatory as per the provisions of Clause 135 of the Companies Act 2013 and Schedule VII of the Companies Act.
According to Clause 135 of the Companies Act 2013 every company in India which is having a net worth of Rs. 500 crores or more, turnover of Rs. 1000 crores or more or a net profit of Rs. 5 crores or more has to constitute a Corporate Social Responsibility Committee(CSR). This Committee must comprise of 3 directors out of which one should be an independent director. For private companies, which consist of only two directors the Corporate Social Responsibility (CSR) Committee can be formed by only two directors. Moreover, in case of unlisted companies that are both public and private companies and do not appoint directors can constitute the Corporate Social Responsibility (CSR) Committee without any director. For foreign companies, CSR Committee can constitute at least 2 persons i.e. one person must be an authorized person who is a resident in India and another person who would be nominated by a foreign company.
Major duties of the CSR Committee
- The CSR Committee will recommend a CSR Policy to the Board which shall specify the activities which need to be performed by the company according to Schedule VII.
- The Corporate Social Responsibility (CSR) should recommend the expenditure that has to be incurred by the company for performing the CSR activities.
- The CSR Committee will be monitoring the CSR policy of the company regularly.
- The CSR Committee would implement a mechanism for the implementation of the CSR programs of the company.
- The Board of directors of the CSR committee of a company has the below-mentioned responsibilities.
- The board of directors must ensure that the CSR activities of the CSR policy are undertaken properly.
- The board of directors must ensure that the company must spend at least 2% of the average net profit which has been made by the company in the immediate 3 financial years.
- The directors of the CSR Committee must approve the CSR activities and disclose the contents in the Board report.
We can highlight some of the major points which are included in the CSR policy of a company.
- CSR policy of a company includes a list of programs that are planned by a company to be done under Schedule VII of the Companies Act, 2013.
- The CSR Policy will monitor the proper implementation of these programs.
- The CSR Policy would also ensure that the surplus which arises out of the Corporate Social Responsibility (CSR) programs should not be considered as a part of the company’s business profit.
How to develop a CSR strategy and policy at your company?
Let us have a brief look at the steps that are needed to develop a CSR policy and strategy.
Step #1: CSR policy must be linked to the core values of the company
Your CSR policy for the organization must be linked or aligned with the values, mission, and goals of the company. If they are not aligned up with the core values of the company, you will never obtain the desired effect that you expected to obtain from the CSR policy.
Step #2: Understanding your customers
When you are developing a CSR policy for your company, it is necessary for you to understand the problems of your customers. When you are pro-actively addressing the issues and problems of your customers, you are turning down many negative feedbacks against your CSR policy in the first place.
Step #3: A strategic fit and maintain consistency
The CSR goals of your company must be a perfect fit for your company’s products and services. Moreover, you should also maintain consistency in your CSR policy. The CSR policy must be shared with the employees and the outside world as well. This will help in having a clear understanding of the views of others on your company’s CSR policy. This will help you in making any changes to the policy if needed.
Step #4: Focusing on the correct issues
There are numerous issues that can be highlighted in the CSR policy and can be included in the CSR activities. However, it is important to give attention to only those issues which are relevant and quite critical.
Certain issues like energy cost, fuel prices, renewable energy, wildlife preservation, global warming, promoting literacy and education, energy/water conservation, fair minimum wages for workers, recycling, climate changes, unemployment reduction, supporting charities, etc. are quite relevant and associated with all. So, when the CSR activities involve these issues the implementation of the CSR policy would be more successful.
Step #5: Simple CSR policy and the work must begin from within the company
It is wise to keep the CSR policy of your company simple. Complex CSR plans will make things complicated and the real motive would not be achieved. The work for implementation of the CSR policy must start from within your company. You should encourage the participation of your employees into the various activities related to the Corporate Social Responsibility policy. This will help in bringing out the innovative side of your employees.
Step #6: Your CSR policy must be publicized
It is necessary that the public and general masses are aware of your initiatives associated with Corporate Social Responsibility. You can make use of social media, websites, brochures, company newsletter, etc. to publicize the efforts you and your employees are putting in for the implementation of CSR policy.
CSR and SMEs – How can SMEs contribute to CSR?
SMEs or otherwise known as Small and Medium Enterprises employ almost 40% of the nation’s workforce and are a contributor of around 45% to the manufacturing output of the nation. SMEs are those enterprises that serve independently, act as subsidiary units for larger businesses and help in industrializing the rural areas of the country. CSR activities for SMEs are mainly dependent on the promoter’s interests who are financial stakeholders in the business.
Mostly, SMEs in our country have participated in the CSR activities in a full-fledged manner. However, according to statistics and survey results, the efforts and results of SMEs associated with CSR activities have not been that great. The major reason behind this can be the dependence of CSR activities of SMEs on the profit of the enterprises. Any negative impact on the profit of the enterprise can have a negative impact on the CSR activities of the company as well. Moreover, there is a shortage of proper skilled human resources in SMEs which can be a cause affecting the CSR activities in SMEs.
With the amendments made into the Companies Act, 2013 there have been certain changes made into the approach of the SMEs towards CSR activities. According to this new approach, resources from many SMEs can be pooled together and CSR activities can be carried out in a cluster. This can be termed as a collaborative approach of SMEs towards CSR activities. With this collaborative approach, there can certain benefits which can be mentioned below.
Reduction in operational cost
By collaborative approach, a common organization can carry out all necessary activities collectively for all entities such as the establishment of a CSR department, finding out the needs of the local communities, conducting sessions for CSR activities, etc. This will lead to a great reduction in the operational cost.
Long-term projects can be undertaken
For SMEs, one of the biggest constraints is the budget for CSR activities. When the profit of the SMEs is low, the budget for CSR activities would also be low. By collaborative approaches, resources are pooled and hence budget can also be increased as other partners can contribute. By this, long term CSR projects can be undertaken easily.
Learning is feasible
When there are many resources pooled together from different entities, there is a scope of multiple participants sharing their experiences. By this, there is more exposure to the problems of communities and also better measures can be undertaken to resolve the issues of various communities.
Process of CSR policy implementation for SMEs
The process for the implementation of the collaborative approach for CSR policy can be summarized as below:
In the first step, an alliance has to be created by all those SMEs which are interested in performing certain activities associated with Corporate Social Responsibility. Then a detailed discussion on the budget and CSR activities to be performed can be done between the members of the alliance.
In the next step, a steering committee has to be formed by representatives from each SME for discussion and decision on matters related to the implementation of CSR policy, fund management, etc.\
The next steps involve the design of CSR strategy and policy, project development, an institutional mechanism, contracting, budgeting, monitoring and measurement of impacts.
Hence, Corporate Social Responsibility (CSR) can be said as a business model that is self-regulating in nature. It helps a company to be accountable socially to its stakeholders and to the public. By the practice of Corporate Social Responsibility (CSR), a company is engaged in its ordinary process of business and also in activities which are contributing positively towards the society and the environment. Mostly, the initiatives for CSR activities by larger corporations are publicized and are in the limelight. However, small and medium scale enterprises have also started taking up the CSR program quite seriously and are contributing positively towards it.