College: Punjab school of law, Punjabi University, Patiala
The practice of CSR or Corporate Social Responsibility as a businesses to follow has evolved from its early days as a slogan that was considered trendy by some firms following it to the present day realities of the 21st century where it is no longer just fashionable but a business requirement to be socially responsible.
This evolution has been necessitated both due to the myriad problems that we as a race face which has changed the environment under which firms operate as well as a realization among business leaders that profits as the sole reason or raison d’être for existence can no longer hold good.
The reason why companies must look beyond profits is also due to the peculiar situation that humanity finds itself in the second decade of the 21st century. Given the political, economic, social and environmental crises that humans as a race are confronting, corporations have a role to play since they contribute the most to the economic well being of humanity and in turn influence the political and social trends.
Corporate Social Responsibility or CSR makes for eminent business sense as well when one considers the knock-on effect that social and environmental responsibility brings to the businesses. For instance, corporations exist in a symbiotic relationship with their environments (the term environment refers to all the components of the external environment and not to ecological environment alone) where their exchange with the larger environment determines to a large extent how well they do in their profit seeking endeavors.
The evolution of CSR as a concept dates back to the 1950’s when the first stirrings of social conscience among management practitioners and theorists were felt. The writings of Keith Davis starting in the 1950’s and continuing into the 1970’s speak of the need for businesses to engage in socially responsible behavior and to ensure that society as a whole does not lose out in the process of profit making behavior by businesses. CSR as a concept was starting to be taken seriously by the time the 1970’s dawned and through the tumultuous decade when big business and their minions were accused of several misdemeanors pertaining to rampant disregard for the environment and society as a whole.
One can trace the anxieties of activists and management theorists during this time as they feared that the rapacious behavior of businesses and corporations ought to be checked if a semblance of social responsibility was to be maintained. Of course, both sides started to stick to their positions and this resulted in the debate over CSR getting shriller during the 1980’s. I conclude the article with two quotes that illustrate the need to think beyond the ordinary and at the same time remind ourselves of the responsibility we have towards succeeding generations: The first one by Albert Einstein where he said that “problems cannot be solved from the same level of consciousness that created them” and the second one which says that “We have not inherited the Earth. We have merely borrowed it from our children.
The Business Need for Corporate Social Responsibility
Corporate Social Responsibility or CSR makes for eminent business sense as well when one considers the knock-on effect that social and environmental responsibility brings to the businesses. For instance, corporations exist in a symbiotic relationship with their environments (the term environment refers to all the components of the external environment and not to ecological environment alone) where their exchange with the larger environment determines to a large extent how well they do in their profit seeking endeavours.
When one considers the fact that the RBV or the Resource Based View of the firm is all about how well the firm exists in harmony with its external environment and how this exchange of inputs and outputs with the environment determines the quality of its operations, it can be inferred that socially responsible business practices are indeed in the interest of the firm and the argument against imposing hidden social taxes on the firms by undertaking socially responsible business practices might not hold good in the current business landscape.
Indeed, the world since the days of Friedman has changed so much that socially responsible business practices ought to be the norm rather the exception and the various readings surveyed for this paper do seem to indicate that it is high time for businesses to engage in responsible behaviour.
However, there is a tendency to treat CSR as yet another cost of business and hence be business like about the practice. So, mainstreaming the idea might not bring the desirable effect unless the media, the businesses, and the citizens themselves understand what is at stake and behave accordingly. Paying lip service or corporatizing the idea of CSR might not be the intended outcome of the proponents and the advocacy groups that promote this idea. Rather, a change in the mindset and attitude is what these groups have in mind when they push for socially responsible practices.
It has been mentioned elsewhere that CSR as a concept and as a paradigm ought to be woven into the DNA of the corporations and when the very fabric resonates with the threads of social responsibility; the goals of conscious capitalism and compassionate corporations would be realized.
Public Policy and CSR
There are a number of examples across Government of where public policy and CSR align; these include the; National Plan on Business and Human Rights 2017-2020;Prompt Payment Code; Origin Green; Sustainable Energy Authority of Ireland (SEAI) initiatives; Restart Ireland; and the Sustainable Development Goals National Implementation Plan 2018-2020. In addition to National Policy, the EU also has an important role to play in supporting and encouraging companies in their efforts to conduct their business responsibly.
Climate Action Plan 2019
Climate Disruption is already having diverse and wide ranging impacts on Ireland’s environment, society, economic and natural resources. The Government’s Climate Action Plan, which was launched in June 2019 outlines the current state of play across key sectors including Electricity, Transport, Built Environment, Industry and Agriculture and charts a course towards ambitious decarbonisation targets. Reflecting the central priority climate change will have in our political and administrative systems into the future, the Plan sets out governance arrangements including carbon-proofing our policies, establishment of carbon budgets, a strengthened Climate Change Advisory Council and greater accountability to the Oireachtas.
Sustainable Energy Authority of Ireland (SEAI)
SMEs play a vital role in the Irish economy, providing over 90 percent of national employment and contributing significantly to GDP and export income. Collectively SMEs account for a significant portion of national energy demand. Saving energy contributes to a better, cleaner environment for our future. Saving energy also cuts energy costs and makes business sense. These savings can be invested in more productive activities, making more resilient and competitive businesses.
SEAI offers supports including: financial supports, training and advisory services, business events and supports.
SEAI’s Six Top Tips to help you save:
You know your own business – look around, if energy is wasted then so is your profit! Get to know your energy bills, talk to your energy supplier and make sure that you measure your energy use. If you don’t measure you can’t manage.
Attend a short training session on understanding your energy bills from SEAI – In January 2019 one company saved €6,000 on the spot!
Heating is a major contributor to energy costs. Lower your thermostat by 1 degree.
Save up to 30 percent by setting timers on heating and cooling systems. Properly maintain your heating and cooling systems to keep them working at maximum efficiency.
Contact SEAI about availing of an energy audit for your business.
Switch off your lights and electrical equipment when not in use.
National LGBTI+ Inclusion Strategy 2019-2021
The National LGBTI+ Inclusion Strategy 2019-2021 was launched in November 2019. The Strategy contains over 100 actions that are aimed at promoting inclusion, protecting rights and improving the quality of life and wellbeing of LGBTI+ people. It reflects the commitment in the Programme for Government to create an equal, fair and inclusive society for all, target discrimination and enable LGBTI+ people to overcome the barriers they face.
CSR under the Companies Act 2013
According to Section 135, Companies Act, 2013, the CSR provisions will be applicable to private limited and public limited companies, as well as their holding and subsidiary companies and foreign companies that have offices in India and meets any of the following criteria:
Company must have a net worth of INR 500 crore of more in any financial year;
Company must have an annual turnover of INR 1,000 crores or more in any financial year;
Company must have a net profit of INR 5 crore or more during any financial year.
Companies that meet any of the aforesaid criteria must spend at least two percent (2%) of their average net profits made during the previous three financial years on CSR activities.
It is mandatory for the companies to publish the CSR report on their company’s official websites annually. The Board of directors of the Company must prepare an annual report on the CSR activities of the company in a separate format specified in the CSR rules. The CSR report, inter alia, must contain a brief overview of the CSR policy, the composition of the CSR committee, average net profit in the preceding three financial years, 2% of the average net profit of the company, the amount of expenditure that was spent on CSR activities and any amount which have left unspent. In the case of a foreign company, the balance sheet failed under sub-clause (b) of Section 381(1) shall contain an annexure regarding report on CSR. If the company fails to spend the minimum required portion of its net profit on CSR activities, the reasons for failing to do so must be mentioned in the Board report.
Penalty for Contravention of CSR provisions
According to Section 134(3)(O) the companies Act 2013, the board of directors need to mandatorily disclose all the relevant information about its Company’s CSR policy and its implementation on an annual basis. Section 134(8) of the Act states that if the company fails to comply with the aforementioned provision, it shall be liable to pay a fine which shall not be less than Rs. 50,000 but may extend to INR 25,00,000. Further, every defaulting officer shall be punishable with an imprisonment for a term, not more than 3 years or with a fine which shall not be less than INR 50,000 but may extend to INR 5,00,000 or with both. This essentially infers that the Act penalizes a company for failure to disclose information about its CSR policy but does not hold them liable for not undertaking CSR activities.
However, Section 450 read with Sec 451 of the Act, which deals with general penalties for contravention of the rules and repeat offences, contains a provision for punishing a company or its officers in case no specific punishment is provided for a particular offence. Sec 450 of the Act states that if a company contravenes with any provisions of the Act or any rules thereunder, the company and any defaulting officer are liable to pay a fine which may extend to INR 10,000 and INR 1,000 per day if the contravention continues after the first fine.
According to Section 451 of the Act, where the defaulter is punished either with fine or with imprisonment and where the identical offence is committed for the second or successive occasions within a period of three years, then, that company and every officer thereof who is in default shall be punishable with twice the amount of fine for such offence in addition to any imprisonment provided for that offence.
From the above analysis, it is evident that CSR is a noble initiative wherein the corporate entities which reap the benefits of resources available at the society helps to fill the gap of socio-economic inequality prevalent in the country and address the problems faced by the society at large. In most of the countries, CSR activities was a voluntary obligation by the companies or by regulatory. India is the first country in the world to have a mandatory statutory compliance requirement on CSR spending, which was incorporated under Section 135 of the Companies Act, 2013 and has come into effect from 1 April 2014. As a consequence of this, various companies have taken on extensive projects addressing the socio-economic concerns and have supplemented the government’s efforts of sustainable development and engage the corporate world with the country’s development.
However, there are certain lacunas like; there was no tax clarity on the CSR spending, ambiguity on the computation of financial accounts of foreign companies, an absence of clarity on the regulations of CSR vis-a-vis foreign contribution. Even though there are certain lacunas, they should not be permitted to become an obstacle in implementing the true spirit of CSR. Thus, the government and corporate entities must mutually work together for an effective implementation and addressing their concerns.