It is recognised the world over that integrating social, environmental and ethical responsibilities into the governance of businesses ensures their long-term success, competitiveness and sustainability. The greatest challenge we face today is inequitable distribution of wealth and opportunities. Today, the richest 1% of adults control 43% of the world?s assets and the bottom 50% has access to only 2% of world?s assets. I think it is important for companies to recognise that their actions or in-actions impact the future prospects and that CSR is a passport to a secure future.
Bridging the rich-poor gap is a business imperative and everyone who is in a position to help ? be it a corporation or an individual ? should do there bit. A company is responsible for providing more benefits than just profits to shareholders. It has a role to play in treating its employees well, preserving the environment, developing sound corporate governance, supporting philanthropy, fostering human rights, respecting cultural differences and helping to promote fair trade, among others. All are meant to have a positive impact on the communities, cultures, societies and environments in which companies operate.
The ministry of corporate affairs in 2011 unveiled the National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business. The nine cardinal principles reflect a conscious shift from what is generally termed as CSR to a more encompassing concept of ?Responsible Business?.?In line with the above guidelines, Sebi has mandated inclusion of Business Responsibility Reports as part of the Annual Reports for listed entities.
Importantly, these guidelines indicate that CSR should be core to the company. If the company spends on philanthropy but produces products which are unsafe or the company is not just to its employees, it would really defeat the purpose. Ideally, CSR for companies should not be something that gets factored in after all business priorities are met ? it must be the way they do business with a conscience.
In the Companies Bill, the government has prescribed that certain companies would have to either implement CSR spending of 2% or ?cite reasons for non- implementation? or any short-fall. Therefore, reporting becomes mandatory. There is a Schedule VII which prescribes the activities which may be included by the companies in their CSR policies.
What will become important now will be to put a proper mechanism in place to measure and quantify CSR spend to ensure its effective utilisation. For example, companies may include employee welfare spend or training to employees as a CSR spend that actually may be completely operations driven and not strictly be a CSR activity. Some method of bifurcation between the spending that is integral to the working of the organisation and the CSR spend may be required to be clarified in the rules that are being framed by the government. We hope that the rules will be open for public debate before they are notified.
Big industrial groups sometimes have foundation/NGOs as a separate entity of the group, which focuses on philanthropy for the under privileged. For most others, it may be better to partner with a credible NGO or with social entrepreneurs and strengthen their efforts or donate to them.
Again to address the transparency issue with some NGOs, it is important to have a mechanism in place to shortlist credible NGOs or have a credit rating to which they are subjected to.
At the end of the day, corporates also need to sensitise themselves on the benefits that would accrue from CSR activities. A spirit approach and not just a compliance approach needs to be adopted. CSR makes business sense as companies are increasingly motivated to become more socially responsible because their most important stakeholders expect them to understand and address the social and community issues that are relevant to them. Strong multipliers will emerge when enlightened?consumers exercise a preference in favour of businesses that contribute significantly?to environmental and social sustainability.
An enterprise could be awarded ?Credits??based on an objective evaluation of its triple bottom line performance. These credit or trust ratings could then be displayed on products and? services of the company to help consumers make an informed choice. By expressing a direct and distinct?choice for the products and services of such enterprises, consumers will?unleash a multitude of positive actions that will eventually create greater?shareholder and societal value.
Incentivising outcomes, rather than just outlays is also the key to drive?business innovation for societal value creation. The government?should also have a provision of a differentiated and preferential set of?incentives, fiscal or financial, to companies that demonstrate leadership?in sustainability performance then Responsible Business will move from a realm of conscientious?philanthropy to one that is driven by a competitive value proposition.
The writer is former president ICSI; chairperson, Assocham National Council for Corporate Affairs and CSR
