CORPORATE SOCIAL RESPONSIBILITY – Complete Information

This Article is written by Advika.

CORPORATE SOCIAL RESPONSIBILITY

INTRODUCTION

According to Milton Friedman, “The business of businesses is to increase profits”

From ancient times, the word ‘business’ and ‘business ethics’ often conjures images of ruthlessness, selfishness, insensitivity and to be solely profit-driven. These ruthless business ethics have often closed an eye toward humanity, moral standards and values thereby disregarding employee well-being, environmental sustainability and society’s well-being. There have been various instances where renowned businesses turned down delivering quality products to the consumers and focussed majorly on maximizing profits. However, it was gradually observed that businesses that focussed on employee and consumer well-being and placed the consumer on a pedestal flourished more. Thus, came a transition from the ideology of ‘selling what the producer wants to selling what a consumer wants.’ This approach tends to change the synonyms of business from being ruthless and insensitive to being responsible and accountable.

According to Anita Roddick, “The business of businesses should not be about money. It should be about responsibility. It should be about public good and not private greed.”

A business is an indispensable part of the society which derives its manpower and resources from the society. It can get success in the long run only when it is socially responsible and follows ethical behaviour. Social Responsibility of a business can be defined as an obligation of the business towards the environment, employees, consumers and the society at large from which it derives its resources and for whose benefit it produces the particular goods/services. It aims as maximising social gains alongside economic gains.^[1]

A SNEAK PEEK INTO CORPORATE SOCIAL RESPONSIBILITY

Corporate Social Responsibility (hereinafter referred to as CSR) represents an ethical framework that transcends mere profit-driven motives, advocating for a more inclusive and sustainable approach to business operations. This concept underscores the idea that contemporary success is not solely gauged by financial metrics but by the positive impact a business has on the society in which it operates and the environment from which it sources its resources.^[2]

World Business Council for Sustainable Development has defined Corporate Social Responsibility as, “The continuing commitment of businesses to contribute to economic development while improving the quality of life of the workforce and their families, as well as, of the community and society at large.”^[3]

Over the years, climate change, resource degradation, social inequality, etc. have posed as the significant stepping stones for businesses thereby serving as an anchor in its growth process. This led to the need of a framework to direct the businesses to take initiatives and adopt such practices for the betterment of the society. Moreover, nations like India with a mixed economy and ideology of socialist communalism, aim to grow both socially and economically and thus adopt policies which not only maximise profit but also aid in achieving social equality. Furthermore, the need to adopt CSR is critical for such countries to enable them to meet ambitious climate targets set by international agreements and summits. By embracing sustainable business practices and supporting the well-being of local communities, businesses can significantly contribute to environmental sustainability. This, in turn, positions India as a responsible and forward-thinking participant on the global stage.

CSR tends to be an initiative that must be adopted by governments or states to maximise social equality and adopt such policies so as to benefit a large section of the society. This aligns with the Utilitarian Theory proposed by the renowned jurist Jeremy Bentham, who advocated for enacting policies and laws that would maximize benefits for the greatest number of people in society.^[4]

The National Corporate Social Responsibility Data Portal, an initiative by Ministry of Corporate Affairs, Government of India aimed to bind the companies registered with it to the concept of Corporate Social Responsibility. It is governed by Section 135^[5] of The Companies act, 2013, Schedule VII^[6] of the Act and Companies (CSR Policy) Rules, 2014 which laid down the criteria for assessing the CSR eligibility of a company. India, with its comprehensive Corporate Social Responsibility framework and implementation strategy, has embarked on a path to set a standard in achieving sustainability goals and fostering stakeholder engagement in nation-building.

A series of motions have been tabled to discuss the merits and demerits that flow alongside the aforementioned concept. Hereinafter mentioned are some of the same.

MERITS OF CSR:

• SHIFT IN IDEOLOGY FROM A FAVOUR TO OBLIGATION:

The businesses rather than considering that they are doing a favour to the society by producing and delivering particular goods and services should be of the opinion that they are tending to the needs of the society from whom they borrowed resources for their growth.

• LONG TERM BENEFITS:

The business tends to flourish more when the aim is not to solely maximise profits rather to improve the working conditions of the employees, provide them with additional benefits like maternity leaves, sick leaves, provident funds, etc, train the employees and ensure production of quality products as it would retain the consumers loyalty towards a particular business or brand.

• AVOIDANCE OF GOVERNMENT REGULATION:

Voluntarily adopting initiatives and policies to fulfil its obligations towards society allows them to keep the unnecessary governmental intervention at bay.

• ENHANCED RESOURCES FOR THE BUSINESSES:

Businesses might face difficulties in succeeding when the society is confronted with difficult and challenging situations like global warming or a pandemic. Thus, the businesses ought to adopt policies of social responsibility to solve the problems of the society.

DEMERITS OF CSR:

• VIOLATION OD PROFIT MAXIMASATION OBJECTIVE:

Business being an economic institution holds profit maximisation to be its sole objective. This is because profit is necessary for it existence and success in the contemporary world. Thus, assuming social responsibility might pose as an anchor to its growth process.

• CONSEQUENTIAL BURDEN ON CONSUMERS:

The businesses that do take up policies towards society eventually gain returns of the same from the consumers by means of charging higher prices. Thus, the consumer tends to suffer.

• CORPORATE- GOVERNMENT CONFLICT:

The Public Sector does not usually like businesses to interfere in its policies and functioning. Thus, the businesses lack proper resources and platform to incorporate policies that would benefit the society at large.

LEGAL JUDGEMENTS UPHOLDING THE CONCEPT

The relevance and importance of the Corporate Social Responsibility can be derived from the concepts of Absolute and Strict Liability.

While the concept of Strict Liability traces its roots to the infamous judgement of Rylands vs Fletcher^[7] according to which it was held that the person or corporation who holds a hazardous substance, capable of causing significant damage to the other person or society in general, must be liable to pay the damages excluding certain exceptions like Act of God, Act of Third Party, Plaintiff’s fault, etc. On the other hand, the concept of Absolute Liability can be referred in context with the Bhopal Gas Tragedy^[8] and the judgement of MC Mehta vs Union of India^[9] by means of which the Apex Court held that any person engaging in or dealing with any hazardous substance, the escape of which causes harm to any other person would be held absolutely liable and that such person must not be exempted in lieu of exceptions of strict liability.

Furthermore, the rules and measures adopted under Corporate Social Responsibility aligns with the provisions of Article 21^[10] guaranteed to the citizens by the Constitution of India. Schedule VII, which outlines the corporate social responsibility (CSR) activities for corporations, suggests that these activities align with Article 21 of the Indian Constitution.

Article 21 guarantees the right to life, which includes the right to live with dignity. This encompasses essential needs such as food, clothing, and shelter, health protection, medical assistance, timely medical care in government hospitals, the state’s duty to prevent hunger-related deaths, and the provision of safe drinking water.

The courts have elaborated on Article 21 in numerous cases, including Bandhan Mukti Morcha vs. Union of India^[11], Kirloskar Bros Ltd. vs. ESI Corporation^[12], Paschim Banga Khet Mazdoor Samity vs. State of West Bengal^[13], and PUCL vs. Union of India^[14].

Judicial interpretations have consistently emphasized that CSR initiatives should act as a supportive measure to help the government enforce fundamental rights, particularly those under Article 21. which lays down the significance of Right to live with dignity.

COMPLEXITIES AND CHALLENGES REVOLVING AROUND CSR

Although the initiative mandated by the government and adopted by the businesses tends to improve social equality, improve environmental conditions and benefit the society at large, it is subjected to certain road bumps which hinders its success such as:

• THE OVERLAPPING OF CSR AND CER:

Challenges related to CSR include ambiguity about whether Corporate Environment Responsibility (CER) should be distinct from CSR, potentially causing confusion and overlapping efforts. Moreover, there is uncertainty about whether CER expenses should be separate from CSR spending, complicating companies’ efforts to meet their social and environmental obligations effectively. ^[15]

• VIOLATION OF ARTICLE 14 OF THE INDIAN CONSTITUTION:

Article 14^[16] of the Indian Constitution guarantees every individual in India equality before the law and equal protection under the law. CSR spending is mandated exclusively for business corporations and does not extend to partnership firms, limited liability partnerships, or other organizational types, regardless of whether their net worth, profit, or turnover surpass the statutory thresholds.^[17]

According to Section 135(1)^[18] of the Companies Act, a business that meets one of the criteria for net worth, turnover, or net profit falls within the scope of section 135. Consequently, even if a corporation no longer meets these criteria in the future, it remains obligated to engage in CSR activities.

CONCLUSION

Thus, it can be deduced that Corporate Social Responsibility (CSR) embodies a commitment by businesses to contribute positively to society beyond their financial performance. By addressing social, environmental, and economic impacts, CSR fosters sustainable development and ethical practices. It ensures companies play a vital role in the well-being of their communities, aligning business strategies with societal needs. While challenges remain, such as distinguishing CER from CSR and regulatory ambiguities, the overarching goal is to create a more equitable and sustainable future. Effective CSR not only enhances a company’s reputation but also promotes long-term growth and stability, benefiting both businesses and society at large.

1. Poonam Gandhi, Business Studies (2021-22 Ed., VK Publications), 192 ↑
2. Sandeep Garg, Business Studies ( First Published in 2010, Dhanpat Rai Publications Ltd.), 6.2 ↑
3. Sandeep Garg, Business Studies ( First Published in 2010, Dhanpat Rai Publications Ltd.), 6.2 ↑
4. Crimmins, James E., “Jeremy Bentham”, The Stanford Encyclopaedia of Philosophy (Summer 2021 Edition), Edward N. Zalta (ed.) ↑
5. The Companies Act, 2013, § 135 ↑
6. Act and Companies Rules, 2014, Schedule 7 ↑
7. Rylands v. Fletcher, UKHL, L.R. 3 H.L. 330 ↑
8. Union Carbide Corporation v Union of India, AIR (1989)(1) SCC 674: AIR 1992 SC 248 ↑
9. MC Mehta v Union of India, (1987) 1 SCC 395 ↑
10. Article 21, The constitution of Inida ↑
11. Bandhan Mukti Morcha v Union of India, AIR (1984) SC 402 ↑
12. Kirloskar Bros Ltd. v ESI Corporation, AIR (1996) SC 3621 ↑
13. Pascha Banga Khet Mazdoor Samiti v State of West Bengal, (1996) SCC (4) 37 ↑
14. PUCL v Union of India, (1997) 1 SCC 301 ↑
15. Venancio D’Costa, Astha Ojha and Samarth Sansar, Corporate Social Responsibility v Corporate Environment Responsibility, < https://www.scconline.com/blog/post/2022/02/07/corporate-social-responsibility-v-corporate-environment-responsibility/ > accessed 22 June 2024 ↑
16. Article 14, The constitution of India ↑
17. Sneha Sengupta, Corporate Social Responsibility in India: The Theoretical and Constitutional Commentary, < https://www.lawctopus.com/academike/corporate-social-responsibility-in-india/ > accessed on 21 June 2024 ↑
18. The Companies Act, 2013, § 135(1) ↑