This article is written by Moyesha Sharma
INTRODUCTION
Corporate Social Responsibility is a part of business strategy by which companies and corporations make concerned efforts to operate in way that ethically contributes to the society by enhancing the environment[1]. The guiding principle is to make sure that the profit-making firms do not forget their responsibility towards the environment and society. The duty to safeguard the environment is also imposed on the State by Article 48A of the Constitution[2]. This responsibility imposes a duty upon the companies to control activities which downgrade the environment. Economics plays a key role in influencing CSR activities of the companies.
The government can use two kinds of instruments to influence the working of companies for the betterment of the society:
- Command and Control Policies included the policies such as setting limits on the amount of pollution, use of better technology etc. These were though successful they couldn’t provide any incentives to the manufacturers or firms to continue following them, hence became burdensome overtime[3].
- Economic instruments such as pollution taxes and tradable pollution permits are other instruments used to control pollution. These provide incentives to the producer to follow regulatory measures and are hence considered to be better[4].
In many countries both kinds of instruments work simultaneously to help with pollution control.
There are various ways in which economic policies impact the CSR of the firms in an economy. Some of these are discussed below:
- Consumers are more likely to purchase goods and services from a company which is ethically working well for various environmental causes because they believe it is very important to invest in CSR initiatives[5].
- Investors that are impressed by the company’s ethical works tend to invest more in companies with higher CSR[6].
- Since the governments want to promote CSR strategies of companies, they might provide them with incentives or tax benefits for a good CSR.
- Businesses have good economic influence in the long term if they run on sincerity and transparency.
Despite these measures there are certain issues which lead to the miscalculation of CSR, these include:
- Companies may exaggerate the number of environmental efforts they have put to appear more sustainable and environmentally friendly.
- There are goods whose supply chain includes multiple levels of suppliers; this might make it hard to create supply chain transparency.
- Companies often find it difficult to balance their goals with the aspirations of the local communities, especially when these are orthodox.
- In pursuit of profit the conditions of working and the negative impact of production generally remains unseen.
- To comply with the rules of CSR by implementing them remains a problem as there could be multiple levels in the organization and the lower players might not follow them properly.
JURISPRUDENTIAL ASPECT AND RELEVANT CASE LAWS
As per Section 135 of the Companies Act, every company falling under the ambit of this Act is mandatorily required to set up a CSR committee, formulate a CSR policy and spend 2% of its average net profits to contribute towards the wellbeing of the Society. In the case of Technicolor India Private Limited vs Registrar of Companies[7], the company had met the net profits criteria but did not spend the requisite amount. As a result of which the company had to submit reasons in its director’s report with appropriate justifications.
The Ministry of Corporate Affairs, or MCA, has notified the Corporate Social Responsibility (CSR Policy) Amendment Rules, 2021, to reflect recent changes to the CSR policy in India. Important modifications consist of Organizations utilizing CSR are required to register, which further allows the companies established under Section 8 for business enterprises, registered public estates, and societies to carry out CSR initiatives[8]. These are some of the revised guidelines for reporting for businesses participating in corporate social responsibility initiatives. Also, if any company has a website, it is mandatorily required to disclose its composition of the CSR committee, CSR policy and projects approved by the board under the policy[9].
On 22nd January 2021, amendments were introduced by the Ministry of Corporate Affairs through the Companies (Corporate Social Responsibility Policy) Amendment Rules 2021[10]. These included modifications such as change in the definition of CSR, shift from discretional to mandatory CSR, compulsory registration for partners implementing the policy, increased rigor for internal control and more focus towards creating an impact[11].
Apart from the companies themselves, the governments around the world can facilitate CSR through legislation and fostering ethical practices in the private sector. Exporting CSR principles by governments would be a good practice in terms of execution. There would be two ways to export this: First, the government spreads the concept of corporate social responsibility (CSR) to other nations (as in the case of Germany and Turkey’s collaboration); second, the government makes its CSR adoption known in order to provide domestic businesses with a competitive edge in the international market (as in the case of Canada)[12]. In the end, effective CSR implementation may be utilized to showcase businesses overseas and to support and encourage the adoption of CSR as a sign of the excellence attained by businesses domestically and internationally, this could further attract foreign investments.
In conclusion, I would like to suggest that both the public as well as private sector should work together for the successful working of CSR.
[1] Fernando J, “What Is CSR? Corporate Social Responsibility Explained” (Investopedia, March 6, 2024) <https://investopedia.com/terms/c/corp-social-responsibility.asp#:~:text=Corporate%20social%20responsibility%20%28CSR%29%20is%20a%20self-regulating%20business,accountable%20to%20itself%2C%20its%20stakeholders%2C%20and%20the%20public.>
[2] Saurabhk, “CSR Laws in India – Provision under the Companies Act, 2013 – iPleaders” (iPleaders, April 8, 2024) <https://blog.ipleaders.in/csr-laws-india/>
[3] AUSTIN, ECONOMIC INSTRUMENTS FOR POLLUTION CONTROL AND PREVENTION
[4] Cheever F and Campbell-Mohn CI, “Environmental Law | Definition, History, Principles, Examples, & Facts” (Encyclopedia Britannica, May 10, 2002) <https://britannica.com/topic/environmental-law/Environmental-assessment-mandates>
[5] “15 Eye-Opening Corporate Social Responsibility Statistics” (Business Insights Blog, June 15, 2021) <https://online.hbs.edu/blog/post/corporate-social-responsibility-statistics>
[6] “How Much Do Investors Care About Social Responsibility?” (The Harvard Law School Forum on Corporate Governance, October 24, 2022) <https://corpgov.law.harvard.edu/2022/10/24/how-much-do-investors-care-about-social-responsibility/>
[7] More D, More D and Bites L, “Legal Bites” (Legal Bites, May 2, 2023) <https://www.legalbites.in/corporate-governance/csr-applicability-in-india-898833>
[8] Acharya M, “CSR Amendment Rules 2021” (Cleartax, June 16, 2024) <https://cleartax.in/s/csr-amendment-rules-2021>
[9] Rao S, “CSR Act Amendments: All You Need to Know” Times of India Blog (April 30, 2021) <https://timesofindia.indiatimes.com/blogs/developing-contemporary-india/csr-act-amendments-all-you-need-to-know/>
[10] Jain CA, “Companies (CSR Policy) Amendment Rules, 2021 PDF Download – Corporate Laws” (January 23, 2021) <https://www.corporatelaws.in/2021/01/companies-csr-policy-amendment-rules.html>
[11] Threlfall R and King A, “The Time Has Come” KPMG (December 1, 2020) <https://kpmg.com/xx/en/home/insights/2020/11/the-time-has-come-survey-of-sustainability-reporting.html>
[12] “CSR and Government Role in SDGs” (EMG: The International Experts in ESG, CSR, Sustainability., November 27, 2022) <https://www.emg-csr.com/csr-and-government-role/>
