CSR is an evolving field that needs to keep evolving new ideas and understanding by all stakeholders to facilitate companies to fulfil their obligation or responsibility towards the community
This paper is part of a series ‘This is not CSR’ to discuss the purview of corporate social responsibility in India. DTE brings you the series along with ‘Partners in Change’ and 'Corporate Responsibility Watch'.
Corporate Social Responsibility (CSR) is not new to India and corporates have been implementing the community development activities voluntarily, often as charity or philanthropy and sometimes to buy peace with the community. The integration of CSR into the company act not only made it mandatory but also prescribed the list of activities that will be counted as CSR activities and that will not be counted as CSR activity. Yet, there are grey areas in the identification of CSR activities and voices are raise as it impacts both the community and the implementing agencies that are non-government organisations (NGO). While the activities which are considered as not-CSR often depends on the perception of the community or NGO which is impacted by such activity, there is a need to understand and analyze what qualifies as CSR activity.
One of the practical and prudent way to understand what CSR is to find out what is not CSR. There is an age-old concept of finding the truth based on the concept of “Neti, Neti, Neti” (not this, not this, not this). This was the approach adopted by Edison to invent the electric bulb by making a thousand experiments and concluding not this, not this, not this. therefore, to understand the concept of “what is CSR”, it is prerequisite to identify “what is not CSR”, ie finding those activities which do not qualify under CSR.
While the Companies Act does not define CSR, it prescribes a list of activities under Schedule VII that could be taken up to fulfil the obligation of compliance of the Act. However, the concept of CSR has a wider connotation and understood and perceived differently depending on its evolution based on the time, location, social, economic, political and historical situation. The concept of CSR can be analysed and understood in its six dimensions as stated below.
The first dimension is the global understanding of the CSR. There is a global understanding of social responsibility as defined under the international standard on social responsibility issued by the International standard organisation on 1st November 2010, as ISO 26000. Seven guiding principles are covering the seven core subject and community development is just one of the core subject guided by seven principles. Adopting the process prescribed in ISO 26000 will result in a different approach of identifying an activity as CSR or non-CSR activity.
The social responsibility is defined as: An organization's responsibility for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that:
The second dimension is to evaluate with the lens of NGRBC. The National Guidelines on Responsible Business Conduct (NGRBC) released by the Union Ministry of Corporate Affairs, Government of India on March 13, 2019, includes the community development under Principle 8. NGRBC is the revision of the first ever guideline on responsible business named “National Voluntary guidelines on Social, Environmental and Economic REsposnibilities of Business (NVG) released on July 8, 2011. This may give a different result to the identification of a CSR activity or non-CSR activity based on the NGRBC.
The nine principles of responsible business are as below:
Principle 1: Businesses should conduct and govern themselves with integrity, and in a manner that is ethical, transparent, and accountable.
Principle 2: Businesses should provide goods and services in a manner that is sustainable and safe.
Principle 3: Businesses should respect and promote the well-being of all employees, including those in their value chains.
Principle 4: Businesses should respect the interests of and be responsive to all its stakeholders.
Principle 5: Businesses should respect and promote human rights.
Principle 6: Businesses should respect and make efforts to protect and restore the environment.
Principle 7: Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.
Principle 8: Businesses should promote inclusive growth and equitable development.
Principle 9: Businesses should engage with and provide value to their consumers in a responsible manner.
The third dimension is to evaluate the principles of stakeholders accountability. The company act, as well as the NGRBC, also support the concept of stakeholder to whom a company is responsible and accountable. Looking from the lens of stakeholder will result in a different approach and perception of what is CSR and what is not CSR. A stakeholder is a party that has a concern or an interest in a company and can either affect or be affected by the business. It is important to understand how a company understand and address that interest or concern. In CSR, the primary stakeholder is the community that can either affect or be affected by the company, while the secondary statkeholder are the government and the implementing agency.
The fourth dimension is to analyze an activity through the lens of ethics. Ethics is defined as the approach dealing with what is good and bad and with moral duty and obligation. It is dependent on the perception of the company or individual stakeholder or the community and will vary with time and place. The company may use it as a principle for finding out what is an appropriate or non-appropriate activity for the purpose of CSR.
The fifth dimension is analysing through the lens of vision, mission, goals, purpose and values set by the company. It defines the future position of the company after 15 years, the outcome as seen after five or 10 years of implementing the activity. The company could set specific goals in the domain of its social responsibility keeping in view the United Nations-mandated sustainable development goals (SDG) or the national development goals (NDG). The SDG were released by the UN Sustainable Developpment Summit held on 25 – 27 September 2015 at New York, USA.
The 17 goals identified by the United National under SDG are as below:
GOAL 1: No Poverty
GOAL 2: Zero Hunger
GOAL 3: Good Health and Well-being
GOAL 4: Quality Education
GOAL 5: Gender Equality
GOAL 6: Clean Water and Sanitation
GOAL 7: Affordable and Clean Energy
GOAL 8: Decent Work and Economic Growth
GOAL 9: Industry, Innovation and Infrastructure
GOAL 10: Reduced Inequality
GOAL 11: Sustainable Cities and Communities
GOAL 12: Responsible Consumption and Production
GOAL 13: Climate Action
GOAL 14: Life Below Water
GOAL 15: Life on Land
GOAL 16: Peace and Justice Strong Institutions
GOAL 17: Partnerships to Achieve the Goa
The sixth dimension which is being deliberated here is to look at from the perspective of compliance to the provision made in the company act in letter and spirit, differentiating between the donation and responsibility. The Compnay Act 2013 came into force on September 12, 2013. There are several provisions under the company act which demarcate what activities are permissible or not-permissible under the company act.
This has been prescribed through the provisions made under Section 135 and Schedule 7 of the Act 2013. There have been subsequent rules and circulars to further clarify what is permissible or what is not-permissible and under the company act.
Since the notification of Act, the Ministry of Corporate Affairs has brought out many rules, general circulars and also issues clarification. Some of the key requirements are listed below:
The list of activities covered in Schedule VII are as given below
Interpretation of the CSR activities in a liberal way, while gives flexibility to the companies to identify and design a CSR activity in a way that is more efficient and gives better results both in terms of output and outcome, it also gives ample scope to the companies to exploit the provision for their benefit.
There has never been so much confusion about law as for Section 135 with Schedule 7 of the Companies Act, 2013. Many rules have been notified, circulars have been issued and drawbacks have been discussed and debated. Yet, the companies, the NGOs and the community and the government often raise doubt as to what is a CSR activity and what is not. This can primarily be attributed to the ambiguities in the CSR policies framed by the company and partly the community development practices prevalent for the centuries more as charity and philanthropy than a responsibility. This is also inferred from the fact that the NGOs who primarily had a mandate of doing the charity and philanthropy work under their MOA got involved in implementing a professional non-charitable work of social responsibility.
As per the Company act, there are four criteria to evaluate the activities which are not considered as CSR.
It is prudent to analyse the CSR expenses on various activities in the perspective of these four criteria and evaluate whether an activity qualifies under the CSR activity or not. Yes, there will be perceptional differences based on the risk perception of activity as a non-CSR activity which needs to be factored in. This could be addressed by assessing through a scale of Risk perception at 5 levels as below.
The evaluation matrix will be as follows
|SN||Belief||Citeria (A to E)||Points (10 to 90)|
|1||A normal course of business|
|2||Benefit to employees|
|3||Not in project mode|
The maximum points will be 360 and the minimum marks will be 40. The qualifying points for each criterion will be 50 if an activity gets qualified for each criterion, total points will be 200. However, for an activity to confidently qualify as CSR activity, there should be an average of 70 points for each activity culminating to minimum points of 280.
The representative case studies related to education
To understand the compliance to the Company Act, it would be appropriate to take the case of one area prescribed under the schedule 7 of the company act, which is a most preferred option for the companies ie promotion of education. Most of the education activities are implemented in a rural environment where the educational facilities are generally not available or in infancy. The representative activities under the education as preferred by many companies mostly PSU have been considered as a case study for evaluating the same under only one dimension and five grey shades of risk perception:
Most of the schools in villages do not have a boundary wall and therefore the question arises about the need for a boundary wall. There could be many reasons
i) There is need to award a contract to a prominent person for maintaining good harmony and cordial relations in the village,
ii) There is need to safeguard the school land from encroachment as there are reports of encroachment of school land.
iii) There is a need to safeguard the girl students as there have been complaints of teasing and molestation of girl students.
iv) There could also be a need for boundary wall with gate to maintain discipline if there are reports of the students bunking the classes or getting out the school.
While it may be considered as a CSR activity in a specific situation. However, it may not be considered as a CSR activity in a situation where there is an absence of a clear need and purpose, absence of project mode, a one-off activity and it do not promote the education.
However, in the case of toilets, the need is observed to reduce the dropout rate and increase the attendance particularly that of the girl students. This, in turn, improve the literacy rate and improve the results of the girl students. Hence it will always qualify as a CSR activity.
With the advent of the right to education, the fees and books are provided free of cost to students in government schools. However, private schools run by not for profit societies and trusts do charge tuition fee and other expenses and do not provide study material. Therefore, the provision of study material depends on the need of the particular school. Further, some private schools such as English-medium public schools charges high fee and cater to a niche market of the upper class of society, often in the urban environment. These parameters need to be evaluated.
However, putting the company logo on the school bag implies that the company is trying to create and enhance its brand value and brand equity which is part of the normal business of a company. Hence, putting the logo of the company on the goods or services should not be considered as a CSR activity.
Giving scholarship is to be evaluated with its purpose ie recognition of excellent performance like the toppers of a class or for meeting the expenses for the students who are too poor to meet the requirement of fees and study material. Recognition is like an award and a one-time activity whereas meeting the expenses enable a student to strive for education and is, therefore, qualifies as a project
While legally, it qualifies as a CSR activity as per the clarification given by MCA, there are issues whether it is based on need assessment survey leading to a preparing a project report for implementing in project mode? Is it checked whether the institute has conducted the need assessment for the facility? Is there any assessment and analysis of the balance sheet to check whether the institute has the finances to fund it or need external support and how will it benefit the marginalised/ poor students? This activity may not in specific context qualify as the CSR activity if proper analysis is conducted.
While the companies have been covering this expense on a proportionate basis under the CSR, the MCA is proposing to legalise it as per the draft CSR rules.
The company have been establishing the schools for the wards of the employees within its townships.
The schools within the township are English-medium on the pattern of public schools and are often outsourced to well-established chains of schools run professionally by not for profit societies. The infrastructure is provided and maintained by the company and society bears the cost of providing teachers and other staff. Since the school is for the wards of employees, the expenses are booked under employees welfare. Since it is a requirement of running the business under employees welfare, the same is not considered as CSR expenses.
Depending on the availability, vacant seats are offered to the wards of the local community. Since the schools are English medium and charge a substantially high fee, only the well-off community send their wards to these schools. Depending on the age group of employees, the availability of seats for the local community keeps varying.
After promulgation of company act, many companies explored the possibility of considering these expenses as CSR expenses and started apportioning the expenses in proportion to the no of students who are not the wards of the company employees. This appears to be unethical. The facility was created for the wards of the employees and market-linked fees were charged from all students. One perception could be that the seats in the school are filled to enhance the income of the school to meet the expenses.
The risk perception, in this case, are as below:
However, if the company pays monthly scholarship / school-fee expenses to the students like is being done in case of higher education, that amount would qualify as the CSR expense for promoting the education.
Any activity considered by the company for CSR should not get qualified as CSR activity automatically nor it is possible to analyse the qualification in black or white. There are many shades of grey and qualification of activity as CSR activity will depend on temporal, special and contextual variation. It does not mean that each CSR activity needs to go through this test. The CSR Committee may decide which activities need to be tested for the qualification as CSR activity based on their prudential judgement. The criteria could be based on the difference of opinion among the members of the CSR committee or the value of the activity.
For simplicity, companies can classify into five shades of grey based on their belief and analyse the six dimensions of the CSR in a matrix to conclude whether an activity qualifies as CSR activity or not. This will not only help the companies to identify a CSR activity but also define the intended output, outcome and impact, making CSR activity more efficient and effective. CSR is an evolving field and there is a need to keep evolving new ideas and understanding by all stakeholders to facilitate companies to fulfil their obligation or responsibility towards the community. The companies are also expected to carry out corporate philanthropy in case of crises and national calamities and the social expenses for the continuation of normal business.
We are a voice to you; you have been a support to us. Together we build journalism that is independent, credible and fearless. You can further help us by making a donation. This will mean a lot for our ability to bring you news, perspectives and analysis from the ground so that we can make change together.
Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.