Corporate Social Responsibility in India: Emerging Opportunities

11 Jul 2022

A prominent milestone in the sector of philanthropy in India is the Companies Act (Amendment), 2013. This one of its kind Act in the world essentially codifies the idea of Social Responsibility of Corporates by mandating corporates, that fulfil certain criteria, to spend 2% of their net profit for public good.

The philanthropy space in India, with its significant transformation in the last few decades, has been deeply influenced by the ‘CSR Act’ of 2013.  Even though history of corporates fulfilling their social responsibilities by serving underprivileged communities have always run parallel to the development story in India, this was the first, and so far the only, time in the world that such a mandate was codified in the law of the land, opening up opportunities for organized fundraising from corporates for the voluntary sector. Along with a significance infusion of funds, CSR has shaped the landscape of philanthropy and voluntary sector also by introducing various sectoral expertise and operational acumen.

CSR through History

The concept of Corporate Social Responsibility (CSR) itself is not a novel one. Religious traditions and commandments have, for centuries, helped shape the relationship between the privileged and the vulnerable in India. The religious concepts around daan, seva, and zakat in order to help the poor had, in ancient and the middle ages, translated to wealthy merchants and traders giving money or providing help in kind for the betterment of the poor. With more formalization being introduced, the earliest industrialists of the 19th century initiated the practice of organized giving by structured institutions. During the freedom movement, corporate philanthropy evolved through corporate leaders’ participation and contribution towards the fight for independence. The close relationships between Mahatma Gandhi and several prominent industrialists is well known. In fact, Mahatma Gandhi was a pioneer in proposing an understanding of business tycoons as fiduciaries for society’s wealth.

As the role of the Indian state was shaping up post-independence in development efforts, the role of corporates within that was yet to be solidified. The liberalization of the economy brought in a new globalized economic environment, with rapid growth in wealth for the private sector and at the same time widened inequity. The rising gap between the wealthiest of the society and those at the bottom further contextualized the concepts and practical implications of Corporate responsibility to address social problems in India. This also ultimately led to government looking for ways to leverage wealth creation and economic growth in the country to directly empower the social sector to address inequity.

CSR in Legislation

Before 2013, CSR has existed as voluntary activities taken up by large corporates to engage with communities and to leave positive footprints in society. The 2013 law brought in structure, guidelines, accountability to the practice of CSR. CSR has since expanded to mean more than mere contribution of funds to undertaking development projects. The 2019 amendments to the CSR law had already shifted the legal understanding of CSR from an obligatory status to a mandatory status, solidifying it further. The 2021 amendment, essentially mandated a more central role to the companies and their internal bodies in ensuring successful implementation of projects and not just overseeing CSR spending. It also mainstreamed accountability by bringing in the mandate for third-party evaluations of projects.

Further, in 2022, we saw more amendments introducing the bifurcation of ‘Ongoing’ and ‘Other than Ongoing Project’s, with provisions to CSR unspent budget being returned to the company directly. The 2022 amendments clearly propose newer discourses as to the role of CSR foundations, CSR committees, the board, and the company in general. There is legislative push toward more involved and accountable CSR operations within companies to ensure impact. Within such a context, the eco-system around corporate social responsibility needs to be equipped for newer and more expanded opportunities for collaborations to achieve development goals in general.

To put it simply, the legislative direction since 2013, has been clear in proposing a scenario where CSR is understood as a core operation within the company and not merely a compliance issue. However, beyond legislative push, for corporate social responsibility to realize its full potential in enhancing the social sector in India, it is important to contextualize such relationship vis-à-vis business practices and value creation within a corporation.

CSR and Value Creation

Just as the concept of Corporate Social Responsibility has existed throughout history so has the discussions around the nature and extent of such responsibility. However, within the current context, there is a need to look at CSR beyond the ‘responsibility’ paradigm and try and understand what it brings to the table as a core business operation.

One of the reasons corporates have always engaged in CSR, beyond the responsibility felt by individual industrialists and philanthropists, is that ultimately CSR leads to securing or creating value and strategic benefits for the firm.  Theorists Burke and Logsdon (1996) examined the road to using social responsibility programmes as strategic tools and identified five strategy dimensions to assess the value created for the firm by CSR  programs:  centrality (closeness to the firm’s mission and objectives),  specificity (ability to capture private benefit  by  the  firm) proactivity (planning  in anticipation  of  social  changes) voluntarism (self-initiative)  and  visibility (making  CSR projects highly visible and observable to the concerned stakeholders). 

The value created by CSR has largely been theorized as risk reduction. (Orlitzky & Benjamin, 2001; Husted, 2005; Godfrey, Merrill & Hansen, 2009) Research along this line of thinking highlighted the importance of CSR is neutralizing social risks, arising from dissatisfied communities that are effected by corporates. Thus CSR was conceptualized as a form of social insurance and mostly manifested in community outreach and engagement by the corporate limited to the communities that they have direct linkages to in terms of securing labour or geographical vicinity. Later the argument had been expanded to conclude that by taking up popular and well known CSR activities, corporates ultimately create ‘reputation insurance’ and create good-will value. (Minor & Morgan, 2011). The bottom line is that through CSR, a corporation ultimately protects the shareholders’ interest. On the other hand, with the advancement of the ‘Stakeholders Theory’, it became clearer that corporates need to look beyond the interest of their shareholders and consider other stakeholders like employees, communities, customers, suppliers, the government etc. (Freeman, 2001) Largely, stakeholders were understood as those who can potentially affect the success of an organization. Natural outcome of centralizing ‘stakeholders’ in the discourse around corporates was that it brought recognition to CSR as value creator for the firm and its stakeholders. Ultimately CSR provides the corporation the opportunity to achieve competitive advantage.  

Current Context of CSR

At the other end of the discussion is that, if CSR is conceptualized as a strategic tool for value creation, it is but natural that where CSR funding is concerned, we see the conversation centered around ‘investment in social good’ as opposed to ‘giving away’ money. CSR partnerships, driven by the companies, have thus been about discourses of ‘return’ on CSR investment through immediate and quantifiable outcomes, both in terms of the development projects being taken up and also strategic outcomes for the companies in general.

Since the CSR mandate came into effect in 2014, in terms of sheer number, the sector of CSR giving has shown tremendous growth. From INR 10,066 Cr. in FY 2015 to an estimated INR 23,665 Cr. in FY 2021, the segment has shown a robust growth rate of 15% in the past seven years. The growth rate is expected to increase to a 19% per year till 2026. (India Philanthropy Report, Bain & company, 2022)

This growth however has to be examined further. In terms of the total number of companies contributing toward CSR, approximately 3% of companies spent more than INR 10 Cr. in FY 2020, whereas more than 70% of companies contributed less than INR 50 lakhs. (India Philanthropy Report, Bain & company, 2022)

In the recent past we have seen a significant evolution in the practice of CSR. Corporates with a significant CSR budget, the 3% spending more than 10 Cr have displayed a larger shift. This works in tandem with the more centralized role of CSR prescribed through recent amendments. At least for larger conglomerates and Direct to Consumer businesses, the conversation has moved towards a larger ‘sustainability’ model. As discussed, ‘visibility’ is one of the strategic paradigms to assess CSR activities, thus a lot of corporates in India have expanded the understanding of CSR to include the global standards of ESG (Environmental, Social and Corporate Governance) in keeping with the current global trends. Thus traditional development projects in livelihood, education etc have had to undergo further scrutiny and witness lack of funding

On the other hand, for smaller and mid-sized CSR operations, the 70% with up to 50 lakhs CSR budget, these companies that have recently crossed the CSR threshold in the pandemic era. Naturally for them, CSR has been intrinsically linked with pandemic response. Before the pandemic, CSR has somewhat been widely distributed across sectors in which funds have been donated toward more than 20 causes. In FY 2021, however healthcare, boosted by funds allocated to the Prime Minister’s National Relief Fund, emerged as the focus sector for CSR because of the various Covid-19 relief activities organisations undertook. As a result of this, other sectors, such as education and rural development, witnessed a major decline in their share of CSR funding.

The major issue, however, lies with geographical allocation of CSR in recent years, approximately 50% of CSR funds are concentrated to 10 more industrialized states, led by Maharashtra, Karnataka, and Gujarat, where most corporates are situated, limiting the distribution of funds to cities in other states and especially in rural areas.  States with equal, if not greater needs, are thereby cut-off from CSR funding in social sector. The core issue lies not only with the language of the law that encourages prioritization of the corporates’ local geography but also in trying to access strategic advantages of CSR by serving the communities most adjacent to the corporates operations. Because companies tend to contribute funds in the vicinity of their company location, geographical bias in advertently comes in.

CSR: Way forward

It can be said with certainty that, for CSR to maintain its growth trajectory, it is important that corporates recognize the strategic advantages presented by CSR and centralize those in their business operations. The legislative direction also seems to be rooting for mainstreaming CSR operations within the companies. However, we need to ask if the development sector in India is ready for providing a conducive eco-system for such a shift. There is an undeniable gap in CSR trends as they stand now, and how traditional development projects are developed at the grassroots level.

Within the development sector eco-system, corporates are encouraged and to a certain extent mandated to look at CSR beyond a compliance measure. This inevitably leads to corporates then looking for strategic advantages, as discussed in the previous section, out of CSR activities. But this also opens up the floor for a more donor driven CSR sector with a handful of NGOs working as ‘social contractors’ delivering quick and easily quantifiable short term outcomes dominating the sector, and funds not being routed to the ground level where the need is.

The development eco-system in general needs enablers capacitating grassroot NGOs further to access CSR funds and engage in long term and fruitful partnerships with corporates is the way forward in bridging this gap and ensuring equitable distribution of CSR funds in terms of geography. On the other hand, eco-system builders need to engage with Corporates to first create a more evolved and optimized CSR discourse that highlights its relevance within the company beyond compliance and then ground CSR ‘investments’ within a just, equitable and sustainable context that benefits the most vulnerable communities while ensuring value creation for the company as well. The CSR in India can access its full potential only with the right balance between ‘Social responsibility’ and business value. 

 

 

References:

Bain & Company. (2022). (rep.). India Philanthropy Report 2022.  

Burke, L & Logsdon, J.  M. (1996).  How corporate social responsibility pays off.  Long Range Planning

Chhaparia, P., & Jha, M. (2018). Corporate Social Responsibility in India: The Legal Evolution of CSR Policy. Amity Global Business Review, 13(1).

Dixit, Sushil & Dixit, Sarita. (2018). Evolution of CSR in India: Indian Roots in Emerging Context. XIV. 1883-1887.

Freeman, R. E.  (2001). A stakeholder Theory of the Modern Corporation, Perspectives in Business Ethics

Godfrey, P. C., Merrill, C. B., & Hansen, J. M. (2009). The relationship between corporate social responsibility and shareholder  value:  an empirical test  of  the  risk  management hypothesis.

Husted, B.  W.  (2005).  Risk Management, Real Options, Corporate Social Responsibility. Journal of Business Ethics

Minor, D., & Morgan, J. (2011). CSR as Reputation Insurance, California Management  Review

Orlitzky, M.,  &  Benjamin,  J.  D.  (2001).  Corporate Social Performance  and  Firm  Risk:  A Meta-Analytic  Review.

Sharma, A. (2021). EVOLUTION OF CSR WITH SPECIAL EMPHASIS ON INDIA. Academy of Marketing Studies Journal, 25(2), 1-14.