All you need to know about Corporate Social Responsibility(CSR)
Corporate Social Responsibility is an idea which requires corporations and organizations to consider and work towards the welfare and the interests of society at large by taking up such responsibilities that impact their customer bases, employees, shareholders, communities and the environment at large in all respects of their working. Corporate Social Responsibility or as it is popularly called CSR is a concept that has gained immense importance in the field of business in today’s world. Every corporation today is required to have a policy relating to CSR and is required to fulfill its such responsibility. This obligation of CSR is considered to be an obligation that extends beyond the statutory obligation of any organization or any legislative obligation. It is a kind of responsibility that the organizations take up voluntarily to improve society and its ways.
There is no universal definition of CSR. However, the broadest definition of CSR is said to be that it is the relationship between global corporations and individuals and society. According to the EU Commission report of 2002, it defined CSR as:
“…CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”
Development of CSR
The idea of CSR can be said to be introduced in the early 20th century when there was the advent of large corporations, multinational companies, and their power. In earlier times, in the US economy, the early ideas of CSR were shaped by the concepts of charity and stewardship. The term CSR became popular and common most in the year 1970s.
The United Nations Millennium Development Goals have led to an increased focus on the idea of CSR in the business sector specifically. Under the United Nations Millennium Development Goals has thrown light over the concept that there is a requirement of large corporations especially the MultiNational corporations to provide assistance to the society and give it back. It requires these large organizations to provide increased assistance to the society in such a way that it yields an important result in alleviating poverty as well as hunger along with a lot of other aspects of society. Basically, according to the UN Report, corporations are required to be well aware of the impacts of their actions and businesses on the society and community at large. This idea of CSR is considered to have a lot of potential in terms of the development of the poor as well as the developing countries.
Principles of CSR
Because of the problems in the definition of CSR, there is an undeniable uncertainty as to what activities come under CSR. Thus, to identify the activities under the ambit of CSR there are three basic principles that have been laid down. These are:
(i) Sustainability – This is a basic understanding as to what impacts our present actions and decisions will have on society’s future at large. This means that utilising resources today in such a manner that they are left for our future generations. Viewing and seeing an organization through this lens implies that actions of the organizations must be thought upon and taken into consideration not just for the measurement of costs and value created in the present but also for the future of the business itself.
(ii) Accountability – This is concerned with any large corporation in understanding that its actions affect the external environment equally well as it affects the internal environment, and therefore such organizations need to take up and assume responsibility for the effects of its actions. The idea of accountability thus basically interprets a measurable data of calculations of effects of actions that have been taken by the organization, both internally as well as externally.
(iii) Transparency – Talking about transparency as a principle means that there needs to be a certain level of clarity in reporting of the external actions of an organization. It implies that the external impact of the actions of the organization is an extremely important factor in the determination of its fulfillment of obligations towards society. And such an action’s impact can be ascertained from that organization’s reporting of all the important and pertinent facts that are not hidden or disguised within a particular reporting period or in a certain particular report. Thus, transparency as a principle requires all the effects of the actions of the organization, including its external impacts on the society or otherwise, should be apparent and on the face of it to all, from the use of the information provided by the organization’s reporting mechanisms.
Role of CSR in Community Development
From the concept of CSR, it is quite clear that it has a significant impact on our society and environment. Thus, CSR plays a major role in the community development process. There are certain important roles that CSR plays in the overall development of a community and the social system. These roles are:
(i) To share the negative consequences as a result of industrialization which results in conscience-focussed market places and necessitates ethical business practices.
(ii) To maintain a closer and harmonious tie between the corporations and the community.
(iii) CSR has a major role to play in the transfer of technology.
(iv) It helps to protect and improve the environment.
(v) CSR also exists for human rights corporate sustainability.
(vi) It reflects the interdependency between the corporation and the community.
(vii) It can be helpful in alleviating poverty as well.
(viii) It is helpful to incorporate sustainability goals.
Growing Importance of CSR
Why has CSR gained such an important and significant part of any business is a question that answers the aims and objectives of CSR. Basically, CSR is of such huge importance to any organization or it can be said that it is majorly beneficial for any corporations because of the very basic nature of this concept that it forces the leaders of any organization to research and come up with such ways and methods and implement such actions that provide a certain level of benefit to the society. It is an important business strategy of today that is led by almost all the large and successful corporations because it determines their level of working caliber with such moral ethics as well as the competitiveness of the organization. This concept basically means that the organizations are required to have such kind of procedures and policies of their company that integrates and takes up all the aspects that are affected by the actions of any such organization, be it social, environmental, ethical, etc all go hand in hand with the stakeholders of the corporation. A global provider of business solutions for human resources found that organizations that had a genuine commitment to CSR substantially outperformed those that did not, with an average return on assets 19 times higher. Additionally, the study showed that CSR-oriented companies had a higher level of employee engagement and provided a markedly better standard of customer service.
Along with several other beneficial reasons for following a CSR strategy, it is also important for an organization in terms of gaining a competitive edge over its rivals. The reasons for such competitive benefits are:
(i) It is in the interest of the corporation – CSR is a strategy that provides an important beneficial edge to a company in terms of risk management, access to capital, HR management, cost savings, customer relations and a company’s ability of innovation.
(ii) It is in the interest of the economy – For a better and a stable economy, CSR can yield extremely well results as it makes a corporation more sustainable and better in terms of innovation.
(iii) It is in the interest of society – It is undeniable that CSR yields the best results for a more sustainable and cohesive society.
In today’s world, India is probably the only country that has enacted CSR under the legislation. The idea of CSR is all about better business models and not just philanthropy on the part of the corporations. It comprises of both internal as well as external actions. However, it is only in India that such an idea has been adapted externally as well.
Dimensions of CSR in India
There are multiple dimensions to CSR that affects a company’s actions. These dimensions exist in the Indian arena as well and are:
(i) Environment – Environmental aspect of CSR talks about the business’ impact on the environment at large. The goal of an organization under this dimension is that to be engaged in such kind of business practices that aren’t harmful to the environment and rather are beneficial to it.
(ii) Social – This dimension of CSR revolves around the relationship shared by the business and the society as a whole. Under the social dimension’s ambit the goal of CSR to use the business in such a way that it benefits society.
(iii) Economic – The economic dimension of CSR reflects the effects that CSR has on the financial status of a company. Under this dimension, CSR ensures that a company manages to be a good corporate citizen along with making enough profits for itself.
(iv) Stakeholders – These are basically the most important people who are affected by any of the actions of a company. These include the employees, the suppliers, the buyers, the members of the general public. Under this dimension, it is important for a company to consider how its decisions and working is going to affect these groups of people.
(v) Voluntariness – Under the dimension of voluntariness comes to those actions performed by a corporation that is done voluntarily and the corporation has no obligation to take up any such action under any rule or law until and unless it wants to do it on its own call. These are basically those actions that a company takes up with the main intention that it feels it is right to do so. These actions are mostly based on the corporation’s internal ethical and business values that are there with the corporation during its functioning.
Corporate Social Responsibility or CSR has been a topic of debate since a long time now or to be precise since the early twentieth century, but there has still not been any or very little agreement over what it actually means, what is its definition or what actions would qualify as CSR. These issues are there because of the following reasons:
(i) There are a vast difference and a huge gap in the national and cultural ways of doing business. The two approaches are extremely different from each other most of the time.
(ii) The reasons to opt for a CSR strategy is different for different organizations. Some do it with the intention that it is the right thing to do morally and ethically while some believe that it should be done with the main motive of doing good business.
(iii) Another important reason is that there lie huge differences in the opinions of the people or the scholars who are engaged with CSR. Their cultural background, their disciplinary background, their perspectives or methods are different from each other in one way or the other.
The concept of CSR has now been firmly rooted in the global business environment which has a major impact on the global business as well. But in order to move from theory to action, many hindrances need to be overcome. A critical challenge that is there in business is the need for more reliable indicators of progress in the field of CSR, along with the dissemination of CSR strategies. Transparency and dialogue can help to make a business appear more trustworthy, and push up the standards of other organizations at the same time. Until and unless there isn’t a voluntary desire to take up this action and the concern for the sustainable development arise in the minds of corporate sector of the world apart from only focussing on profit maximization, the implementation of such a noble idea will not be done as expected and these people will always try to find loopholes in every action. It is important for the business minds of the world to understand that any kind of development should be done without harming the interests of the people and the harmony of the environment.
It will be difficult to draw any specific conclusion regarding CSR, as there still lies a kind of ambiguity as to the understanding of such acts and its feasibility at the grass-root level. But it can also not be denied that today, CSR has become a concept of prime importance in the business arena. To make it wide-reaching, it is essential to identify and understand the key areas that have to be diagnosed. The CSR activities must be based on the size and working style of the organization. Greater the size of the company, higher should be its CSR program and vice-versa. There is a need to create knowledge amongst all the stakeholders and win the confidence of localities to develop a conducive environment in the society. It is an integral part of the business houses to increase understanding and to involve all the stakeholders for the holistic development of the society. CSR cannot be successful unless it is ethical, social, and moral towards social and economic development and thereby make a stronger society.
Aparajita is a compendious and eloquent writer. She is a student of a prestigious National Law University and Judicial Academy, Assam. She loves reading books and writing on various legal issues. For any clarifications, feedback, and advice, you can reach her at [email protected]