MODULE I

CORPORATE SOCIAL RESPONSIBILITIES

INTRODUCTION
Corporate Social Responsibility (CSR) is an issue of much debate and discussion
within modern business. There are those that argue that CSR efforts are vital if
environmental and social challenges (such as climate change, labour exploitation
and good governance) are to be effectively addressed. Others believe that the CSR
agenda has been used by big multinational entities to maintain exploitative
business models whilst still appearing to be responsible organizations.

This chapter will introduce and outline the key CSR concepts and theories. Both
the perceived benefits and the stated criticisms will be discussed in order to help
the reader develop the case both for and against CSR. In building a more
comprehensive understanding of this contested concept, a critical review of
business practices and their impact on the workplace, communities, the
environment and wider markets can subsequently be undertaken.

WHAT IS CORPORATE SOCIAL RESPONSIBILITY?

Legislative and regulatory frameworks outline the operating environment for a
business. These are interpreted and applied through the corporate governance and
reporting structures that an organization puts in place to manage these obligations.
However, these set only the minimum operating standards expected and the
number of major corporate failures over the past twenty years (such as Enron) has
shown how these legal and regulatory mechanisms still allowed space for
significant corporate irresponsibility

The size and international footprint of national and multinational entities

(particularly when their supply chains are included) means that they will inevitably
have a significant impact on society. Whilst many Governments have sought to
capture CSR obligations through legislation (such as the Danish Financial
Statement Act introducing mandatory reporting requirements in relation to human
rights and climate impact), these rarely keep pace with the societal expectations
placed on businesses. As a consequence, CSR is primarily concerned with the way
in which businesses seek to exceed these minimal legal obligations.

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
Corporate Social Responsibility (CSR) is a concept that suggests that it is the
responsibility of the corporations operating within society to contribute towards
economic, social and environmental development that creates positive impact on
society at large. The concept revolves around that fact the corporations needs to
focus beyond earning just profits.

CSR is covered under Section 135 of the Companies Act 2013. It is applicable to
every company registered under the Act. If a company qualifies for any of the
following criteria, then it has to compulsorily undertake CSR activities: -

 A net worth of Rs 500 Cr. or more

 Or a turnover of over Rs 1,000 Cr.
 Or a net profit of 5 Cr. in a financial year.

DEFINATION OF CSR
According to European Union, “The voluntary integration of companies’ social
and ecological concerns into their business activities and their relationships with
their stakeholders. Being socially responsible means not only fully satisfying the
applicable legal obligations but also going beyond and investing ‘more’ in human
capital, the environment, and stakeholder relations.”

According to ISO 2600,” The responsibility of an organization for the impacts of

its decisions and activities on society and the environment, resulting in ethical
behavior and transparency which contributes to sustainable development, including
the health and well-being of society; takes into account the expectations of
stakeholders; complies with current laws and is consistent with international
standards of behavior; and is integrated throughout the organization and
implemented in its relations.”

CHARACTERISTICS OF CSR
Voluntary activities that go beyond the corporate obligations outlined in legislation
and regulation. This is reflected in the UK Government’s CSR definition:

 The development of self-regulation initiatives by businesses (and/or

representative trade bodies) to recognize emerging societal concerns and
norms. Examples include the rise of “Fair Trade Partnerships” seeking to
offer disadvantaged producers the opportunity to move out of extreme
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Shantiniketan Business School, Nagpur
 poverty through access to markets under beneficial rather than exploitative
terms

 Managing externalities. Externalities are both the positive and negative

effects of economic behavior borne by those outside of the business.
Examples include pollution (such as the direct health impact on workers and
the communities surrounding a business) and human rights. Legal sanctions
can be applied (such as pollution fines), but CSR approaches seek to
‘internalize’ these issues i.e. investing in modern technology to prevent
pollution at source.

 A broad stakeholder approach. Rather than simply reflecting direct

shareholder interests, CSR considers how a company must also engage the
other agencies that are core to its continued profitability. The concerns of a
diverse community (including consumers, communities, special interest
groups, suppliers and employees) must be captured. This approach and the
extent to which the broader, more ethical concerns of stakeholders is
balanced against the more specific interests of shareholders is a key
characteristic of debates surrounding CSR.

 Aligning social and economic responsibilities. Maintaining a good

reputation is good business and this sits at the heart of any business case for
CSR. Profit on a sustainable basis, (rather than profit at any cost) underpins
this alignment.

 Many businesses develop a set of core values and beliefs that capture their
approach to CSR, developing a philosophy that sets clear social and ethical
expectations.

 Non-discretionary. Rather than simple philanthropy (i.e. corporate support or

sponsorship of those less fortunate), CSR is tied to all business operations.
The concern is about how core functions such as procurement, production,
logistics and human resource management affect society.

Ultimately, with increased public criticism of corporate actions and concerns over
ethical sourcing and environmental impact, an organization that actively pursues a
socially responsible strategy can enhance their corporate reputation. This, in turn,
can both build and sustain a competitive advantage.

HISTORY OF CORPORATE SOCIAL RESPONSIBILITY

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
The possibility that organizations must do CSR and assume a functioning job in the
reasonable improvement battle has its underlying foundations in crafted by some
American supervisors during the 1950s. What was their thought? They imagined
that if organizations not, at this point concentrated distinctly on their benefits yet
additionally on the effect they have on society and the earth, they’d have different
sorts of advantages. In 1953, Howard Bowen distributed a book entitled “The
Social Responsibility of the Businessman” wherein he clarifies why organizations
ought to be keen on being all the more socially and earth responsible and gave the
main “perceived” meaning of CSR.

Also, with the improvement of ecological worries notwithstanding financial and

social issues in the second 50% of the twentieth century, corporate social duty
turned into a developing issue. An ever-increasing number of customers began
getting incredulous of organizations and needed them to be progressively
deferential of the laws, the earth, and progressively capable by and large.

During the 1990s and 2000s, governments in a few nations around the globe began
setting up guidelines that made the establishments for present-day CSR. In France,
NRE laws were the first to constrain organizations to impart their exhibition as far
as the supportable turn of events. These laws were then trailed by different
guidelines, for example, the Grenelle Laws or the Laws of Vigilance. Thereafter,
organizations began getting mindful of the need of beginning to put resources into
CSR with the goal that they didn’t remain behind their rivals. Now, CSR began to
be seen and utilized as a device for executives, correspondence, and business
advancement. CSR turned out to be likewise basic in improving corporate picture
among shoppers, upgrading inner correspondence and profitability and was a
method of decreasing expenses by turning associations progressively effective with
regards to overseeing vitality and assets. Today, as the world appearances
numerous social and environmental difficulties, it’s elusive medium/huge size
organizations that don’t have a CSR report, a CSR division or an individual in
control, or possibly a correspondence procedure devoted to CSR.

Corporate Social Responsibility Today

Today, the corporate world has begun to genuinely systematize CSR. CSR
approaches and techniques allude to the different arrangements set up by
organizations that make them stronger and simultaneously permit them to ensure

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Shantiniketan Business School, Nagpur
the earth, decrease ozone-depleting substance discharges, improve the nature of
items or advance social consideration and workforce equity. By and large, a CSR
approach can possibly affect various regions inside business interior structures and
furthermore in the manner the external workforce and society are composed.

On a worldwide degree, there is no “law” that powers organizations to set up a

CSR technique. All things considered, numerous states have built up a lot of
guidelines that outline CSR, specifically by urging organizations to be
progressively capable. Then again, there is a global organization that distributes
guides for organizations to manage them on their CSR system. The ISO
(International Standard Organization) permits organizations to have a typical
casing of reference so as to actualize their CSR system.

At present, CSR is developing. Organizations look to characterize better

approaches to add to supportable advancement so as to improve their picture, yet in
addition their presentation and their odds of the venture and flourishing in the long
haul. CSR is additionally profiting by innovative and financial turns of events and
the prescribed procedures today are probably going to change quickly. Today
CSR Communication, Human resources, Supply chains, SMEs are trending to
increase the organization’s sustainability and reputation.

Motives of CSR
Some believe that CSR activities are performed in a way to distract attention of the
consumers to the actual activities of the Business. Some believe that it’s a window
dressing activity to satisfy the Government ego that indeed it’s the government
that’s controlling the Corporation and not the other way but the truth is Global
MNCs control many nations.

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Shantiniketan Business School, Nagpur
NEED FOR CSR:
Corporate social responsibility (CSR) promotes a vision of business
accountability to a wide range of stakeholders, besides shareholders and investors.
Key areas of concern are environmental protection and the wellbeing of
employees, the community and civil society in general, both now and in the future.
The concept of CSR is underpinned by the idea that corporations can no
longer act as isolated economic entities operating in detachment from broader

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Shantiniketan Business School, Nagpur
society. Traditional views about competitiveness, survival and profitability are
being swept away.
Some of the drivers pushing business towards CSR include:
1. The shrinking role of government
In the past, governments have relied on legislation and regulation to deliver
social and environmental objectives in the business sector. Shrinking government
resources, coupled with a distrust of regulations, has led to the exploration of
voluntary and non-regulatory initiatives instead.
2. Demands for greater disclosure
There is a growing demand for corporate disclosure from stakeholders,
including customers, suppliers, employees, communities, investors, and activist
organizations.
3. Increased customer interest
There is evidence that the ethical conduct of companies exerts a growing
influence on the purchasing decisions of customers. In a recent survey by
Environics International, more than one in five consumers reported having either
rewarded or punished companies based on their perceived social performance.
4. Growing investor pressure
Investors are changing the way they assess companies' performance, and are
making decisions based on criteria that include ethical concerns. The Social
Investment Forum reports that in the US in 1999, there was more than $2 trillion
worth of assets invested in portfolios that used screens linked to the environment
and social responsibility. A separate survey by Environics International revealed
that more than a quarter of share-owning Americans took into account ethical
considerations when buying and selling stocks. (More on socially responsible
investment can be found in the 'Banking and investment' section of the site.)
5. Competitive labor markets
Employees are increasingly looking beyond paychecks and benefits, and
seeking out whose philosophies and operating practices match their own principles.
In order to hire and retain skilled employees, companies are being forced to
improve working conditions.
6. Supplier relations

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
 As stakeholders are becoming increasingly interested in business affairs,
many companies are taking steps to ensure that their partners conduct themselves
in a socially responsible manner. Some are introducing codes of conduct for their
suppliers, to ensure that other companies' policies or practices do not tarnish their
reputation.
EXAMPLE OF CSR ACTIVITY
CSR of Starbucks
Starbucks is a well-known firm that practices corporate social responsibility. As
indicated by the company: “Starbucks’ social corporate responsibility and
sustainability is about being responsible and doing things that are good for the
planet and each other.”
Starbucks’ CSR initiatives include:
 Starbucks Youth Action Grants: Awarding grants to inspire and support
youth action.
 Ethos Water Fund: Raising clean water awareness and providing children
with access to clean water.
 Ethical Sourcing: Commitment to buying and serving ethically traded
coffee.
 Green Building: Using the U.S. Green Building Council’s LEED
certification program to create energy and water-efficient store designs.

SCOPE OF CORPORATE SOCIAL RESPONSIBILITY:

Ernst and Ernst (1978) identified six areas in which corporate social objectives
may be found:
1. Environment:
This area involves the environmental aspects of production, covering pollution
control in the conduct of business operations, prevention or repair of damage to the
environment resulting from processing of natural resources and the conservation of
natural resources.
Corporate social objectives are to be found in the abatement of the negative
external social effects of industrial production, and adopting more efficient
technologies to minimize the use of irreplaceable resources and the production of
waste.
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Shantiniketan Business School, Nagpur
2. Energy:
This area covers conservation of energy in the conduct of business operations and
increasing the energy efficiency of the company’s products.

3. Fair Business Practices:

This area concerns the relationship of the company to special interest groups.
In particular it deals with:
i. Employment of minorities
ii. Advancement of minorities
iii. Employment of women
iv. Employment of other special interest groups
v. Support for minority businesses
vi. Socially responsible practices abroad.

4. Human Resources:
This area concerns the impact of organizational activities on the people who
constitute the human resources of the organization.

These activities include:

i. Recruiting practices
ii. Training programs
iii. Experience building -job rotation
iv. Job enrichment
v. Wage and salary levels
vi. Fringe benefit plans
vii. Congruence of employee and organizational goals
viii. Mutual trust and confidence
ix. Job security, stability of workforce, layoff and recall practices
x. Transfer and promotion policies
xi. Occupational health

5. Community Development:
This area involves community activities, health-related activities, education and the
arts and other community activity disclosures.
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Shantiniketan Business School, Nagpur
6. Products:
This area concerns the qualitative aspects of the products, for example their utility,
life- durability, safety and serviceability, as well as their effect on pollution.
Moreover, it includes customer satisfaction, truthfulness in advertising,
completeness and clarity of labeling and packaging. Many of these considerations
are important already from a marketing point of view. It is clear, however, that the
social responsibility aspect of the product contribution extends beyond what is
advantageous from a marketing angle.

BENEFITS OF CSR

A) Ethical Perspectives

Business ethics should address three core issues:

 The values that underpin the way business is done - often expressed in terms
such as honesty, integrity and fairness.

 Outlining a code or set of principles that brings together these values into a
clear standards statement e.g. outlining acceptable staff behaviors.

 A corporate governance structure that ensures that people and business

practices are effectively monitored to ensure compliance with the published
principles or code of ethics.

The Institute of Business Ethics (IBE) states that an organisation cannot be

genuinely “responsible” without an embedded and inherent culture that is based on
ethical values such as trust, openness, respect and integrity (Hopkins, 2016: 84).
The IBE therefore believes that a distinction can be drawn between ethics - the
way of doing business - and CSR which could be stated to focus on outputs - what
is done.

However, it is argued that such a spilt between CSR and ethics is artificial. A
company is unlikely to be able to operate on truly ethical principles if the nature of
its business is damaging to the environment and/or ignores the social welfare of the
communities it engages with (e.g. working conditions for people from less
developed countries). Ethical codes and principles in an era of globalisation are not
limited to the one company and governance structures and underpinning
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Shantiniketan Business School, Nagpur
commercial mechanisms often extend these obligations into the supply chain. CSR
has therefore provided a mechanism to link corporate ethical aspirations and
standards to clearly articulated and measurable business objectives. This is further
reinforced by the adoption of voluntary standards and the creation of trade bodies
that use CSR reporting mechanisms to introduce more ethical concerns into supply
chain practices.

Fair Trade Partnerships provide a good example of how these more ethical
concerns form core elements of some CSR strategies adopted. Such ethical CSR
approaches can also create a social dynamic that delivers a direct business benefit.
For example, Starbucks customers see the consequences of their coffee purchasing
choices, noting that they are helping to make a positive and enduring difference to
disadvantage producers (Johnson et al, 2014). As a result, Starbucks more ethical
CSR approach delivers a critical point of business differentiation helping to
generate an enduring competitive advantage.

B) The Social Contract

Business ethics proposes the concept of a fair and efficient ‘social contract’
between a company and its stakeholders. This is not a written document, but an
ideal relationship rooted in concepts of justice, rationality and built around the
development of a consensus. If a company can maintain a good reputation then this
means that stakeholders have confidence in both its operations and the way
relationships are managed.

The basic tenets of CSR reflect the core conditions of any social contract i.e.

 The interests of all parties are at least consideration.

 All stakeholders are kept informed and not deceived.

 Agreements are reached on a rational and voluntary basis.

 No stakeholders have suffered, been constrained by corporate actions or

subjected to unfair power relationships.

Maintaining such a social contract generates key benefits:

 The resulting corporate standards will counteract conduct that could harm
legitimate stakeholder expectations of ‘well-being’. For example, a major
retailer using its corporate size to intimidate suppliers and manipulate
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Shantiniketan Business School, Nagpur
 relationships is likely to suffer significant reputational damage. A social
contract approach would focus on partnerships rather than a purchasing
power relationship.

 If the trust associated with a functioning social contract exists, then

governance and monitoring costs are likely to be lower. For example, trust
across businesses supports the development of cheaper, more efficient
quality assurance partnerships rather than a reliance on intensive quality
control and inspection regimes.

 The negative social effects of any corporate activities are highlighted more
rapidly (thus minimising downstream costs associated with rectification or
restoring business reputation). A social contract approach means that the
company is not focussed just on basic compliance issues - legitimate
stakeholder interests are also addressed. Emerging social and environmental
concerns are therefore less likely to be overlooked and corporate reputation
will be protected.

C) THE BUSINESS CASE

Many businesses are able to create a clear financial case for CSR, built around the
understanding that by doing the ‘right’ thing for their stakeholders they will, in
turn, be doing the right things for the business. These arguments can be presented
as follows:

 Cost and Risk Reduction. The CSR business case is built around an
appreciation of how stakeholders can present possible threats to the business
and that its economic interests are best served by mitigating them through
social and environmental performance measures. Effective CSR approaches
can help avoid/prevent expensive issues such as consumer boycotts and legal
liability disputes (e.g. for environmental damage).

 Competitive Advantage. In this context, stakeholder CSR concerns are not

seen as constraints but as opportunities to be leveraged. For example,
Starbucks vision and value statements outline how the ethical and
sustainability position of the company provides a key point of differentiation
and competitive advantage. Starbucks CSR focus delivers impressive returns
- in 2013, the Company served more than 3 billion customers through over
19,000 stores in 62 countries, delivering revenues of $14.9Bn (Starbucks
Annual Report, 2013).
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Shantiniketan Business School, Nagpur
  Reputation. An enduring competitive advantage is secured by enhancing
and protecting the reputation and legitimacy of the company through well-
publicised CSR policies and objectives. Companies will seek social or
environmental certification (such as FSC and Fair Trade Partnerships) in
order to develop their business positioning and access to markets (and
therefore future sales and profitability) in the minds of both consumers and
the wider supply chain.

 Synergistic value creation. This challenges the traditional interpretation of

value being limited to one company. The intent is to create ‘win-win’
business outcomes by engaging numerous stakeholders (such as those in the
supply chain) to develop shared CSR approaches and linked objectives.
Examples could include developing a shared packaging standard between all
businesses in the supply chain, thus reducing direct and redundant costs
whilst also meeting environmental CSR objectives.

Challenges to CSR Initiatives in India:

There are a number of challenges a company would face while implementing its
CSR activities.
Some of these challenges are as follows:
1. Lack of Community Participation:
Inadequate communication between the company and the community limits the
scope of conducting CSR activities. In addition, due to inadequate knowledge of
CSR among communities, coupled with poor communication, problems escalate.
There is a general deterrence to participation by the community.

2. Narrow Perception of CSR Initiatives:

Many NGOs and government agencies presume that companies involved in CSR
activities are only interested in funds. This de-motivates companies to initiate and
implement CSR activities.

3. Transparency Issues:
Challenges may also be caused by the commonly-held view that there may be a
lack of transparency on the part of local implementing agencies, and that they do
not make adequate efforts to disclose information on the progress of social
programmes that have been initiated.

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Shantiniketan Business School, Nagpur
In addition, companies and funding agencies are particular that audit mechanisms,
impact assessment, and the utilization of their funds must be well-recorded and
shared among stakeholders. Such a perceived lack of transparency negatively
impacts the process of trust-building between companies and local communities.

4. Need to Build Local Capabilities:

One of the reasons for lack of transparency is inadequate local capabilities. There
is a need for building the capabilities of the local NGOs as there is a serious dearth
of trained and efficient organizations that can effectively contribute to the ongoing
CSR activities initiated by companies. This also limits the ramp up, scope, and size
of CSR initiatives. Similarly, there are also challenges with respect to reaching
remote and rural areas, the inability to assess and identify the real needs of the
community and work with the corporate sector to ensure successful
implementation of CSR activities.

5. Lack of Consensus on Implementing CSR Issues:

There is a lack of consensus amongst local communities, agencies, government
bodies, and companies while implementing CSR projects. This lack of consensus
often results in duplication of activities by corporate houses in their areas of
intervention. This results in a competitive spirit between local implementing
agencies rather than a collaborative approach.
These challenges can be handled by companies by better planning and
coordination. Large companies and trusts are well-geared to draw support and
create success through such initiatives. A strategic analyst must view CSR as a
strategy to normalize the environmental factors of business and solicit harmony
through well-intended programmes.

ENTERPRISE SOCIAL RESPONSIBILITY

Enterprise undertaking social responsibility is not a business posture, but is the
result of market economy development in some stage, is the inner demand of
enterprise and self-conscious action. Enterprise social responsibility has become a
new competition after the talent, technology and management, is the important
variable effected enterprise sustainable development

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Shantiniketan Business School, Nagpur
The meaning of enterprise social responsibility With the meaning of the corporate
social responsibility(CSR), because the social development is changing all the
time, different culture background, different development level’s country and
different development stage in the same country, all have the distinct meaning.
Academia and enterprise field still haven’t a uniform definition to this conception,
scholars from all around the world put forward respective perspectives from
different views.

Depending upon their view of competitive positioning a business can adopt or

consider a range of attitudes towards CSR. These can include:

 An extreme view (which can be argued to have led to the major corporate
failures of the last twenty years) is the ‘laissez-faire’ approach. Here the
focus is on legal compliance built around the maximization of profit,
payment of taxes and the provision of employment. CSR is seen as being an
issue for lower/middle management (at best) and the company is likely to be
defensive when challenged by external agencies about CSR concerns.
External stakeholders are ‘briefed’ rather than engaged (if at all). CSR is not
a core issue for the leadership of the business.

 Enlightened self-interest. CSR is seen as a market opportunity given the

interests of consumers and competitors. Leaders therefore support the
introduction of business systems to capture good practice and are prepared to
interact with a broader stakeholder community. When external CSR
pressures are experienced (such as consumer concerns over the treatment of
suppliers), the company will react to maintain its markets and competitive
positioning.

 Stakeholder interaction. Sustainable business practices are seen to be

critical to the maintenance of any competitive advantage. Companies
therefore set clear targets that are not limited to economic aspects (such as
market share) - environmental and social objectives reflecting broader CSR
concerns are also included. This is often referred to as the ‘triple bottom
line’ CSR is considered to be a Board-level issue, with comprehensive
reporting/monitoring structures and the leadership are seen/required to act as
CSR ‘champions’. This proactive approach is often reflected in the
development of a partnership approach to stakeholder engagement.

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Shantiniketan Business School, Nagpur
  Shaper of society. The rationale for the business is likely to be built around
social and market change, placing CSR considerations at the heart of the
business model. CSR is seen as being both an individual (employee)
responsibility as well as a corporate concern, which is likely to be reflected
in the values outlined for the organization. The business is likely to build
numerous multi-organizational alliances involving stakeholders to shape and
develop the CSR agenda. As a consequence, the leadership is often
considered to be inspirational or visionary as they seek to articulate the
‘better future’ proposed within the business strategy.

CSR Framework:

Companies have a greater responsibility towards the environment. In the present

era, there are many consultants and experts who are helping companies inside and
outside to be socially more responsible. There are four influential frameworks that
are primarily used by the companies. These frameworks have been developed over
a period of time. They are:

A) The CSR Pyramid

(1) Economic Responsibility

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Shantiniketan Business School, Nagpur
  Every business is engaged in economic activities.
 So, the prime social responsibility of every business should be economic
responsibility.
 Hence they should sell products and service which can satisfy the need of
the society.
(2) Legal Responsibility

 The company should comply with the political and legal environment of the
country.
 The company should consider protecting the environment.

(3) Ethical Responsibility

 This type of responsibility expects a certain type of behavior or conduct

from the company.
 This behavior may not be documented by law.

(4) Discretionary Responsibility or Philanthropic Responsibilities

 These are voluntary actions taken by the entities in case of natural

calamities, helping poor people etc.
 They help them by providing a charitable contribution, education activities
etc.
 It prevents investments of charitable funds into speculative activities.

B) THE TRIPLE BOTTOM LINE

The triple bottom line (TBL) is a framework or theory that recommends that
companies commit to focus on social and environmental concerns just as they do
on profits. The TBL posits that instead of one bottom line, there should be three:
profit, people, and the planet. A TBL seeks to gauge a corporation's level of
commitment to corporate social responsibility and its impact on the environment
over time.

Understanding the Triple Bottom Line

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The Full Cost of Doing Business
In finance, when we speak of a company's bottom line, we usually mean its profits.
Elkington's TBL framework advances the goal of sustainability in business
practices, in which companies look beyond profits to include social and
environmental issues to measure the full cost of doing business.
Moreover, the TBL tenet holds that if a company focuses on finances only and
does not examine how it interacts socially, that company cannot see the whole
picture, and thus cannot account for the full cost of doing business.

According to TBL theory, companies should be working simultaneously on

these three bottom lines:
A. People: - “People” considers employees, the labor involved in a
corporation’s work, and the wider community where a corporation does
business. Another way to look at “people” is, how much does a company
benefit society? A triple bottom line company pays fair wages and takes
steps to ensure humane working conditions at supplier factories. Triple
bottom line companies make an effort to “give back” to the community.
B. Profit: - While every business pursues financial profitability, triple bottom
line businesses see it as one part of a business plan. Sustainable
organizations also recognize that “profit” isn’t diametrically opposed to
“people” or “planet.” The business that strengthens the economy it is part of
is one that will continue to succeed in the future, since it contributes to the
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Shantiniketan Business School, Nagpur
 overall economic health of its support networks and community. Of course,
a business needs to be aware of its traditional profits as well.
For example, Swedish furniture giant IKEA reported sales of $37.6 billion
in 2016. The same year, the company turned a profit by recycling waste into
some of its best-selling products. Before, this waste had cost the company
more than $1 million per year. And the company is well on its way to “zero
waste to landfill” worldwide.
C. Planet/Social Measures/Environment: - Social variables refer to social
dimensions of a community or region and could include measurements of
education, equity and access to social resources, health and well-being,
quality of life, and social capital. Public opinion has dictated that enterprises
that harm the environment should also bear the cost, and you can bet
businesses are taking notice. The “planet” piece of the triple bottom line
indicates that an organization tries to reduce its ecological footprint as much
as possible. These efforts can include reducing waste, investing in renewable
energy, managing natural resources more efficiently, and improving
logistics.
For example, Apple has invested heavily in environmental sustainability. Its
massive U.S. data centers are LEED certified. In 2016, the company
announced that 93 percent of its energy comes from renewables. These
actions have nudged other tech giants like Facebook and Google toward
using more renewable energy sources to power facilities.

C) Shareholder Value Theory

 Shareholder Value Theory (SVT) builds on Friedman’s view (outlined

above) in that making profits is the overriding corporate purpose and that
social activities (outside those set in law such as pollution control or
minimum wage legislation) should only be considered if they contribute to
increasing shareholder value.
 SVT is underpinned by Agency theory, where the owners (shareholders) are
seen as the principal and the managers act as their agent (Ross, 1973). These
managers owe shareholders (as the providers of business capital) a ‘fiduciary
duty’ to maximize profitability. As a suitable incentive, the economic
interests of these managers are often closely aligned to those of the
stakeholders (e.g. through salary and bonus payments linked to share value).

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
  The core SVT argument is that the market is superior to individual
organizations when allocating resources and that with the manager acting as
agent improved financial performance can be achieved. The market, through
shareholders, acts as an effective mechanism to incentivize managers
appropriately. Where managers ‘fail’ (i.e. if the market perceives that they
could secure better financial returns) mergers and takeovers result.
 As a consequence, it could be argued that CSR is a significant threat to SVT
as it introduces broader concerns. However, the theory can be seen to
balance these potentially competing interests when social responsibilities
can be turned into business opportunities. It is this aspect that moves
attitudes from the stark ‘laissez faire’ approach to one of more enlightened
self-interest (as outlined above).
 Given the nature of past corporate failings and the resultant reputational
damage, it is now generally accepted that in some cases meeting certain
social interests can contribute to maximizing shareholder value. Most large
companies pay significant attention to CSR, publishing appropriate
strategies and targets. This has also supported the emergence of the concept
of Strategic Corporate Social Responsibility (SCSR).
 SCSR attempts to focus on those CSR activities that yield substantial
business-related benefits, with any measures pursued having to demonstrate
how they support core corporate objectives. In essence, a clear cost-benefit
analysis is required (Crane, McWilliams, Matten, Moon & Siegel, 2008).
However, such attempts to develop an ideal or appropriate level of CSR (i.e.
one that still maximizes shareholder value) can be seen as cynical and self-
serving by the broader stakeholder community.

D) Stakeholder Theory

Stakeholder Theory argues that a business should be managed for the benefit of a
much broader stakeholder base, including entities such as customers, suppliers,
employees, communities and relevant special interest groups (such as Trade
Unions and environmental charities) as well as shareholders. In protecting the
legitimate interests of stakeholders, the leadership of a company is also protecting
future business competitiveness by recognizing and understanding the environment
it operates within.

As per this approach, valuing the stakeholders will add the value to the firm.
Primary stakeholders are investors, employees, stakeholders and customers.
Secondary stakeholders include media and civil society organizations.

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
Seven principles of stakeholder management have been proposed:

 Managers should acknowledge and monitor the concerns of all legitimate

stakeholders, taking their interests into account when making decisions and
conducting business operations.

 Managers should effectively engage stakeholders about their concerns and

contributions and the risks they assume through their involvement in the
business.

 Business processes and behaviors should consider the concerns and

capabilities of each stakeholder group.

 There should be a fair distribution of the benefits and burdens of corporate

activity between stakeholders, taking into account their capabilities, risks
and vulnerabilities.

 Managers should work cooperatively with stakeholders to ensure that any

risks or harm arising from company actions are minimized (with appropriate
compensation if necessary).

 Corporate activities that prejudice inalienable human rights (such as the right
to life) are clearly unacceptable to all stakeholders and must be avoided
altogether.

 Managers need to acknowledge the conflicts that can exist between their
own role (as corporate stakeholders) and their legal and moral
responsibilities to all stakeholders. Issues should be openly addressed
involving third parties where necessary.

ENVIRONMENTAL ASPECTS OF CSR

Environmental aspect of CSR is the duty to cover environmental consequences of a
particular company’s operations, products and facilities. The major ingredients of
environmental CSR are elimination of waste and emissions, maximizing energy
efficiency and productivity and minimizing practices that may adversely affect
utilization of natural resources by coming generations. Sustainability and carbon
footprint occupies an increasingly important position on the corporate agenda
around the world. Growing number of companies are realizing the importance of
environmental initiatives in business development.
VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
Decrease in energy and raw material usage combined with reduced emissions and
waste generation can tackle the environmental challenges facing the world.
Leading IT companies, like Microsoft, Adobe, Apple and Google, are investing in
renewable sources of energy that can generate power directly on-site. Clean
manufacturing practices and energy-efficient design of equipment are also
hallmarks of environmental sustainability.

Some of the major aspects of environmental sustainability.

1. Role of Packaging:
Packaging is an important concern for consumers, particularly those who are
interested in converting to eco-friendly buying behaviors. Packaging plays a
great role in environmental sustainability by protecting products, preventing
waste and enabling efficient business conduct. Reduction in the amount of
packaging and use of eco-friendly packaging material provide an attractive
opportunity to promote environmental sustainability.
Sustainable packaging is a relatively new addition to the environmental
considerations for CSR. Companies using environment-friendly packaging
materials are reducing their carbon footprint, using more recycled materials
and minimizing waste generation. Companies that highlight their
environmental initiatives to consumers can increase sales as well as boost
product reputation.
For example, Cisco outsources all of its manufacturing and has over 600
suppliers. To avoid any problems, Cisco’s packaging team undertakes a
painstaking process to create more effective and environmentally friendly
packaging. In 2012, the company eliminated 757,000 pounds of paper and
plastic waste for one product line alone. For its total shipments during 2012,
Cisco reduced its use of cardboard, plastic and paper by as much as 466
metric tons.
VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
 2. Role of Clean Energy:

Deployment of renewable energy systems can make a big impact on CSR

activities of companies as clean energy is one of the best methods to mitigate
climate changes. Decentralized power generation using renewable resources
is rapidly gaining popularity among world’s top companies. Most of the
world’s largest companies, like Microsoft, Apple and Google, are adopting
renewable energy as it makes good business sense to lower emissions,
diversify energy supply, mitigate fuel cost and above all portray a green
image.
World’s leading IT companies are rushing to develop renewable energy
projects to power their giant data centres, Google has entered a 10-year deal
with utility company Grand River Dam Authority to supply 48 MW of wind
power to its Oklahoma data center. Apple’s data center in Maiden (North
Carolina), which draws staggering 20MW power, will run entirely on solar
energy and biogas. Likewise, to meet tremendous energy needs, Adobe has
invested in alternative energy sources that can generate power directly on-
site, such as wind turbines and fuel cells at its California facilities. Microsoft
has also unveiled plans to utilize biogas generated from wastewater
treatment facilities to power its research center at Wyoming.

3. Role of Environmental Reporting:

Environmental reporting, voluntary as well as mandatory, is also getting
prominence in the context of corporate social responsibility. Environmental
information like greenhouse gas emissions, waste generation, energy
consumption, use of transport can improve the transparency of industrial
activities, thereby, providing a powerful tool to fight environmental
degradation. Business can save significant in areas like use of raw materials
and supplies, reduction in waste, water, energy use, transport, travel and
packaging.

EVOLUTION OF CSR IN INDIA

India has the world’s richest tradition of Corporate Social Responsibility (CSR).
The term CSR may be relatively new to India, but the concept dates back to
Mauryan history, where philosophers like Kautilya emphasized on ethical practices
and principles while conducting business. CSR has been informally practiced in
ancient times in form of charity to the poor and disadvantaged. Indian scriptures

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
have at several places mentioned the importance of sharing one’s earning with the
deprived section of society. We have a deep rooted culture of sharing and caring.
Religion also played a major role in promoting the concept of CSR. Islam had a
law called Zakaat, which rules that a portion of one’s earning must be shared with
the poor in form of donations. Merchants belonging to Hindu religion gave alms,
got temples and night shelters made for the poorer class. Hindus followed
Dharmada where the manufacturer or seller charged a specific amount from the
purchaser, which was used for charity. The amount was known as charity amount
or Dharmada. In the same fashion, Sikhs followed Daashaant.
Here, we can understand that the history of CSR in India runs parallel to the
historical development of India. CSR has evolved in phases like community
engagement, socially responsible production, and socially responsible employee
relations. Therefore, the history of Corporate Social responsibility in India can be
broadly divided into four phases:
PHASE I: The first phase of CSR was driven by noble deeds of philanthropists
and charity. It was influenced by family values, traditions, culture and religion
along with industrialization. Till 1850, the wealthy businessmen shared their riches
with the society by either setting up temples or religious institutions. In times of
famines, they opened their granaries for the poor and hungry. The approach
towards CSR changed with the arrival of colonial rule in 1850. In the Pre-
independence era, the pioneers or propagators of industrialization also supported
the concept of CSR. In 1900s, the industrialist families like Tatas, Birlas, Modis,
Godrej, Bajajs and Singhanias promoted this concept by setting up charitable
foundations, educational and healthcare institutions, and trusts for community
development. It may also be interesting to note that their efforts for social benefit
were also driven by political motives.
PHASE II: The second phase was the period of independence struggle when the
industrialists were pressurized to show their dedication towards the benefit of the
society. Mahatma Gandhi urged to the powerful industrialists to share their wealth
for the benefit of underprivileged section of the society. He gave the concept of
trusteeship. This concept of trusteeship helped in the socio-economic growth of
India. Gandhi regarded the Indian companies and industries as “Temples of
Modern India”. He influenced the industrialists and business houses to build trusts
for colleges, research and training institutes. These trusts also worked to enhance
social reforms like rural development, women empowerment and education.
PHASE III: In the third phase from 1960-1980, CSR was influenced by the
emergence of Public sector undertakings to ensure proper distribution of wealth.
VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
The policy of industrial licensing, high taxes and restrictions on the private sector
resulted in corporate malpractices. This led to enactment of legislation regarding
corporate governance, labor and environmental issues. Still the PSUs were not very
successful. Therefore there was a natural shift of expectation from the public to the
private sector and their active involvement in the socio-economic growth. In 1965,
the academicians, politicians and businessmen set up a national workshop on CSR,
where great stress was laid on social accountability and transparency.
PHASE IV: In the fourth phase from 1980 onwards, Indian companies integrated
CSR into a sustainable business strategy. With globalization and economic
liberalization in 1990s, and partial withdrawal of controls and licensing systems
there was a boom in the economic growth of the country. This led to the increased
momentum in industrial growth, making it possible for the companies to contribute
more towards social responsibility. What started as charity is now understood and
accepted as responsibility.
In the current scenario in India, the new companies act amended in December 2012
mandates the corporate to spend 2% of their average net profits of the last three
financial years towards CSR. This is applicable for companies with a turnover of
1000 Cr/ PAT of 5 Cr/ or net worth of 500 cr. The new bill replaces the Companies
act 1956 and emphasizes carrying forward the agenda of Corporate Social
Responsibility.
EXAMPLE
1) XYZ Limited has a turnover for last three years, as mentioned below:
2016-17 2017-18 2018-19
1200 Cr 1250 Cr 1080 Cr

The company makes a net profit of 3%, 4% and 5% during these three years,
respectively. Find out the amount of CSR expenditure that the company is
required to spend as per section 135 of the companies Act, 2013.
Ans- CSR is covered under Section 135 of the Companies Act 2013. It is
applicable to every company registered under the Act. If a company qualifies for
any of the following criteria, then it has to compulsorily undertake CSR activities:
-
A net worth of Rs 500 Cr. or more
Or a turnover of over Rs 1,000 Cr.
VISHAKHA MANKAR
Shantiniketan Business School, Nagpur
Or a net profit of 5 Cr. in a financial year.
The amount of expenditure for CSR has to be a minimum of 2% of avg. net profit
of the last 3 preceding financial Years. This is the prescribed CSR spend. In the
above example, the net profits (3rd criteria) for three years is –
(1200 x 3%) + (1250 x 4%) + (1080 x 5%)
= 36 + 50 + 54 = 140 Cr
As per the prescribed norms, the amount of expenditure for CSR has to be a
minimum of 2% of avg. net profit of the last 3 preceding financial Years.
2% of 140 Cr. = 2.8 Crores
Hence, the amount of CSR expenditure that the company is required to spend as
per section 135 is Rs.2.8 Crores

VISHAKHA MANKAR
Shantiniketan Business School, Nagpur