Abstract
Modern times have resulted in shifts being observed in various spheres of society, one of them being in the way companies function. Now, companies cannot solely prioritise profit maximisation as accountability and conduction of activities in a manner that is socially responsible are the needs of the hour given the current various crises the world finds itself in, in social, environmental as well as ethical realms. Corporations must strive to align their business strategies of daily functioning with sustainable development goals in order to garner public support. Consumer loyalty, brand value, shareholder longevity and increased interest of investors are all achievable through policies of sustainability and practices of responsibility to the environment, economy as well as society. While many believe there are no short-term advantages to socially-responsible behaviour displayed by a corporation, it is established that the market judges socially irresponsible corporations much harshly when it comes to investments. This paper seeks to explore the various ways CSR is observed in India as well as the rest of the world using the examples of Tata, a company on its way to becoming a global conglomerate and IKEA, a company that has already established itself in various ways as a pioneer of green and clean business practices.
Keywords- CSR, environment, responsibility, influence, social responsibility, society, consumers
Research Methodology
This paper is descriptive in nature and the research conducted is based on scholarly articles, journals as well as websites in order to arrive at a deep analysis of the role that non-state actors play in the resolution of international conflicts.
Review of Literature
This paper critically examines the integration of Corporate Social Responsibility (CSR) into organisational DNA, investigating whether the motivation behind such integration is rooted in genuine altruism or strategic necessity. Analysing existing scholarly works, exploration of the diverse motivations driving CSR, ranging from moral and ethical imperatives to strategic considerations like reputation management and competitive advantage is examined. It delves into the challenges organisations face in incorporating CSR, emphasising the role of organisational DNA in shaping a genuine commitment to social responsibility. The various points of conversation are the outcomes and performance implications associated with CSR integration, addressing financial performance, employee satisfaction, and long-term sustainability. Overall, this synthesis of literature offers valuable insights into the complex dynamics of CSR integration, serving as a foundation for future research and informing both academic discourse and practical considerations.
Introduction
1.1 What is CSR
In an ever evolving world where corporations dictate almost every purchase pattern, from the decor in our living rooms to the food we choose to feed our children, it would not be unwise to devise checks and balances not only on their influence and powers but also on the impact that they have on societies, the environment and economies as a whole. Thus, the idea of CSR (Corporate Social Responsibility) was constructed, which, as the name suggests assigns to a corporation the task of operating in a responsible way towards society and all that it encompasses along with the fulfilment of its profit making objectives. CSR is defined as a concept wherein corporations seek to integrate societal and environmental concerns in their business strategies and interactions with stakeholders. Put simply, it is a method by which corporations achieve social imperatives while addressing shareholder expectations.
CSR has long been considered as a method of corporate self-regulation and has over the past few decades moved from voluntary practices at individual levels to mandatory, government regulated schemes at regional, national and international levels. CSR is often considered a business strategy that neatly accomplishes a corporation’s social obligations while also contributing to the brands general reputation. According to some models, a firm’s CSR implementation goes beyond legislative requirements and includes “actions that appear to further some social good, beyond the firm’s interests and that which is required by law”.
1.2 History of CSR
CSR can be traced as far back as the early 20th century, when businesses were first established to engage in philanthropic activities. However, the rise of societal and environmental movements of the 1950s and 1960s truly allowed it to transform into the practices we see today. The 1970s and 1980s laid emphasis upon the social and ethical responsibilities of businesses and the term “corporate citizenship” rose to prominence. Corporate citizenship entails firms’ social obligation as well as the extent to which they meet various social responsibilities of legal, ethical and economic natures as established by stakeholders.
Thus, this led to a shift in the mindset of stakeholders, where a focus on sustainability and shared value for all was created.
1.3 How is CSR implemented
Companies and corporations imbibe various methods of implementing CSR policies and these are often an intrinsic motto of the company that it strives to achieve with every daily operation. CSR practices can be divided under three heads, namely: economic, social and environmental. Establishing fair pricing, supporting local suppliers, investor transparency and satisfaction of consumers whilst maintaining social and environmental goals are some forms in which CSR is reflected through economic policies of the corporation. In the same manner, providing equal opportunities, diversity hiring, regulation and safety at work, women empowerment, providing employee benefits, exercising corporate philanthropy, establishing fair trade practices such as stoppage of child labour and respecting workers rights fall under the social head. Responsible and efficient consumption of energy, waste minimization, deduction of harmful manufacturing processes and reduction of greenhouse emissions are all a part of environmental aspects of CSR.
2. CSR practices in India
CSR practices are mandated in India, as they are in the majority of the globe, by the Companies Act, 2013, which governs the operations of all Indian firms. Section 135 of the Act requires that at least 2% of of those corporations having a net value of Rs. 500 crores or more, a turnover of Rs. 500 crores or more, or an aggregate profit of Rs. 5 crores or more in the previous fiscal year must devote the average net profits over the previous three fiscal years to CSR operations. A CSR committee of the Board must also be constructed by such companies comprising three or more members, one being an independent director. If the provisions of the Articles of Association do not require appointments of independent directors, then the CSR committee must consist of two or more directors. Section 135(3) of the Act defines the responsibilities of the CSR Committee. They are as follows:
The CSR Committee needs to develop and recommend to the Board of Directors a CSR Policy outline which contains activities that need to be undertaken by the company along with the estimate of expenditure on the same along with its regular monitoring to ensure initiatives are in line with the proposed policy.
In India, CSR covers a wide range of social and environmental issues such as education, healthcare, rural development, alleviation of poverty, sustainable agriculture and promotion of green and clean energy among other aspects. CSR has developed to become an essential part of the business topography with companies using their resources, networks and reach to address various issues that have pervaded Indian society for long.
Rule 291)(d) of the Companies Act (CSR Policy) Rules, 2014 excludes certain activities such as activities carried out in the normal course of the company’s business, activities carried out outside India (with certain exceptions), any sum paid directly or indirectly to any political party, sponsorship activities with the aim of gaining clientele or activities to meet statutory requirements from being considered CSR initiatives.
In order to ensure the idea of CSR does not turn into an obsolete toothless tiger, certain penalties have been imposed to guarantee that companies comply with the requirements of the same. A penalty of Rs. 1 crore or twice the amount that must be transferred by the company to the CSR fund, or the unspent corporate social responsibility account, whichever is less, will be assessed if a company violates the provisions and fails to spend, transfer, and use the money in the CSR fund. Additionally, any officer who fails to comply will be obliged to pay Rs. 2 lakh or, if less, 1/100 of the required sum to be transferred by the firm to the CSR fund. This not only pins liability on the company but also holds individual officers accountable to make the provisions relating to CSR watertight.
3. CSR in major corporations
To further elucidate the importance of CSR, we can study the practices of Tata Industries, one of the most lucrative and reputable industries in India. Tata’s CSR philosophy states that it strives to make a positive impact on the community in order to develop their economic status while also conserving the environment. Further, they claim to ensure sustainability through adoption of business practices, employee policies and technology that align with the notion. An elaborate and transparent structure of fund utilisation is also mentioned as they pledge to use 2% of the average net profits of the company for CSR activities which is in compliance with the provisions of the Companies Act. Moreover, in a commendable move on their part, the company also promises to plough back any surplus arising out of CSR activities back into CSR and to not consider it a part of business profits.
Tata Industries, which is well-known for its philanthropy, specifically specifies in its policies which industries/sectors/areas would be the focus of the company’s CSR operations. Its platform calls for the abolition of hunger, poverty, and malnutrition, the promotion of healthcare and sanitation, and the provision of safe drinking water. The list includes encouraging education, developing occupational skills among children, women, the elderly, and people with disabilities, as well as promoting gender equality, empowering women, constructing daycares and hostels, and minimising disparities. Tata Group also undertakes to maintain sustainable development, flora and fauna protection, natural resource conservation, and the use of clean and green energy, as well as the preservation of natural heritage and culture.
Moreover, it pledges to directly assist the government in any schemes or plans it may bring about for socio-economic development and relief such as the recent PM CARES Fund or the national relief fund etc. Over and above that, the Group also makes regular contributions to the funding of public universities and research institutions. Control of around two-thirds of the stock parent company, Tata Sons Ltd. is in the hands of the sons of Sir Jamshedji Tata, the founder of the modern Tata empire. The company in question donates between 8% to 14% of its net profits to varied humanitarian organisations and social support groups annually. Even though the late 1990s were economically challenging, the group’s charity support increased, growing from Rs 670 million in 1997-1998 to Rs 1.36 billion in 1999-2000. In 2004, Tata Steel alone spent Rs. 45 crore on social welfare initiatives. Moreover, laws such as the Maternity Benefit Law and the establishment of the Welfare Department were brought about through initiatives taken by Tata.
When it comes to international brands, IKEA is a trailblazer in the realm of CSR practices. For instance, more than 37,000 welcome backpacks were filled with toys and other products for children in a packing event organised by the corporate. IKEA has also taken the initiative to plant over a million trees in communities all across the UK. From January 2015, IKEA introduced a new hourly wage structure that put the needs of its employees at the forefront as opposed to what the market standards and other competitors such as Amazon were paying. Moreover, the company celebrates IDAHOT, an International Day to raise awareness Against Homophobia, Biphobia and Transphobia every 17th of May to stand up against bigoted beliefs and to make its working environment more inclusive and safe for all sections of society. Additionally, there are about 730,000 solar panels installed in buildings owned by IKEA worldwide. It also owns and operates around 327 wind turbines in order to reduce their carbon emissions and to set a precedent of clean and green energy consumption that is responsible and respectful of the environment. In 2020, the company derived 98% of its wood which was used in projects from FSC-certified sources and recycled materials. IKEA is also continuously collaborating with local suppliers and partners to minimise their adverse environmental impacts. In order to reduce its carbon footprint, 80% of the products such as textile and furnishings are made from recycled polyester. Usage of single-use plastic was also significantly lowered from its home furnishings as 44% of plastic items were created from recycled materials or renewable products in 2020. Funds set aside to support clean energy obligations are also used to decrease deforestation through mass planting of trees and other forest management techniques.
IKEA also upholds the Supplier Code of Conduct, which forbids the employment of child labour, forced or bonded labour, and workplace discrimination. The Code mandated the freedom of employee unions as well as the creation of a secure and healthy work environment. In terms of charitable action, the IKEA foundation has contributed 7.7 million Euros to the Brighter Lives for Refugees initiative. Additionally, since 2003, it has donated 1 Euro to the Save the Children foundation for each plush toy sold in IKEA stores.
The Leaders Survey tracked global expert opinions on sustainability and which companies were perceived as pioneers in the realm.Over 700 experts from 71 companies were asked to name firms that they believe are leaders in integrating sustainability into their business strategy in 2020. According to the poll, Unilever, Patagonia, and IKEA were the most recognized leaders. Four new corporations were added to the list, one of which was Tata. When it comes to CSR policies, IKEA scored third, with 14% of experts saying it was ahead of the curve, whereas Tata rated 12th, with 3% believing the same.
Such practices and business strategies deeply impact the public perception of the company as well. Social movements can become one of the primary ways the brand communicates and markets their products to society at large. They represent the added value of a product or service and include a ‘feel good factor’ which can be crucial for the purposes of purchasing decisions as used by consumers. Building an image of a responsible, accountable and sensitive brand or company is one of the key moves to help the target audience and shareholders feel connected to the company. However, it is essential to maintain a consumer’s confidence. Empty promises and futile use of buzzwords such as ‘clean energy’ and ‘sustainable’ without any perceivable efforts to deliver on the same can counteract the efforts of effective CSR practices with regard to faith in the brand and can seriously damage the image of the same. In today’s day and age, companies must include a certain aspect of sustainability in order to cater to the youth base of today’s generation due to an increased general sense of awareness along with the impending fear of a climate crisis. Surveys show that the most visible benefits of effective implementation of CSR includes strengthening of the company’s image, loyalty among shareholders and consumers along with competitive edge in the market.
4. Importance of CSR
It has been widely acknowledged that companies that put aside short term monetary benefits and focus on delivering a brand promise and value perform substantially better in the market. Tata has a set of values that, if push comes to shove, have time and again proved to be more important than short term economic gain. Consumers and shareholders are not as loyal to ambition and commercial success as they are to values that are etched in stone as the latter is far more reliable and thus a safer bet as an investment as compared to a temporary stroke of financial luck. Tata has managed to create a conglomerate from salt to softwares purely based on these principles, and thus has garnered a ridiculous amount of shareholder and consumer loyalty and confidence. The Tata promise of trust and reliability is as strong as the steel it sells. Moreover, Tata was one of the first brands to operate with love and empathy, a new entry in the traditional lexicon of business, along with just a pure money-minded craze which has played a huge role in its public perception today. This can be seen through the Tata Affirmative Action Programme that exercised positive discrimination in employing personnel from historically disadvantaged communities and engaging them as business partners, all the while maintaining merit and quality.
In the same manner, it can be observed that IKEA’s CSR endeavours have not only generated strong involvement from stakeholders but also has increased loyalty and support from customers, employees and investors. Engaging with local communities, interacting and directly hearing from consumers and installing various online platforms for home visits, grievance redressal, suggestions etc has made it a very consumer-centric brand whose primary goal is to create a buyer-friendly environment. Additionally, partnering with external collaborators and stakeholders helps it to address complex challenges and achieve necessary systemic change. One such way this was observed was through the discussions held among stakeholders regarding fair income and equitable distribution of income throughout its value chain. This gave every player involved a voice and a chance at active participation which further added to the goodwill of the brand. Shareholder value is enhanced through CSR by improving a company’s reputation and reducing its exposure to the fallouts associated with negative social and environmental impacts. The benefits of CSR for shareholders are always visible in improved brand awareness, corporate collaborations, moral values preserving, and cost savings. A company’s nature and environmental initiatives should be based on the attitudes and values of its investors. Companies must ultimately match their CSR initiatives and strategic decisions with their overall business aims and values.
A study conducted by Boston Consulting Group, it was found that companies that were considered leaders in environmental, social or governance matters had an 11% valuation premium over their competitors. Enacting CSR strategies is a definite way to improve the way investors perceive the brand and subsequently the worth of the company. Thus, it can be established that brand identification, recall, loyalty, and a favourable reputation among competitors are all indicators of a strong brand image. Moreover, the view of CSR is crucial in forming brand perception and creating a positive brand perception in the eyes of consumers and shareholders alike.
Conclusion
Every business house owes certain responsibilities to society due to the inevitable exploitation of its resources. Thus, CSR is no longer an optional engagement which a company dabbles in if business is going as planned. It has been developed into a mandate with a robust legal framework and active participation by the government to issue new guidelines and regulations. Given recent world events such as the COVID-19 pandemic, supporting society in times of crisis has been highlighted along with social entrepreneurship and making of climate conscious decisions. Due to various studies of its growing impact on shareholder-company relations as well as consumer-company relations, CSR has become essential in the business and financial terrain of India. CSR not only helps develop society as a whole but also works on strengthening the reputation of a company along with its goodwill and brand image. This in turn leads to cost saving as well as retention of consumers and long-term investors. Multiple criticisms for CSR exist with scholars believing that the effective contribution such practices have on society are negligible and are merely marketing gimmicks which unethically exploit consumers by falsifying conscious practices in order to generate revenue. However, on a global level, the impact of CSR cannot be ignored and if measures are taken by governmental and non-governmental organisations as well as consumers and stakeholders CSR can further develop into a fuller, more mature and highly effective version of its current self.
Tejaswi Lal
Symbiosis Law School, Nagpur