Dangling the carrot and wielding the stick are both needed for maximum CSR gains

6th Nov 2013
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Photo courtesy: http://www.onyxsolar.com
Photo courtesy: http://www.onyxsolar.com

With the passing of the new Companies Bill 2012, soon to become the Companies Act 2013, India has the unique honor of being the first country in the world where CSR is mandatory for companies of a certain size. According to the Bill, companies with a turnover of Rs. 1000 crore or more, net worth of Rs. 500 crore or more, or net profit of Rs. 5 crore or more, will have to set aside two percent of their average net profits of the preceding three years for CSR initiatives.

While the bill comes with a generous helping of good intentions, it begs the question whether this is the best option to facilitate corporate commitment for social and environmental causes.

That companies must behave in an environmentally and socially responsible manner is a given. But the manner in which this commitment plays out in the real world should not be dictated by legislation. Forced philanthropy can at best produce sticky-plaster solutions to complex development challenges. Azim Premji, Chairman of IT major, Wipro, often praised for his philanthropy, said this at a recent conference when asked about the new CSR bill: “They are trying to force something. It should be spontaneous.”

This is not to say that legislation is unnecessary. Good laws nudge companies in the right direction and expedite the adoption of responsible behaviours, mainly through innovation. For instance, when the EU laid down stringent emission laws for car manufacturers operating in the region, BMW, a luxury car maker, rolled out i3, an electric hybrid model. The right kind of regulation sparks innovation and pushes companies to invest in better technology and more efficient processes, developing lasting solutions. It also opens up new business opportunities, as in the case of BMW; it is planning to ramp up production of the i3 on the back of strong early sales.

Furthermore, the positive impact goes beyond corporate behaviour and influences consumer behaviour by offering a wider selection of ethical products. Simply put, legislation that focuses on company practices in their normal course of business has extensive social and environmental impact and is perhaps more effective than an additional levy meant for CSR initiatives.

The accountability I am proposing therefore goes to the heart of what companies do. Paying taxes, adhering to labour laws, good governance, fair competition are all part of a company’s legal obligations and they should be honoured at all times. But, beyond the ambit of law, lie other ethical obligations that are equally important. Environmental costs, for instance, need to be accounted for. Timber, mining, fisheries and other extractive industries that rely on the Earth’s natural resources for their profits, must compensate the community for accessing the wealth of the ‘commons’. Here again, the compensation need not be limited to financial support. What is important is replenishing the resources being utilized and finding renewable alternatives. Ikea, the flat-pack Swedish furniture retailer, consumes one percent of the world’s commercial wood. As part of their sustainability commitments, they are aiming to become forest positive’ by 2020, which essentially means planting at least as many trees as they use in their products. This is a far more imaginative and sustainable solution.

Another example is that of Coca Cola, whose water stewardship is clearly linked to its business needs. Consider this – if Coca Cola focused on building schools and parks, while depleting groundwater resources, no amount of philanthropic work could save it from community backlash; this became evident in the controversy in Kerala, where the soda giant had to shut down its bottling unit.

Sometimes a mix of incentives and penalties work quite nicely in persuading corporates to adopt better practices. Manufacturers of fuel-guzzling vehicles (and for that matter, even individuals who buy these cars) should be held responsible for spewing CO2 into the atmosphere. A combination of carrot (tax rebates on purchase of greener vehicles) and stick (congestion charges) should produce desirable, long-term change.

By making CSR charity-based and mostly focused on funnelling money into specific programmes, there is a very real possibility that companies will end up supporting those causes that are close to management and decision makers. Today it could be all about supporting the differently-abled while tomorrow, the agenda shifts to planting trees! These short-term interventions, with a ‘flavour of the month’ approach have a deleterious effect and undermine sustainability.

Taking cues from the heart when making business choices does not contradict sound business logic. In fact, companies should strive to do the right thing. But, it is vital that the right action strengthens the foundation of the business. In 18th century England, when exploitation of labourers was common, William Lever, the founder of Lever Bros, the modern-day Unilever, built townships for the workers providing education, health, recreation and other amenities. This was not based on altruistic ideals; rather it was enlightened self-interest. A healthy, satisfied workforce translated into better productivity.

Today, environmental and social challenges have set real obstacles for the business as usual approach. Conscious consumers are also scrutinising brands and demanding higher ethical standards from them. Companies are waking up to this changed reality and increasingly viewing ‘doing the right thing’ as smart business strategy. The head and the heart are gradually coming together, at least in the case of forward-thinking companies. The right formula lies in getting the two to work in tandem.

Author bio: Antaash is a CSR professional with over seven years of experience in the corporate social responsibility field. She believes that CSR should be integrated into the business for it to be sustainable and has been instrumental in conceptualizing and implementing such programs. She heads the CSR function for a healthcare company. The views expressed here are her own.

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