Corporate social responsibility is an old concept that underwent a major metamorphosis after the Indian Companies Act 2013. Essentially, CSR addresses a social need using the expertise and resources of the company in order to create value in the society. A CSR strategy based on these criteria results in long term benefits for the society and the company.
Companies can choose from several issues to address and channelize their funds. The cause chosen can either be related to their core area of work or something very different from their focus area. Over the years, the manner in which companies execute their CSR activities has changed extensively. Besides allocating funds for social causes, companies also promote voluntary services from their employees and institutional philanthropy. Furthermore, while the needs that CSR activities address remain largely the same, the focus now is on planning for long term value for the organization and the society.
So, with these as the main requirements and focus areas, how does a company create a strong base for its CSR strategy? How does it run its CSR assessments in order to ensure long term results?
The most basic rule, as per the Companies Act 2013, is to allot 2 percent of its annual revenue for social welfare through CSR activities. In addition, companies need to integrate their social impact into their overall business strategy. Although it is not possible to create one standard approach and call it the “best one”, Sattva has narrowed down four key factors that can serve as guidelines for creating CSR strategy. The four factors are the Stakeholders, the Social Cause, the Business and the Compliance.
The most basic requirement of any CSR strategy is to comply with the law as per the Companies Act 2013. Compliance ensures that the company is safe from the law and that its social investments are in line with statutory regulations including environmental laws, social laws and other government norms. Additionally, compliance with the standard metrics also ensure effective use of funds for CSR implementation.
For instance, explicit guidelines are given in the Schedule VII of the Companies Act regarding the various areas where companies can focus for the CSR activities. One area given in this Schedule is the Prime Minister’s National Relief Fund or other social welfare funds established by the central government for backward classes, scheduled castes, scheduled tribes, women and other minorities. Although companies are free to contribute to any social welfare activity of their choice, indulging in such government programs ensures compliance with the law in an easier manner.
The objective of making CSR mandatory for companies earning revenues above a specific limit is to address social issues and drive a positive change in the society. Companies can choose the social cause they want to address depending on the priorities of their administrative heads. They can also choose to align their activities with national and international welfare programs that are already in motion or about to be taken up by the government or NGOs.
Before choosing the cause, companies study the social impact and set up rigorous systems to identify implementation partners, impact measurement systems and standardized reporting patterns. The key factor for companies here is to take a philanthropic approach and disassociate from profit based approach. In other words, when identifying the social cause for their CSR activities, companies need to think about the social impact that the activities can create instead of calculating their own benefits.
One example is the Swachh Bharath Abhiyan, a national cleanliness drive launched by the Government of India. As part of this movement, the private sector joined hands with the government to bring sanitation in over four thousand towns and cities in the country.
When designing a CSR strategy, organizations focus on three main stakeholders – employees, local community and customers. Companies are encouraging active participation and involvement from their employees in the on-going social initiatives. Secondly, companies tend to focus in the local communities located around their business premises in order to uplift their quality of life and build a strong credible relationship with them.
Thirdly, companies focus on the goodwill and positive brand value that is generated among their customers due to their social activities. In fact, companies also involve their customers in their CSR. For instance, a company might declare that 2 percent of the cost of every product purchased shall be donated to a social cause.
Companies tend to focus on the value that is generated due to its social initiatives. They create value through four channels – product innovation, skill enhancement, value chain enhancement and market value.
Through these channels, companies can use their technical expertise to create products that solve a social issues. They can enhance the skill level of people in the society and make them employable. They can also create a chain using the people in the local communities as distribution networks, supply chains and others. Companies can leverage the benefits of customer awareness by creating essential services such as sanitation, healthcare, clean drinking water, education and financial literacy.