A BRIEF STUDY ON CORPORATE SOCIAL RESPONSIBILITY UNDER COMPANIES ACT, 2013
INTRODUCTION
Corporate social responsibility, or CSR, is a form of self-regulation that reflects a business’s accountability and commitment to contribute to the well-being of communities and society through various environmental and social measures.
CSR plays a crucial role in a company’s brand perception; attractiveness to customers, employees, and investors; talent retention; and overall business success.
A company can implement four types of CSR efforts: environmental initiatives, charity work, ethical labor practices and volunteer projects.
This article is for business owners who are looking to implement or improve CSR initiatives and want to learn more about the benefits, best practices, and potential pitfalls.
The definition of business success goes beyond profitability, growth rate and brand recognition. In today’s world, customers, employees and other stakeholders judge a company by how its activity impacts the community, economy, environment and society at large. In other words, it is important for them to know that whether it cares about the greater good or only greater profit. Corporate social responsibility practices are a way to demonstrate one’s business’s stance on the matter.
What is corporate social responsibility?
Corporate social responsibility is a type of business self-regulation with the aim of social accountability and making a positive impact on society. Some ways that a company can embrace CSR include being environmentally friendly and eco-conscious; promoting equality, diversity, and inclusion in the workplace; treating employees with respect; giving back to the community; and ensuring business decisions are ethical.
CSR has initially evolved from the voluntary choices of companies and today ha become a part of mandatory regulations at regional, national, and international levels. However, many companies choose to go beyond the legal requirements and embedded the idea of “doing good” for society into their business models.
There is no one way a company can embrace CSR, but one thing is certain – to be perceived as genuine, the company’s practices need to be integrated into its culture and business operations. In today’s socially conscious environment, customers place a premium on those businesses who prioritize CSR.
To ensure CSR authenticity, a company should look at its values, business mission and core issues and determine which initiatives best align with the business’s goals and culture. The business can do this internally or hire a third party to conduct an assessment.
Why Corporate Social Responsibility is important for a company or LLP.
There are many reasons for a company to embrace CSR practices.
1. It improves customer perception of your brand.
It is important for companies to have a socially conscious image. Consumers, employees, and stakeholders prioritize CSR when choosing a brand or company, and they hold corporations accountable for effecting social change according to their beliefs, practices, and profits.
“What the public thinks of your company is critical to its success,” said Katie Schmidt, founder and lead Designer of Passion Lilie. “By building a positive image that you believe in, you can make a name for your company as being socially conscious.”
To stand out among the competition, your company needs to prove to the public that it is a force for good. Advocating and raising awareness for socially important causes is an excellent way for your business to stay top-of-mind and increase the brand value.
The Kantar Purpose 2020 study demonstrated a direct correlation between perceived positive impact and brand value growth. Companies that the public considers highly impactful demonstrated a brand value growth of 175% over 12 years, while businesses with a low positive impact showed only 70% growth.
2. Corporate Social Responsibility attracts and retains employees.
Consumers aren’t the only ones drawn to businesses that give back. Susan Cooney, head of global at Symantec, said that sustainability strategy is a big factor in where today’s top talent chooses to work.
“The next generation of employees is seeking out employers that are focused on the triple bottom line: people, planet and revenue,” she said. “Coming out of the recession, corporate revenue has been getting stronger. Companies are encouraged to put that increased profit into programs that give back.”
3. Corporate Social Responsibility increases your appeal to investors.
By demonstrating a developed CSR program and initiatives, your company is bound to become more appealing to both current and future investors. CECP’s influential 2021 Giving in Numbers Report shows that investors play a key role as key stakeholders in corporate social responsibility. Almost 80% of surveyed businesses were open to providing them with data and considering their perspectives on sustainability. Just like customers, investors are holding businesses accountable when it comes to social responsibility.
Types of corporate social responsibility startups and new companies shall practice, is as follows:
1.Environmental efforts: One primary focus of CSR is the environment. Businesses have large carbon footprints, regardless of size. Any step a company take to reduce its footprint is considered good for both the company and society.
2.Philanthropy: Businesses can practice social responsibility by donating money, products or services to social causes and nonprofits. Larger companies tend to have plentiful resources that can benefit charities and local community programs; however, even as a small business, your efforts can make a difference. If you have a specific charity program in mind, reach out to the organization. Ask them about their specific needs and whether a donation of money, time or your company’s products would best help them.
3.Ethical labor practices: Companies can demonstrate CSR by treating employees fairly and ethically. This is especially true of businesses that operate in international locations with labor laws that differ from those in the U. S.
4.Volunteering: Participating in local causes or volunteering your time (and your staff’s time) to community events says a lot about your company’s sincerity. When your company does good deeds without expecting anything in return, it generates a good will amongst large section of society.
Building a socially responsible business
While startups and small companies don’t have the deep financial pockets that enterprises have, their efforts can have a significant impact, especially in their local communities.
“Even 5%, though it might not sound like a lot, can add up to make a difference,” Schmidt said. “When thinking of ways to donate and give back, start local, and then move from there.”
When identifying and launching a CSR initiative, involve your employees in the decision-making process. Create an internal team to spearhead the efforts and identify organizations or causes related to your business or that employees feel strongly about. You’ll increase engagement and success when you contribute to something that matters to your employees. Involving your employees in the decision-making process brings clarity and assurance to your team as well.
Corporate Social Responsibility certifications
While many companies self-assess their CSR efforts, often the most practical and trusted way to prove your company’s social accountability to the public is to undergo a third-party social impact assessment report or certificate.
These three corporate social responsibility certifications can help you achieve public recognition for your sustainability and CSR efforts.
B-corp certification
Certified B corporations, or B-corps, are companies verified by B Lab to meet high standards of social and environmental performance, accountability, and transparency. To become a B-corp, a company must undergo a rigorous and holistic verification process every three years, integrate B-corp commitments to all stakeholders (rather than only shareholders) into its governing documents, and pay a sales-based annual fee.
ISEAL code compliance
ISEAL Alliance is a global membership organization for credible sustainability standards whose members include Fairtrade International, Gold Standard, Alliance for Water Stewardship and more. An assessment from ISEAL is carried out by an independent third-party verification provider that determines whether a business meets Codes of Good Practice and can be deemed ISEAL Code Compliant. This assessment offers a reputable seal of approval for companies that emphasize sustainability.
Sustainability Accounting Standard Board (SASB) Standards
The Sustainability Accounting Standards Board is one of the most established environmental, social, and governance (ESG) guidance frameworks, providing standards for disclosing the financial impact of a company’s sustainability efforts. In other words, it allows businesses to communicate the financial outcomes of their CSR and ESG measures to investors and other stakeholders.
SASB Standards are evidence-based, cost-effective, market-informed, and industry-specific, covering 77 industries. These standards help produce structured, comparable, and standardized data that is perfect for both internal and external communications of CSR and ESG impacts.
Examples of Corporate Social Responsibility in companies/brands:
Johnson & Johnson: The brand Johnson & Johnson focuses on reducing its environmental impact by investing in alternative energy sources. Globally, Johnson & Johnson also works to provide clean, safe water to communities.
Starbucks: The global coffee chain has implemented a socially responsible hiring process to diversify its workforce. Its efforts are focused on hiring more veterans, young people looking to start their careers, and refugees.
Google: Google has demonstrated its commitment to the environment by investing in renewable energy sources and sustainable offices. CEO Sundar Pichai is also known to take stands on certain social issues.
TCS: It is largest IT employer in India. It provides services to wide range of segment like banking & financial services, energy, resources & utilities, government, telecom, media & information services [ LIKE JAL JEEVAN MISSION 2021, ADULT LITERACY PROGRAM SUPPORT]
What to avoid when creating a socially responsible business model
Becoming a socially responsible business can be simple, but there are a few caveats.
1. Don’t choose unrelated initiatives.
Avoid participating in charitable efforts that are not related to your core business focus or violates your company’s ethical standards in any way. Instead of blindly sending money to a completely unrelated organization, find a nonprofit that your company believes in or invest in a project in your community.
2. Don’t use CSR as a marketing scheme.
Don’t use CSR opportunities solely for marketing purposes. Schmidt said running a corporate responsibility campaign as a quick marketing scheme can backfire if your business doesn’t follow through. Instead of trying a one-time stunt, adopt socially responsible business practices over time. Schmidt said employees and consumers react positively to companies that embrace long-term social responsibility.
3. Don’t wait for the industry to catch up.
If you are considering sustainable activities that aren’t legally required yet, don’t wait. By adopting socially responsible norms early on, you set the bar for your industry and refine your process.
COMPANIES ACT 2013
The Companies Act, 2013 SECTION 135 in India mandates companies to undertake Corporate Social Responsibility (CSR) activities. The following are some of the key provisions related to CSR in the Companies Act:
Applicability: The CSR provisions apply to companies having a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or a net profit of Rs. 5 crore or more during any financial year.
CSR Committee: Companies meeting the above threshold need to constitute a CSR Committee consisting of at least three directors, including an independent director. The committee is responsible for formulating and monitoring the CSR policy of the company.
CSR Spend: Companies need to spend at least 2% of their average net profits of the preceding three financial years on CSR activities.
CSR Activities: The Act provides a broad framework for the types of CSR activities that companies can undertake, including promoting education, eradicating hunger and poverty, promoting gender equality and women empowerment, and environmental sustainability, among others.
Reporting: Companies are required to disclose their CSR activities in their annual reports, including the CSR policy, the CSR activities undertaken during the year, and the amount spent on such activities.
CONCLUSION
Corporate Social Responsibility (CSR) has become an integral part of the business strategy of companies across the world. CSR activities not only contribute to the social and environmental well-being of the communities in which companies operate but also help in building trust and goodwill among stakeholders, including customers, employees, investors, and regulators.
The Companies Act, 2013 in India has made it mandatory for companies meeting a certain threshold to undertake CSR activities and has provided a framework for the same. This has led to an increased focus on CSR activities among Indian companies and has helped in promoting social and environmental sustainability.
Overall, CSR has emerged as an important aspect of corporate governance, and companies that are able to effectively integrate CSR into their business strategy are likely to have a competitive advantage in the long run.
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