Corporate social responsibility (hereinafter referred to as “CSR”) is the responsibility of businesses to contribute to the society by operating in an economically, socially, and environmentally responsible manner. According to the Indian Philanthropy Report 2023 by Dasra and Bain & Co., driven by the 2% mandate, CSR has grown at 15% annually in the past seven years, with its share in total private giving growing from approximately 12% in fiscal year (FY) 2015 to 23% in FY 2021.[1] CSR has become an integral part of business operations in India as companies increasingly recognize the need to give back to society and protect the environment. For instance, Hindustan Unilever has a program called “Shakti” that empowers women entrepreneurs from rural India, Infosys has a program called “Infosys Foundation” that supports education, healthcare, and rural development initiatives. The legal framework governing the implementation of CSR Policies by companies is the Companies Act, 2013 and rules framed thereunder. Though the statute prescribes only a certain class of companies to adhere to the implementation of CSR Policies, almost all the entities ranging from start-ups to giant MNC’s strive to actively contribute to the dynamic needs of the society.
Some of the benefits of implementing a strategic CSR program include:
- Increased brand reputation and customer loyalty
- Reduced risk of regulatory violations
- Increased employee morale and productivity
- Increased shareholder value and investor confidence and
- Improved community relations.
In consideration of the paramount importance of a well-defined CSR program for companies, this article aims to provide a comprehensive guide on formulating and implementing a CSR program.
How to design a strategic CSR Program?
To design a CSR program for a company, it is essential for the CSR initiatives to be complimentary to the overall business objectives. The following are the essential steps in formulating an appropriate CSR policy for an organization:
Understanding the statutory framework:
Firstly, it is important to understand the statutory framework applicable to CSR initiatives implemented by businesses and its implication on the policy to be framed by the company. According to section 135 of the Companies Act, 2013, the following companies are required to constitute a CSR committee consisting of three or more directors out of which at least one of them shall be an independent director, if applicable:
- Every company having a net worth of five crores or more, or
- Turnover of hundred crores or more, or
- Net Profit of five crores or more.
The companies covered under this section are mandatorily required to spend 2% of the average net profits for the preceding three financial years on CSR activities. Schedule VII of the Companies Act, 2013 provides a detailed list of CSR activities that can be undertaken by companies including but not limited to eradicating hunger and poverty, promoting education, promoting gender equality, ensuring environment sustainability, protecting national heritage etc. Understanding the legal framework will help companies align their CSR initiatives with the prescribed guidelines.
Define Core Competencies:
Before formulating a CSR policy, the company shall attempt to understand its core competencies and resources available to implement CSR initiatives in alignment with the overall objectives of the organization. By focusing on areas where they excel, companies can maximize their impact and create long-term value for both society and stakeholders. It is also important to align the CSR policies to the vision, mission, and values of the company.
Identifying and Engaging with Stakeholders:
Companies shall identify and engage with all its stakeholders including employees, investors, customers, suppliers, local communities etc, to understand their needs and expectations, thereby developing a well-target CSR program. Actively engaging with stakeholders in the form of seeking inputs/feedback, communication of progress in CSR initiatives, etc., helps in strengthening the relationship with them and encourages stakeholders to participate and contribute to the company’s CSR efforts.
Identifying and Targeting Specific Social Issues:
One of the major decisions involved in formulating a CSR policy is the choice of social issue towards which the organization shall contribute through its CSR activities. The choice of social issue depends on numerous factors including size of the entity, geographic location, amount of funds allocated for the purpose, extent of government intervention etc.
Allocation of Funds:
Depending on the financial performance of the organization, it is important to allocate adequate funds for undertaking CSR activities. The amount of funds to be allocated can be pre-determined and included in the CSR policy to ensure strict adherence to the budget. Companies can also establish a separate fund for the purpose of implementing the CSR program.
Collaborations and Identifying Strategic Partnerships:
To maximize the impact of CSR initiatives, companies should consider collaborating with non-governmental organizations (NGOs), government bodies and other businesses who have objectives that align with the goals of the organization. Considering the plethora of NGOs in our country, entities can seamlessly collaborate with NGO’s that have similar objectives to contribute to the needs of the community. These partnerships can provide valuable expertise, resources, and networks to implement CSR activities. Additionally, collaborations with NGOs and government bodies can enhance the credibility and transparency of a company’s CSR efforts. Companies can also enter strategic partnerships with government or private organizations to jointly implement CSR activities in the form of major projects like infrastructural developments. However, it is important to enter into formal agreements to ensure that such partnerships are in conformity with the legal requirements while maximizing the impact of the initiative.
Evaluation and Monitoring of the CSR Program:
Regular monitoring and evaluation are essential to measure the effectiveness and impact of a company’s CSR program. By establishing robust monitoring and evaluation mechanisms, companies can assess the progress, identify areas for improvement, and make data-driven decisions regarding their CSR initiatives. This ensures accountability and transparency in the process of undertaking CSR initiatives.
In conclusion, the companies shall undertake all the abovementioned steps to effectively design a CSR program. In the words of Bill Ford, “Creating a strong business and building a better world are not conflicting goals – they are both essential ingredients for long-term success. The formulation and implementation of a strategic CSR program is not to be considered as a mere legal obligation but as an opportunity to make a positive impact on the society towards a more sustainable and inclusive future.
[1] https://www.hindustantimes.com/india-news/unlocking-the-power-of-csr-impactful-initiatives-and-future-outlook-101681226328588.html
