Understanding CSR and identifying areas for spending your company’s CSR funds.

M N H & Co

January 9, 2023

Blog

There is much more to running a business than just creating financial profit. It is also your responsibility to be responsible to society and the environment. This responsibility of a corporate firm is what is popularly known as Corporate Social Responsibility (CSR). CSR is all about an organization’s initiatives to give back to society. In this article, we will help you break down the term Corporate Social Responsibility (CSR) and the importance of responsible business practices. This will help you decide where to spend your CSR fund most effectively.

What is Corporate Social Responsibility?

CSR, also known as corporate conscience, helps to demonstrate a company’s morals, principles and responsibilities towards society and the environment. It comes from the popular idea that businesses are not isolated entities that do not affect the external world. Instead, the actions of a company can have far-reaching and real effects on stakeholders, consumers, communities and the environment.

The term “Corporate Social Responsibility” was used regularly in the late 60s and 70s. However, it has become a hot topic lately since governments have become more serious about businesses’ role towards the environment and society.

In 1991, “The Pyramid of Corporate Social Responsibility”, created by Archie Carrol, suggested that CSR can be divided into four categories of responsibilities: ethical, philanthropic, economic and legal. The model suggests that companies should find a balance between all the above four categories to succeed in the world of CSR.

The primary purpose of CSR

CSR is a self-regulating service model that companies develop to impact society and the environment positively. Today, consumers no longer assess organizations only on metrics like financial performance. They judge companies by how they impact society at large. If, as a company, you’re genuinely seeking to impact the world and solve problems innovatively, consumers will see that value in it.

Adhering to CSR can help your businesses gain the trust of your consumers and stakeholders and develop a positive image of your brand, ultimately leading to more revenues.

Three Core Principles of CSR

If you recognize that running a business comes with responsibility, the next step is integrating CSR principles throughout business practices. This ensures your company positively impacts those involved and doesn’t negatively contribute to the world’s issues.

The three core principles of CSR are:

Sustainability

It is imperative that businesses adopt sustainable business practices as a core approach towards CSR. The CDP Carbon Majors Report 2017 found that just 100 companies globally create over 70% of greenhouse gas emissions, demonstrating how instrumental businesses can be in the fight against climate change!

Accountability

A business that holds itself accountable must acknowledge how its actions might affect its employees, customers, society or the environment, assume responsibility for any effects and explain in detail how its actions may affect different factors.

Transparency

It includes transparency about company values, beliefs and principles, making it easier for consumers and stakeholders to trust and support a business and make more informed decisions.

Activities where CSR money can be spent

The nature of Corporate Social Responsibility (CSR) was turned from voluntary to mandatory under the Companies Act 2013. Since then, the government has actively started taking note of corporations’ actual spending on CSR activities.

As per the CSR Rules, companies with revenue of rupees thousand crores or a net profit of rupees five crores or a net worth of rupees five hundred crores should spend 2% of their average profit in the past years on social development-related activities.

The companies must focus on specific activities towards social upliftment and community welfare programmes aligned with the United Nations’ Sustainable Development Goals (UNSDG).

Schedule VII of section 135 lists various areas in which a corporate entity can spend its fund for CSR, which are given below:

Eradicating extreme hunger, poverty and malnutrition

It may include:

Directly donating to charitable institutions that provide free food to the poor.
Promoting sanitation and health care in rural areas
Development and promotion of traditional art and handicrafts;
Enabling alternative livelihood options in rural areas.

Promotion of education

It may include:

Donations to educational institutions;
Supporting various organizations in providing quality education
Scholarship for higher education
Infrastructure support for schools

Promoting gender equality and empowering women

It may include:

Spending on health, education and assisting women in getting employment
Supporting to form women’s thrift groups
Financial assistance to women entrepreneurs
Supporting self-help groups for women

Reducing child mortality and improving maternal health

It may include:

Enhancing the service quality in public health facilities
Promoting health care and sanitation facilities in rural areas
Strengthening the healthcare system in underdeveloped areas
Help spread awareness related to proper care during pregnancy

Disease Treatment

It includes:

Combating acquired immune deficiency syndrome, malaria and other diseases
Spending on HIV and treatment of other diseases
Providing health and medical facilities for these patients
Donations to institutions working for the prevention of fatal diseases

Ensuring environmental sustainability

It may include:

Help in the plantation of trees
Enhancing the green coverage
Improving soil health
Saving the rivers and water bodies

Employment enhancing vocational skills

It may include:

Spending on institutions working on enhancing vocational employment skills;
Enhancing leadership skills
Vocational skill programs for unprivileged
Holding camps in remote areas to impart employable skills

Social business projects

It may include:

Making nursing homes, daycare centres and other facilities for senior citizens
Measures for reducing inequalities against socio-economical backward groups;
Protection of national heritage sites, art and culture
Rural development projects, slum area development.

Contribution to the Govt. Funds

It may include:

Aiding to Prime Minister’s National Relief Fund
Assisting the funds set up by the government for socioeconomic causes and relief
Funds for the welfare of the Scheduled Castes, the Scheduled Tribes
Funds for other backward classes and minorities

Conclusion

While CSR is a big leap by companies desiring to make a powerful change to society and the environment, it also means an enhanced overall reputation. CSR goes a long way in creating positive word of mouth around the organization as a whole.

Two per cent might sound like a minuscule amount, but large businesses generate profit in crores. It’s an enormous contribution and brings about a significant change towards the welfare of society and the country’s development.

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