LAW MANTRA

THINK BEYOND OTHERS

(National Monthly Journal, I.S.S.N 23216417)

Emerging Trends of Corporate Social responsibility in 21st Century

They alone live who live for others, the rest are more dead than alive

-Swami Vivekananda This quote aptly highlights the basis of Corporate Social Responsibility, responsibility towards our society, our country, our environment. The 'Development Versus Environment' controversy has caught the popular imagination because nobody can remain completely untouched by either the economic development or its environmental implications A large section of the society who are involved mining and infrastructure projects, argue that deforestation and large scale human displacement are collateral damages that one has to pay for development. Rapid industrial development, expansion of civilizations by eradicating more and more natural life and the basic callousness towards natural resources, have led the world to the current situations, striking at the very heart of humanity. But corporates need to play their part in the protection of the environment and their activities should be so aligned that it does not in any way compromise with the environment. In this paper we analyze the fundamental changes in paradigm of CSR through the way of triple bottom line and the new innovative practices being applied for its implementation. A firm privately decides whether to invest in CSR and then to publicly communicate about it, with the opportunity to green-wash by doing the later and not the former. Communication about CSR is not credible and leads to green- babbling, hence truly responsible firms may fail to collect the benefits of CSR. This paper is an attempt to find a solution to all these unsettled issues involved in this raging controversy.

Introduction-

The environmental challenges the world faces today have the potential to significantly alter how society functions and require a coordinated global effort. Climate change alone, even under best- case scenarios, could cause geo-political instability, mass migration, destabilization of global food and energy markets and the depletion of natural resources, particularly water. 1 By a glance at history, we see that environmental responsibility has stretched to involve more than just sustainable compliance with all applicable laws and governmental regulations. Presently, a lot of corporations explain environmental responsibility as a process of involvement and dialog with their community and non- governmental organizations. It can be seen that with increasing aid for environmental initiatives from the government and societal groups, companies in the 21st century have started use of eco friendly mode of production. This includes business process focused on environmental preservation, along with renewal and re-use of material. Initially, companies that were on the cutting edge of environmental responsibility were able to get leverage in marketing. However, as more companies accepted in to the importance and expectations of sustainability, CSR- complaint companies are more involved to avoid the negative reaction that comes from polluting or damaging the environment. Companies must keep in mind the impact of their operations on the environment, i.e. companies process and functions, initiatives for maximizing the efficiency and productivity of all assets and resources, products and services should be in compliance with environment law regime. 2Due importance should be given to minimizing practices of negative effect on the natural resources and thereby focus on sustainable development concept.3

Development V. Environment: The Global DebateOne of the biggest challenges facing governments as the new century unfolds is how to balance environmental protection with the demands of powerful multinational corporations -Danielle Knight

Cisco Systems Inc., Corporate Social Responsibility Report, 2009, <http://www.cisco.com/web/about/ac227/csr2009/pdfs/CSR_09.pdf>

2

Michael G. Faure and A.V. Raja, effectiveness of Environmental Public Interest Litigation in India: Determining the Key Variables, 21 Fordham Environmental Law Review 239 (2010)
3

Ved P. Nanda and William R. Ris Jr., Public Trust Doctrine: A Viable approach to International Environmental Protection, 5 Ecology Law Quest 291 (1975-1976)

The corporate, who are involved in mining and infrastructure project, argue that deforestation and large scale human displacement are collateral damages that one has to pay in the course of development. The Vedanata Aluminia Refinery at Lanjigarh has sought to acquire 1070 Hectares of land, of which about 700 Hectares is owned by poor farmers. Same is the case with Singur where Bengal Government approved 997 Acres of farmland to Tata Nano to build its factory. On the other side of the picture are the green activists who believe that there needs to be a fine balance between the two. Development and environment should not be seen as mutually exclusive, opposed terms but rather as complimentary to each other. Development can take place only if the planet survives.4 Therefore, environment is a pressing issue and every individual. Organization has an obligation to prevent the environment from getting further damaged. The authors are of the view that today it is the age of integration, and sustainable management should be the new mantra for new companies.

Understanding Corporate Social ResponsibilityCSR as a concept was first defined by William J. Bowen in 1953 as: Corporate Social Responsibility is the continuing commitment by businesses to contribute to economic development while including the quality of life of the workforce and their families as well as of the community and society at large Today there is an urgent need for conservation of environment because of the ruthless exploitation of resources by big corporate giants which has led to irreparable damage being done to the environment. CSR as a philosophy is based in the premise that everyone who derives benefits from the society must give something back. This stands true for corporates as well. Corporates thrive on the societys needs and appetite for new things. Their profits are, from earnings of you and me who buy their products. Thus needless to say, when these vary same corporate exploits the resources and take so much from the environment, it becomes their primary duty to replenish the same.5

S.K. Agarwal, Corporate Social Responsibility in India (New Delhi: SAGE Publications Ltd., 1st Ed. 2008) S. Arjoon, Corporate Governance: An Ethical Perspective, 4 Journal of Business Ethics 61 (November, 2005)

The Companies today realizing this, have come a step forward and have tried to integrate social, environmental and economic concerns into their strategy, operations and decisions making process so as to able to cater to the needs of the all people, environment and world as a whole. They realize that if their current scale of activities continues, then perhaps within the next few years, all the natural resources that had taken millennia to develop will get exhausted. In such a scenario not only will they be harming their own future prospects and existence but also the existence of their very consumers, society and a planet as a whole. In this direction, there have been ways international environmental treaties like Copenhagen Summit, UN Convention on Biological Diversity, the Kyoto Protocol on Climate Change, the Basel Convention etc. that have stressed on the harmony between the development and the environment. With this backdrop, CSR as a concept evolved when some of the top notch companies relies the latent need of protecting the environment without compromising on their future targets.6

Triple Bottom Line and CSR: A Need for Dynamic EnvironmentThe notion of Triple Bottom Line is gaining significance the corporate houses within the broader concept of CSR. Triple Bottom Line is a kind of management tool which takes into account social and environmental responsibilities and with financial responsibility. 7 The underlying thought behind the TBL concept is that a corporations status or success should be measured not only by financial bottom line, but also by the social and environmental activities/ performance. It is relevant to note that the responsibility of the company is not only to make profit but also to protect the environment and the societal interest. Now, the debatable question is that how the firm renders its positive impact on individual or society at large. The adoption of TBL in the business strategy gives a positive signal in the market that the corporation has done an impressive work of maintaining environment and public interest; It adds importance to transparency and accountability of the corporation. It can be said that TBL provides a framework within which a corporate performance and social responsibilities are measured an evaluated.8 CSR has expenses. Giving back to communities and operating with environmental
6

C.V. Prasad, Ed., Corporate Social Responsibility- Concepts and Cases: The Indian Experience (New Delhi; Excel Books 2009)
7

W.N. MacDonald, Getting to the Bottom of Triple Bottom Line, Business Ethics Quarterly, (April, 2004), 14 (2), 245-247
8

S.K. Agarwal, Corporate Social Responsibility in India (New Delhi: SAGE Publications Ltd., 1st Ed. 2008)

responsibilities have associated cost. David Vogel argues in his 2008 Forbes Article CSR doesnt pay that there is no proof of tangible business gains from CSR compliance.9 He does agree with the general perception, though that these expenses of CSR are investments that appear to produce indirect returns through better customer relationships overtime. As importantly, he concurs that companies that are not socially and environmentally responsible going forward, face significance public backlash.10

BENEFITS OF CSRAdopting green strategies not only helps the cause of environment but also helps the companies create value for themselves in the mind of consumers. Following are some of the ways in which the organization benefits by adopting sustainable practices: A-Entry into new markets: When companies engage in environment friendly practices in developing or under developing countries and developed countries, it gives them access to the new markets in these areas which they might have overlooked in the past. Although these markets are much smaller than those in developed countries but nevertheless they provide a brand new consumer way to the company from which they can profit. B-Better access to capital: CSR acts as a significant tool for companies to attract investors and financiers. An increasing no. of financiers nowadays looks through the CSR aspect of a company in their selection procedure and screen out companies who are not environmentally conscious. Creation of funds such as socially responsible investment funds are all efforts in this direction. C-Improved reputation and branding: One of the greatest benefits that CSR renders is the effect it has on the reputation and brand equity of the company. Companies realize that adopting green practices will help them directly appeal to the mindsets of their customers as consumers today are becoming more and more

David Vogel, CSR Doesnt Pay, (October 16, 2010),< http://www.forbes.com/2008/10/16/csr-doesnt-paylead-corprespons08-cx_dv_1016vogel.html>

10

Neil Kokemuller, How is Corporate Social Responsibility Beneficial to Companies?, http://www.ehow.com/info_8390901_corporate-social-responsibilit-beneficial-companies.html

environmentally conscious. They thus value companies which incorporate green concerns in their working and functioning.11 D-Asset retention: The most important asset of any organizations is its employees research12 has shown that company working towards CSR manage to attract and retain a strong and committed workforce which is highly dedicated and devoted towards the organization. E-Competitive Advantage: The most important advantage that a company can have by going green is of getting a first movers advantage. This is because companies are aware that the law will ultimately compel them to adopt environmental friendly technologies. So, if they are the first one to initiate such programs, it gives them edge over their competitors. So if they are the first one to employ such innovative, green technologies it makes them market leaders and gives them significant cost advantage.13 WHY CSR? RATIONALE FOR CORPORATIONS TO GET INVOLVED AND ITS CONSEQUENTIAL BENEFITSToday, more and more companies are realizing that in order to stay productive. Competitive and relevant in a rapidly changing business world, they have to become socially responsible. Since the last decade, globalization has blurred national borders; technology has accelerated time and masked distance. Given this sea change in the corporate environment, companies want to increase their ability to manage their profits and risks, and to protect the reputation of their brands. Because of globalization there is also fierce competition for skilled employees, investors, and consumer loyalty. How a company relates with its workers, its host communities, its host communities, and the market place can greatly contribute to their sustainability of its business success.14Companies nowadays are using a more client approach in their CSR efforts. Significant research and preparation goes into planning CSR planning,
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Research on the 50 Best Employers In Canada Survey, conducted by Hewitt Associates, Canada (Hr Outsourcing and consulting Firm) in conjunction with the Gole and Mails Report on Business in 2009.
13

Michael E. Porter and Mark R. Kramer, Strategy and Society: the Link between Competitive Advantage and Corporate Social Responsibility (December, 2006) Harvard Business Review, <http:// hbr.org/2006/12/strategyand-society-the-link-between-competitive-advantageand-corporate-social-responsibility/ar/1>
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Consortium Catalyst, What is CSR,< http://www.rhcatalyst.org/site/DocServer/CSRQ_A.pdf?docID=103>

determining where a company can make the most effective impact. A win-win situation has been created by CSR between the corporate sector and society. The companies get free of charge publicity for their efforts. Research has proven that there is a cost reduction in their operations of companies especially engaged in environment friendly initiatives. Ex- CISCO.15 The Emergence of Corporate Green Washing: The New Deception Practiced On ConsumersIn recent times, a new phenomenon of Corporate green washing is fats gaining popularity wherein corporates are fooling the consumers in the name of green practices employed by them, when actually they practice none. The term corporate green washing find its origins in the amalgamation of two terms, corporate and brainwashing. It refers to the practice of corporate deceiving the consumers by employing such marketing or PR policies that promote the perception that they are environment friendly. There have been several instances worldwide of corporate making false claims about green practices that they never actually adopt in order to garner maximum popular support for their products and thus maximize their profits. For instance, several complaints were filed against leading car manufactures like Suzuki and Toyota in the UK for making false claims about their vehicles. Similarly in 2010 Amazon watch declared the campaign by Chevron as a hoax to mislead the customers.16 The clear Skies Initiatives undertook by the Bush Government was found to actually pollute the environment more than protecting it.17 Successful Strategies of Implementing CSRHere are some of the important mechanisms that many of the most successful industries follow today in their pursuance to adhere to the environmental norms: A-Green Management This concept is practiced by the organizations that apply green concepts to the project management disciplines i.e. working to get their products, manufacturing process, facilities green and convert sustainable business practices into a competitive advantage over their
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N. Sinha, Indian Corporates Ethics. Governance And Social Responsibility (Hyderabad: ICFAI University Press, 2007) 16 Massive Chevron Ad Campaign Derailed. Media Slapstick follows, Urbana Campaign Independent Media Center (Urbana Campaign Independent Media Center, October 19, 2010) <http:// www.ucmic.org/content/ massive-chevron-a- campaign-derailed-media-slapstick-follows>
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US Senator Patrick Leahy, The Green Washing of the Bush Anti- environmental Record on the Presidents Earth Day Visits to Maine and Florida (April 26, 2004) <http://web.archive.org/web/20100203121457/http://leahy.senate.gove/press/200404/042604a.html

competitors. This includes developing environment-friendly products, reducing the environmental impact on production sites, designing green products and promoting product recycling. According to AEBN Inc. 18, by adopting green management program and providing environmentally and socially responsible product or services, businesses can benefit in the following ways: 1- Resource efficiency and Cost Reduction: By conserving resources a company can reduce costs in the following ways: i. Reducing energy use- improvements in energy and manufacturing efficiency go straight to the bottom-line because there are no direct costs factors. ii. Reducing emissions discharges and waste- many manufacturing companies benefit through return on assets sales and equity by reducing emissions. iii. Recycling or reusing waste- closing the loops in terms of resource use (transforming waste into raw materials) saves waste bills as well as the purchase of new raw materials. 2- Raising competitiveness through innovation19: With globalization, the business houses have to compete with low cost inputs made from many parts of the world. Innovative design and technology are critical to avoid the competition with low labor cost for mass production around the world. The companies need to innovate rapidly and regularly. There needs to be: i. ii. iii. Eco- efficiency Eco-design Design for Environmental Sustainability

3- Gaining Market Share20:

18

Green Office Guide, Understanding the Issues and Business Case for the transformation of your office (New Zealand: Auckland Environmental Business Network Inc., 1st Ed. , 2002), 27 www.greenoffice.org.nz/docs/greenmanagement.doc
19

Massive Chevron Ad Campaign Derailed. Media Slapstick follows, Urbana Campaign Independent Media Center (Urbana Campaign Independent Media Center, October 19, 2010) <http:// www.ucmic.org/content/ massive-chevron-a- campaign-derailed-media-slapstick-follows>
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By maximizing the environmental attributes of products (e.g. energy efficient, fuel efficient, organically produced, etc.) companies can benefit from increased sales in a market that is looking for additional benefits from their purchases.

4- Staying ahead of legislation and adding value to national and local policy:21 Today the governments are committed to the green cause and therefore they are coming up with new and innovative green legislations. The successful companies today are not just complying with environmental, health and safety legislations in the respective countries which helps them in protecting their brand name from bad publicity but are also taking up proactive steps which help them stay ahead from environmental regulations and also in creating a better brand confidence in the market.22 B- Green Manufacturing It is a corporate strategy whereby the manufacturing of the product involves minimization of wastes and pollution. This reduces energy usage and cuts across every aspect of manufacturing including product development, process technologies, etc.23

Suggestions and RecommendationsA-Legal Mandate: Mr. Murli Deora, the Former Minister of Corporate Affairs, Government of India has aptly remarked that: Only a legal provision can make the companies comply with their social responsibility As per the existing law, only the public sector enterprises are under a government mandate to act in a socially responsible manner by way of spending 2% of their profits on CSR activities. 24
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N. Sinha, Indian Corporates Ethics. Governance And Social Responsibility (Hyderabad: ICFAI University Press, 2007)
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Guidelines on Corporate Social Responsibility for Central Public Sector Enterprises 2010, Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises. <http://dpe.nic.in/sites/default/files/glch1224.pdf>

However this approach needs to be relooked and the law should be modified so as to impose an obligation on the private sector as well to adopt sustainable practices. The government cannot have a discriminatory approach by excluding the private companies from the purview of compulsory adhere3nce to CSR. B-Establishment of National Regulatory Bodies: At present, there are no national bodies to assess and monitor the CSR performance of the companies. There needs to be a national regulatory body to continuously and frequently monitor the CSR initiatives of the company and check whether they are actually adhering to the policies that they have adopted on paper. This is because the companies avail a lot of benefits while branding themselves as a socially responsible company in the form of tax exemption, access to resources, increased consumer loyalty, etc. So it becomes necessary to regularly keep a check on these companies and see that they are actually practicing what they preach and thus truly deserving of all the benefits that they are getting. C-Establishment of Green Departments: There is a need to have separate green departments within an organization to look into the implementation and operation of CSR practices. These departments will comprise of experts having all the technical, scientific and legal knowledge to aid the organization in implementing environment friendly practices in their working. They will also serve as a think-tank to guide the organization at all levels of their operations by advising them on how to convert each and every of their projects into sustainable ones which do not cause any damage to the environment. D-Increasing transparency and accountability: There is need to impose an obligation on the companies to increase transparencies in their processes an disclose more information to the public. This is because most of the times companies merely boast but rarely implement their promises at the ground level. Thus there needs to be an obligation on the companies to divulge all information related to their activities in a public forum to prevent the consumers from being mislead. E-Making the product manufacturing process eco-friendly at all levels: There is an urgent need to ensure that all the steps involved in the product manufacturing processes right from the ground level to the very end are in compliance with environmental norms. This is because most of the so called green- products that are floated by the

companies in the market nowadays might appear to be green but are in fact merely the end products which are green but the entire manufacturing process of the product including its development, assemble and manufacturing process, product design, product life cycle, management are not necessarily environment friendly. Therefore companies should ensure that the product at all stages from its inception till its very end does not damage the environment in any manner. F-Introducing Green Credits: The government should introduce a system of green credits to reward the companies who adopt environment friendly practices. This will serve as an incentive to attract corporates to take up green initiatives on a more voluntary, proactive basis instead of being compelled to do so under pressure from governmental norms or in order to achieve increased customer loyalty. Green credits will serve as a parallel remuneration for these organizations by having a cash or tax reduction value. G-Investment in research and development: There is a need for companies to invest more in this field so that they can come out with better and more innovative products which aid in the organizations goal of ensuring sustainability in all their products and practices. It has to be kept in mind that the companies responsibility doesnt end with taking up or coming up with certain green practices but rather it is their duty to constantly put in efforts to improvise, develop and innovate so that they can come up with further advanced, superior models of sustainability. CONCLUSIONThe principles of CSR embodied in almost all international legal instruments and organizations (like the UN, ILO and OECD conventions), and now it has also a place in the new Companies Act 2013. The Companies Act, 1956 did not find a mention about CSR this is indicative enough of the ignorant and lax attitude of our legal system towards CSR. But the reformative measures in the new Companies Act suffer from certain discrepancies which need to be resolved in order to make it completely effective. Most importantly the new act fails to impose any mandate upon companies to adhere CSR policies, which is the most significant need of the day. Although companies continue to oppose such a proposition saying that any such mandate defeats the very purpose of CSR by imposing it as a burden on them, rather than allowing them to act out of their own free will and

sense of responsibility but the authors feel that in a country like India which has seen the accidents of the highest order being inflicted upon the environment ranging from the Bhopal Gas Tragedy to the most recent Vedanta controversy the objects of CSR cannot be realized without the imposition of such a mandate. It goes without saying that it is upon the corporate themselves to realize that they cannot ever possibly exist without taking into account the concerns of all the other stake holders namely the customers, society and the environment. Only by incorporating sustainability into its practices can it truly fulfill its role as a responsible, conscientious entity of the society. The adoption of TBL in the business strategy gives a positive signal in the market that the corporation has done an impressive work or maintaining environment and public interest. As rightly put forward by Shri Lal Bahadur Shastri: Too often the community views the businessmens aims as selfish gain rather than advancement of the general welfare. This impression can be removed only if business is fully alive to its social responsibilities and helps our society to function in harmony as one organic whole.

By:- By Priyam Ratnamand and Aditi Nidhi, 4th Year, B.A LL.B(Hons.), Dr.R.M National Law University, Lucknow, Uttar Pradesh