Corporate Social Responsibility and Sustainable Development

Author Name: Gayathrisankaran

The concept of Corporate Social responsibility (CSR) is an old concept, which existed for a
long period .In India, CSR got its legal backing by virtue of Section 135 of companies Act
2013. Section 135 of the companies Act is from financial year 2014

Corporate Social Responsibility And Sustainable Development

The concept of Corporate Social responsibility (CSR) is an old concept, which existed for a long
period .In India, CSR got its legal backing by virtue of Section 135 of companies Act 2013.
Section 135 of the companies Act is from financial year 2014. This article will explore the role
of CSR in attaining sustainable development with reference to section 135 of the Companies Act.
Meaning of Corporate Social Development:

The term corporate social responsibility is very wide and complex and it has different meanings.
Generally, corporate social responsibility means, those activities taken by corporate with aim of
welfare of the society.
According to UNIDO “CSR is a management concept where by companies integrate Social and
environmental concerns in their business operations and interactions with their stakeholder” CSR
is generally understood as being the way through which a company achieves a balance of
economic, environmental and social imperatives.
From the above definitions it is clear that, CSR need to address the well being of all stakeholders
and not just company’s shareholders.

Concept of sustainable development:

Sustainable development was defined by Brundtland Commission as “development that meets
the needs of the present without compromising the ability of future generations to meet their own
needs”
The Supreme Court in Vellore Citizen’s Welfare Forum V Union of India and others held
sustainable development is the balancing concept between ecology and development. In

Indian council enviro. – Legal Action V Union of India , the court held emphasized on
sustainable development and held that development and environment must go hand in hand.
In N.D Jayal and anr V Union of India ,the supreme Court held that, Concept of Sustainable
development is to treated as an integral part of ‘life’ under Article 21.Public trust doctrine and
precautionary principle could be nurtured by ensuring sustainable development

International Perspective of CSR:

Johannesburg Convention 2002

In Johannesburg ,States reaffirmed their commitment to the Rio declaration principles ,the full
implementation of the Agenda 21 and program for the implementation of agenda 21.One of the
key commitment of Johannesburg plan of implementation is to actively promote Corporate
responsibility and accountability through the full development and effective implementation of
inter –governmental agreements and measures, international initiatives and public and private
partnership and appropriate national regulations.
It was emphasized, that both large and small companies, have a duty to contribute to evolution of
equitable and sustainable communities and societies and there is a need for private sector
corporations to enforce corporate accountability
World summit 2005

In this summit the importance of full respect for existing labor, human rights and environmental
commitments was reiterated and encouraged responsible business practices, such as those
promoted by Global Compact. Global Compact, deals with ten principles, which a company need
to follow. Principle 7 to 10, deals about environment measures that need to be undertaken by the
company.
Danish Law

Various countries in the world have started formulating rules and regulations for the
implementation of corporate social responsibility. Denmark has amended Danish financial
Statement act 2008 that requires mandatory reporting of corporate social responsibility in their
companies’ policy.
The report about CSR covers the following Information’s:
• implementation of CSR polices
• result of implementation of CSR policies
• Management’s expectation for future with regard to CSR.
India

CSR in India got the legal backing by virtue of section 135 of companies Act 2013. Section 135
of companies Act 2013 came into force from April 2014.
Applicability of CSR:

The corporate social responsibility provision is applicable to companies with:

• Annual turnover of 1000 Crores or more or
• Net worth of 500 Crores or more or
• Net profit of 5 Crores or more
To spend two percent of their average profits in the previous three years on Corporate social
responsibility activities.
The activities which can be undertaken by a company under CSR activities have been specified
under Schedule VII of the Act .one of the activities specified under schedule VII is environment
sustainability.

CSR Committee will be responsible for preparing a detailed plan on CSR activities, including
expenditure, types of activities to be undertaken, role and responsibilities of various Stakeholder
and monitoring mechanism for such activities.
CSR Reporting in India

The new act requires that the board of the company shall, after taking into account of
recommendation made by CSR committee, approve the CSR policy for company and disclose its
content in their report and also must publish the details on company’s official websites if any. If
company fails to spend the prescribed amount, board in the report should specify the reason for
not spending.

Penal provision for not reporting the reasons:

Section 134(8) of the Act provides for such penal provision stating in case the company does not
disclose the reasons in the Board‘s report, the company shall be punishable with fine minimum
of fifty thousand rupees but which may extend to twenty-five lakhs rupees and every officer of
the company who is in default shall be punishable with imprisonment for a term which may
extend to three years or with minimum fine of fifty thousand rupees but which may extend to
five lakh rupees, or with both. Hence reporting of CSR activities is made mandatory. Companies
act deals with Corporate Social Responsibility of Voluntary spending Mandatory reporting.

Role played by CSR in attaining Sustainable development

CSR plays a vital role in attaining sustainable development .The Company has a social and moral
responsibility towards protecting the environment. Recently this social and moral responsibility
is been backed by rules and regulations. Many companies is focusing on environmental issues
for their CSR activities .Sony, Panasonic and orchard hotels are focusing on issues related to
environment such as toxic gases, waste production and water contamination etc

Merits
• In India, by Virtue of section 135 Companies Act 2013, which is dealing Corporate Social
Responsibility in a structured or in an organized manner
• Section 135 of Companies Act 2013 is enacted to give effect to various commitment
• CSR encourages private participation in development of society
• CSR helps both the company as well as society, it helps the company to build its brand image
and society is also benefited by CSR activity, thereby promoting holistic development.
• Section 135 of Companies Act 2013 encourages voluntary compliance.
• No sanction is imposed for not spending the amount.

Demerits
• There is no sanction for not spending CSR amount .Punishment is imposed only for not
reporting CSR expenditure .Hence law lack its teeth
• The object clause of CSR is not defined properly.
• Maximum limit of CSR expenditure is not been mentioned in the Act
• CSR expenditure is not deductable expenditure under income tax Act
• CSR add additional burden on the companies

Conclusion:
Section 135 of the companies Act, giving legal backing to Corporate Social responsibility is a
welcomed step towards holistic development. Corporate social responsibility play a Important
role in attaining the goal of sustainable development It has its advantages and it also suffers from
certain demerits. If the following suggestions are adopted it will help in better implementation of
Corporate Social responsibility.

Suggestions:
• Maximum limit of CSR funding must be mentioned in Act
• Object of CSR need clarity
• CSR expenditure which are of revenue in nature also must be made deductable expenditure
under Income Tax Act
• Additional deductions must be allowed ,CSR expenditure relates to research relates to mitigate
the environmental pollution
• Out of CSR Spending fund ,a minimum percentage must be spend towards protection of
environment
• Companies who voluntarily undertake CSR activities must be recognized and must be given
some exemptions
• Better monitoring mechanism must be developed to check proper implementation of CSR
activities.
If these suggestions are adopted it will help in better implementation of section 135.As small
drops of water makes huge ocean .Section 135 is small step towards achieving the goal of
sustainable development .if every organization takes a small step, towards protecting the
environment it will help in attaining the goal of sustainable development and makes Mother
Earth a better place of living for future generations.

Reference:
1. NeelaKrishnan, Environmental law in India, 2008Butter worth Publication, 2008
2. HN. Tiwari “Environmental law”. Allahabad law agency, Faridabad1999
3. AK Ghosh, JK Ghosh, Barun Mukhopadhyay, “Sustainable developments a statistical
analysis”, Oxford university press, New York, 2003
4. Ramaiya guide to companies act ,lexisnexis,2014
5. Avatar Singh ,company law eastern book company,2014
6. Pwc,handbook on corporate social responsibility, available at www.pwc.in

[1] Brundtland Commission’s Report 1987

[2] [(1996)5 SCC 650]
[3] AIR 1996 sc 1466
[4] (2004) 9 SCC
[5] Section 135 of companies Act 2013
The author can be reached at: Gayathrisankaran@legalserviceindia.com
 Corporate Social Responsibility and Sustainable Development in India

Abstract

The neo-liberal development model essentially refers to liberalization, privatization and

globalisation of the earth’s resources for the greater benefit of the people. The
emergence of big corporate and their ambition for the optimization of individual profits
has not only divided the world between the rich and poor but have also led to an
imbalance between development and environmental sustainability. Recent studies and
surveys have shown that the earth is gradually becoming a dangerous place to live due
to unsustainable human induced activities. Given that, the governments of many
countries have stood up firmly to ensure that the ongoing developmental practices
remain in optimal harmony with environmental sustainability as well as human security.
Hence, the idea that environmental and social security are not only the responsibility of
government but demands an effective participation from the corporate and business
world. Although, much have been done in the theoretical domain to make Indian
corporate aware of social responsibility and environmental ethic as an important
segment of their business activity but very little has been achieved as yet. The paper is
an attempt to highlight the importance of Corporate Social Responsibility as a tool to
ensure greater participation of business entrepreneurs toward protecting the natural
eco-system and enhancing the quality of life while undertaking a developmental activity.
The study will also elucidate the theoretical and practical contribution of CSR toward
achieving the goal of sustainable development in India. More importantly, the paper
seeks to discuss the behavioural limitations towards evolving a culture of business ethic
and social responsibility in the country. Finally, attempts will be made to develop a
strategy to ensure greater responsibilities and participation from the corporate sector to
ensure greater harmony between economic development, environmental sustainability
and public safety.

1. Introduction.

As a mode of implementing human rights, labour and environmental standards,

Corporate Social Responsibility (CSR) has long been discussed as a possible remedy
to the inequalities created and exacerbated by economic liberalization and globalization.
It considers that a corporation is not just a self-centered profit-making entity but that the
company and its actions are also integral to the economy, society and environment in
which they operate (Herrman, 2004). In contemporary socio-economic scenario the
concept of CSR has become widely integrated with business ethic in all parts of the
world. The need of CSR is even more urgent in developing countries where economic
disparities are more pronounced and both ecology and society are even more
vulnerable to human induced environmental hazards. India is a country of magnificent
contradictions. The country is widely inflicted with baffling economic disparity among
urban, semi-urban and rural populace. Market based economic practice has further
widened the scope of inequalities in the country. The emerging business culture of profit
and competition has more and more marginalized social welfare issues such as, health,
education and social security for the vulnerable section of the society into merely a
peripheral pursuit. Given that, the government of India along with active civil society
participation has tried to create a sense of business ethics and responsibility among the
corporate both by legal and ideological means. There are many instances where
corporate have played a dominant role in addressing issues of education, health,
environment and livelihoods through their corporate social responsibility interventions
across the country. Private business enterprises like, TATA, Birla and Reliance are
practicing the CSR for decades, long before CSR emerged as a norm to develop a
culture of social welfare and environmental sustainability among the leading economic
giants of the country.

1. Meaning and Definition of Corporate Social Responsibility.

CSR and business ethic focuses primarily on capacity building, empowerment of

communities, more inclusive socio-economic growth, environment sustainability,
promotion of environmentally benign and energy efficient technologies, development of
underdeveloped regions, and upliftment of the marginalised and under-privileged
sections of society (REC, 2013). Generally, CSR means that corporation and
businesses in general while working on their main goal of maximizing their
shareholders’ profit should also keep in mind the societal concerns and needs and act
responsibly towards the society in which they operate (Melikyan, 2010). World Business
Council for Sustainable Development has defined CSR as ‘‘the commitment of business
to contribute to sustainable economic development, working with employees, their
families, and the local communities’’. The term corporate social performance was first
coined by Sethi (1975), expanded by Carroll (1979), and then furnished by Wartick and
Cochran (1985). However, the credit to define CSR at the global level goes to Howard
Bowen (1953) who highlighted the status and degree of responsibilities that business
class should accept. Liberal thinker Milton Friedman defined the concept CSR in terms
of owner’s objectives and stakeholder responsiveness which recognizes direct and
indirect stakeholder interests(Urmila, 2012).

1.2. Development of the Concept of Corporate Social Responsibility

The concept of CSR first emerged in the 19th century in Great Britain (Asongu, 2007).
However, it was in the United States(US) which experienced the growing interest in
CSR in the 1960s and 1970s (Vogel, 2005). Being as the chief architect of neo-liberal
economic model, the responsibility to deliver social services such as, pensions and
medical are primarily performed by corporate sector. The scope of CSR was widened in
the 1980s which integrated corporate objectives with the social responsibility of
business thereby making it responsible to care for environment, employees and also
make good profits. The globalisation of economy further highlighted the importance of
corporate responsibilities in other developed countries of the world.
Carroll demonstrated that all these responsibilities have always existed to some extent,
but it was only recently that ethnic and philanthropist dimensions have emerged a very
integral part of business (Sharma and Kiran, 2013). Moreover, the post -2000 period is
observed as increased institutionalization of CSR laws and legislation. Although, social
and environmental responsibilities of corporate world has not yet been codified and
institutionalized with coercive mechanism in international political arena. There are three
important non-binding institutional development regarding CSR. First, is the OECD
Guidelines which were adopted in 1976 and were substantially revised in 2000.The
OECD policy Guidelines aim to “encourage the positive contributions that multinational
enterprises can make to economic, environmental and social progress and to minimise
the difficulties to which their various operations may give rise” (OECD, 2010). Second,
the 180 members ILO declaration established in 1977 and revised in 2006 offers
guidance in the fields of general policies, employment, training, conditions of work and
life as well as industrial relations (ILO,2010). The aim of the ILO Declaration was to
“encourage the positive contribution which multinational enterprises can make to
economic and social progress and to minimize and resolve the difficulties to which their
various operations may give rise” (ILO, 2010). Finally, the UN Global Compact initiative,
launched in 2000, also highlighted the importance of corporate social responsibility
initiative in achieving the MDGs (Corell,2005). More over, the United Nations Millennium
Campaign, started in 2002, aims to ensure wider public and private participation to
achieve the following Millennium Development Goals (MDG). “The Millennium
Development Goals set time bound targets, by which progress in reducing income
poverty, hunger, disease, lack of adequate shelter and exclusion – while promoting
gender equality, health, education and environmental sustainability –can be measured.
They also embody basic human rights –the rights of each person on the planet to
health, education, shelter and security” (REC, 2013). In India, corporate social
responsibility began in the form of charity and traditional philanthropy which was
predominantly influenced by Gandhian Ethical economic model. The Ethical model was
followed by Statist model of Nehru. The Statist economic model emphasised on the
state ownership and legal requirements to decide the corporate responsibilities. After
1970, the Liberal model supported by Milton Friedman focused on adherence to law and
creation of wealth and fulfilling CSR through taxation and private charitable choices.
The post-1990 period experienced more direct engagement of corporate in mainstream
development and concern for disadvantaged groups of society. This was evident from a
sample survey conducted in 1984 reporting that of the amount companies spent on
social development, the largest sum 47 percent was spent through company
programmes, 39 percent was given to outside organizations as aid and 14 percent was
spent through company trusts (Prabhakar and Mishra, 2013). More importantly, the
recently passed Companies Bill 2013 which replaced 1956 Companies Act has made
CSR spending and reporting more stringent. The Bill makes the provision to constitute a
Corporate Social Responsibility Committee of the Board for companies with having a
specific profit layer. The Committee consists of three or more directors, out of which at
least one director shall be an independent director (Ministry of Law and Justice, 2013).
The Board's report under sub-section (3) of section 134 shall disclose the composition
of the Corporate Social Responsibility Committee (Ministry of Law and Justice, 2013).
lauses 134 and 135 of the Act specifies that companies with net worth more than Rs500
crores, or turnover more than Rs 1000 crores, or net profit more than Rs 5 crores are
required to constitute a CSR committee to formulate CSR policy for the company.
Companies are now obligatory to spend a minimum of 2 percent of average net profit
earned during preceding three years before formulation of the policy (Singh and
Agarwal, 2013). Further more, Section VII of the Companies Bill has considerably
widened the ambit of CSR activities which now includes:
Poverty eradication
Promotion of education, gender equality and women empowerment
Reducing child mortality and improving maternal health
Combating AIDS/HIV, malaria and other diseases
Ensuring environmental sustainability
Employment-enhancing vocational skills and social business projects
Relief and funds for socio-economic development such as for welfare of SC/ST, OBCs,
minorities and women.

1.3 Current Trends and Status of Corporate Social Responsibility in India

Recent studies and surveys have shown that India’s CSR performance of public sector
enterprises has ranked some of the best in Asia.For instance, Coal India Ltd. (CIL)
targeted to invest US$ 67.5 million in 2010-11 on social and environmental
causes.Similarly, NALCO has contributed US$ 3.23 million for development work in
Orissa's Koraput district as part of its CSR (Prabhakar and Mishra, 2013). India Inc has
established a global platform to showcase the CSR performance of Indian business
entities.In the same vein, Confederation of Indian Industry (CII) and the TVS
Groupcollaborated to set-up the CII-TVS Centre of Excellence for Responsive
Corporate Citizenship in 2007. It aims to provide consultancy services and technical
assistance on social development and CSR (Prabhakar and Mishra, 2013).Given this,
India has been named among the top ten Asian countries for its emphasis on CSR
disclosure norms. The social enterprise CSR Asia's Asian Sustainability Ranking (ASR),
released in October 2009, ranked the country fourth in the list. Similarly, in September
2010, ‘Sustainability in Asia Reporting Uncovered’ based on four parameters viz.
General, Environment, Social and Governance has positioned India only second in
country ranking in Asia and is ranked as first in general category (Urmila,
2012).However, private business entities have generated a mixed reaction from general
public. There is no denying to the fact that some of the private enterprises has
considerably contributed towards sustainable development and social welfare
programmes such as, increasing green covers, introduction of more sophisticated
technology to reduce Greenhouse Gases emission, increased contribution in health,
education, development of rural infrastructure and enabling the youth to get
employment and thus live a life of dignity and honour. Business firms like, Reliance
Industries, Tata Motors and Tata Steel have achieved admiration fortheir corporate
social responsibility initiatives. Similarly, global business giant IBM has collaborated with
the Tribal Development Department of Gujarat to facilitate development of tribal in the
Sasan area of Gir forest (Prabhakar and Mishra, 2013).However, the race to optimise
profits has equally added to environmental degradation in many parts of the country.
For instance, the Comptroller and Auditor General of India, in its latest report brought
out some serious irregularities on the policy of compensatory afforestation which aims
to handing over forest lands for development and industrial projects in exchange for
forests being grown on alternative lands and collection of net present value of the
diverted land from the industries. The CAG has noted that against the forestlands
handed over to development projects, 1,03,381.91 hactares of non-forestlands were to
be converted to forests. Out of this only 28,086 hectares were received and out of this
compensatory afforestation was carried out over a mere7,280.84 hectares–just 7 per
cent of the land that ought to have been received. The report reveals that some of the
leading corporate entities of the country were provided large financial and legal gains
while distributing government forest lands in violation of Supreme Courts’ order and
forest laws (Sethi, 2013). It is therefore important strengthen law enforcement and
monitoring mechanism to control such anomalies in environmental and social
responsibility of the corporate.

1.4 Strategy to Ensure More Effective Corporate Participation

According to Herrmann (2010) an effective CSR regime needs to focus of four important
issues: setting standards; monitoring compliance with standards and exposing abuses;
creating binding legal obligations; and enforcing those binding laws. However, in an ear
of ever increasing appetite for more and more luxurious life style it is becoming a
daunting task to follow Herrmann’s notion of effective CSR performance. Corporate
operating in a market based economy believes in the quality and price of a product in
order to attract maximum numbers of consumers. The national governments in both
developed and developing countries are under tremendous pressure from corporate
giants to minimize restrictions on their economic pursuits. In fact, powerful global
business entities influence government policy making in a great extent. The current
debate on climate change issue between developed and developing countries and the
west’s reluctance to enter into a legally binding green house gasses mitigation
agreement shows the absence of CSR and business ethic remains a low key issue for
the global corporate. So, stringent enforcement of CSR laws and legislation has a very
limited possibility to bring desired results.
There is a need to sensitize corporate and business classes toward evolving a culture of
sustainable development and empathy towards nature and environmental vulnerable
section of the society. The ideological apparatus remains a positive and constructive str
ategy to ensure greater compliance from corporate towards achieving the goal of
sustainable development and a more humanistic version of economic development.
Non-governmental organization, civil society and media have to play a pivotal role in
this regard. Gandhian ethical model could serve as a remedy to harmonize the conflict
between economic development, environmental security and social welfare. It is
worthwhile to quote what Mahatma Gandhi said in Harijan in 1942, “the rich should
ponder well as to what is their duty today..... But understand that your wealth is not
yours; it belongs to the people. Take what you require for your legitimate needs, and
use the remainder for society”. In fact, the entire structure of society is interconnected
and interdependent. Corporate needs people, raw material and a peaceful and enabled
environment to sell procured goods which are available only in a society. Recent
surveys have also shown that consumers have preferred to buy the products of those
business entities which are more sensitive towards CSR. It is therefore for the best of
corporate interest to harmonize personal interest with larger public interest for the
greater welfare of society as well as corporate.
2.Conclusions

Although, there are sufficient laws which focus on CSR towards ensuring a more
balanced, harmonious and welfare oriented developmental approach. Though, there
has been limited success in achieving the goals of CSR. Given the uncertain economic
scenario coupled with widespread poverty and unemployment, it becomes very difficult
on the part of government to take stringent action against national and multinational
business firms to ensure greater compliance to CSR laws and legislations.
Comparatively, lower environmental and labour standards of foreign direct investment
targets are appealing to trans-national corporate because such lenience boosts
production efficiency and increases competitiveness in the short term, resulting into
increased profits and productivity (Herrmann, 2004). This is one of the leading causes
for apathy to strongly enforced laws related to CSR in India. It is equally true that the
relationships between various stakeholders in business are becoming more transparent,
interdependent, responsible and harmonious. Country’s public sector enterprises have
one of the best CSR ranking in the world and some of the private sector firms have
equally earned praise for their efforts in the domain of education, health and welfare
oriented schemes. Big welfare schemes like national Food security Act need active
financial supports from corporate to make such schemes a success. Non-governmental
organisations, civil society and media have further enhanced the scope for greater
cooperation and harmony between corporate and the society in which they operate.
Finally, we have a welfare oriented democracy in which our political classes should be
sensitive towards the welfare of the common masses.

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