Monday, May 29, 2023

Bookmarked: Decoding CSR’s Impact On India’s Business Landscape

Bookmarked: Decoding CSR’s Impact On India’s Business Landscape

In her latest book, Meena Raghunathan, a CSR practitioner for 15 years, helps readers understand the different facets of the model

Corporate social responsibility or CSR has emerged as a catchword in the business sphere in recent times. From being a voluntary act for companies to the Centre bringing in a law to ensure its compliance, the model has come a long way. Talking about how CSR has evolved in India over time is author Meena Raghunathan in her latest book Doing Good: Navigating the CSR Maze in India. Raghunathan, who has spent decades in work related to critical social needs like skilling, environment and education and has been a CSR practitioner for 15 years, helps readers understand the different facets of CSR.

Here is an excerpt from the book:

A Vexed Question: Does CSR Really Help Business?

The answer to this question, as also to many other questions in this book, is not straightforward. If one interprets ‘help’ as strengthening the bottom line, research has yet to return an unqualified ‘YES’ as the answer. Many studies have indeed proved a positive link between CSR and corporate financial performance (CFP), but a few have thrown up inconclusive results. There are even a few that indicate a negative correlation! It is difficult to conclusively prove a direct correlation and causality between increased CSR and improved financial performance, especially in the short run.

But that is just the point! CSR is not meant to be about the bottom line of profit. It is meant to be about the Triple Bottom Line of profit, people, and the planet, and about better governance through integrating concerns of all stakeholders into business decision-making. In other words, CSR can lead to a more sustainable business, and hence ‘help’ the business, but not necessarily in a way that will be reflected in quarterly results and market values of the corporate stocks in the short run. 

Here is a look at some of the indirect ways that CSR has been shown to help businesses.

Social Licence: Fundamental To Operations

A business or project may be said to have a social licence when it has the ongoing approval of the local community and other stakeholders to carry on its business. A stakeholder may be defined as an individual, group, or institution with an interest in a business, and who are either affected by it or can affect it. Primary stakeholders are those who have a direct relationship with the business and include investors, staff, customers, communities and suppliers. Secondary stakeholders are those not directly connected with the business—such as competitors, media, advocacy groups, and government organizations at local, state, or national levels— but can have some level of influence over its workings.

Social licence (ongoing approval for the business to operate) stems from the opinions and perceptions of both groups of stakeholders. For instance, even after formal clearances, if a community feels that a project is causing them harm—maybe through pollution, or withdrawal of too much groundwater, or not contributing to the local economy by providing jobs to local youth—it witholds approval through various means (noncooperation, litigations, strikes, obstructions to operations, etc.), thus not giving the project social licence. It can then become difficult for the project to continue or a business to operate.

Thus it becomes important for businesses to work with communities with a win-win vision, integrating their concerns into business decision making—in other words, operationalizing stakeholder focus of the business in the true sense. This may result in modifying business decisions, such as making a commitment to employ a certain percentage of local youth in the business, or committing to less water-intensive manufacturing processes so as not to deplete the water tables, and so on. Needless to say, CSR has a role in this too, through fostering such relationships and supplementing the business action with CSR programmes. For instance, if the business commits to employing local youth, the CSR programme can help to skill them. Or if the business is integrating water conservation in the manufacturing plant, the CSR programme can take up watershed programmes in the neighbouring areas. 

Enhancing Brand Image 

A company known to be socially responsible naturally commands the trust and respect of all stakeholders and the public at large. This gives the company a good standing and can affect a number of factors positively—from perception of the bureaucracy about the business to its standing in the stock market. Such a brand image is built over time and through a series of experiences that the stakeholders have with the company. In India for instance, some groups like the Tatas and TVS command an image that compels trust. 

Increasing Customer Loyalty

Customers, especially younger ones, are increasingly concerned about the way products and services they consume are produced. So if a company is known to be more environmentally
responsible, it is likely to attract and retain customers. Similarly, if there are suspicions that a company even remotely or indirectly employs child labour, there may be a very adverse reaction among a large section of its clientele.

Enhancing Employee Morale 

Employees are attracted to join socially responsible companies; they also gain social respect by working in such companies. For employees already working in such a company, opportunities to engage with communities through CSR and employee engagement programmes are not only a matter of pride but also of motivation. Such projects can help to reinforce the larger purpose and context of the business, and also give scope for employees to develop a different set of networks and competencies. Putting employees into situations where they have to engage with social and environmental challenges can also promote innovation, which may have positive business impacts. Hence CSR initiatives can have positive impacts on HR management and implications for attracting and retaining talent.

Gaining Access to Capital 

Banks and financial institutions are deeply concerned about the governance practices of a company as well as the risk. Thus CSR programmes, especially those which are well integrated with the business, are a demonstration that these factors are being given their due importance. Sometimes financial institutions, e.g, IFC, have laid-down standards with regard to social and environmental concerns, and appreciate the proactive steps taken by corporates in demonstrating responsibility in this direction. Today, ESG ratings are gaining importance too. Hence, well-designed and effectively implemented CSR can help a corporate in accessing capital.

Helping in Cost Savings and Business Expansion 

If CSR is viewed not merely as a spend on community programmes, but as a way of thinking about how business is conducted, then the cost-savings angle comes out clearly. For instance, take the simple example of a manufacturing unit. If it decides to reduce its environmental footprint, it will take all measures to reduce its energy consumption, water use, paper use, waste, etc. All these obviously lead to better housekeeping and cost savings. The same can be extended to facilities like airports or service units like hotels, etc. For instance, the move to give hotel guests the option of not having their towels changed every day is not only environmentally friendly, but a huge cost saving for the business too! In fact Porter and Kramer (2006) feel that many corporates are missing out on the opportunities that CSR can offer for business, by not understanding its potential. They say: If corporations were to analyze their opportunities for social responsibility using the same frameworks that guide their core business choices, they would discover … that CSR can be much more than a cost, a constraint, or a charitable deed—it can be a potent source of innovation and competitive advantage (ibid.).

Promoting Long-term Thinking 

Strategic CSR, which is basically about taking into account the interests of all stakeholders, shifts the focus within a business towards long-term thinking. For instance, if a company is interested only in quarterly profits, the decisions it takes would be different from what they would be if it were concerned about sustainability and long-term health. For instance, a company may decide to switch to solar power in the interests of longterm sustainability—both environmental and financial—even if it costs more in money terms in the present. 

So, apart from benefit to communities, CSR has very real benefits for the corporate itself. The moral imperative is probably that CSR is not done for these reasons, but that these be viewed as collateral benefits resulting from a mindset which wants a win-win for the corporate, the community, and the environment. 

(Excerpted from Doing Good: Navigating the CSR Maze in India by Meena Raghunathan, published by Harper Business, August 2022)

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Build: An Unorthodox Guide to Making Things Worth Making - June 2022 
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