On August 25 2016, Devendra Fadnavis, Chief Minister of the Maharashtra state in India, announced that his government will be partnering with the corporate world to transform 1,000 poverty-stricken villages.
The details of the initiative were formally discussed during a high-level meeting in Mumbai, which gathered dozens of top industrialists, NGOs, government officials, and even celebrities. Among the more notable participants were Ratan Tata, head of one of India’s largest multinational holding companies, Ronnie Screwvala, Indian philanthropist and entrepreneur, and beloved Bollywood star Amitabh Bachchan.
The conference was purposefully designed to blur the public and private divide in an effort to address holistically some of the major issues affecting rural Indian populations. Drought, poverty, and limited access to health and education were among the key concerns that initially sparked the project. The initiative will thus enable the Maharashtra state government to partner with Indian corporations to support social and environmental development projects in impoverished villages.
Surprisingly, this type of socially-responsible project is anything but innovative, in fact, it’s become mandatory in India.
In April 2014, India became the first country to incorporate CSR (Corporate Social Responsibility) into national law. The new legislation effectively required companies operating in India to disburse 2% of their net profit to CSR initiatives. Policymakers claimed the law would significantly bolster funds for social and environmental projects, accelerating the development of deprived urban and rural areas. Since then, numerous CSR councils have been established across the country to facilitate private and public partnerships, and more than 350 Indian businesses have become members of the UN Global Compact, the United Nations’ own CSR initiative.
But is the CSR law really making a difference in India?
According to the Indian Ministry of Corporate Affairs, as of January 31 2016 over half of the 460 firms that filed their CSR reports failed to spend the required amount on social and environmental programs. Bharti Airtel, India’s largest telecommunications corporation, and NTPC, India’s largest energy conglomerate, are among the several Indian corporations that failed to meet their social obligation. However, multinationals hold the largest percentage of unspent CSR money, with companies like Pfizer Ltd, BMW India, and Nestle India having spent less than half of their prescribed amount. Some corporations, like Monsanto India for example, reported spending no money at all.
Many of these listed corporations stated that they failed to spend their share because they were still in the process of devising their CSR strategy. Since the law has only been active for a little over a year, many are confident that the positive effects of the policy will become increasingly evident over the course of the next few years. Still, the potential problems surrounding a mandatory CSR regime go far beyond the simple issue of time.
Many governmental and corporate leaders were concerned that the law would encourage a ‘tickbox mentality’ towards CSR. In other words, corporations would engage in CSR not because they want to, but because they have to, effectively dissolving the altruistic core of social engagement. Others argued that the law would likely lead to evasion, or that setting the standard at 2% would discourage companies from donating larger sums of money. As one corporate sustainability director stated: “charitable giving used to be a big reputation builder for us, now it’s just about legal compliance.”
The law could also lead to the uneven distribution of CSR funding. Many corporations are tempted to donate their 2% requirement to larger, more renowned charities and organizations, putting smaller and more localized charities at risk. Others are drawn to invest their charitable funds solely into areas where their businesses operate, favouring urban city-centres at the detriment of rural hinterlands. In addition to these measurable socio-economic consequences, many proponents of CSR argue that the law alters the very purpose and design of CSR. By equating social responsibility with financial contribution, the law draws attention away from the unethical and unsustainable practices of corporations. CSR thus becomes a question of how much a corporation is willing to give away to charity, rather than how well a company abides by principles of human rights, social justice, and environmental sustainability.
Despite some of these major concerns, CSR has now become a central part of India’s socio-economic landscape. As Bimal Arora, chair of the Delhi-based Centre for Responsible Business confirms: “The so-called 2% law has brought CSR from the fringes to the boardroom … Companies now have to think seriously about the resources, timelines and strategies needed to meet their legal obligations.” Indeed, since the law was enacted, charitable spending in India jumped from approximately US$500 million in 2013 to US$3.7 billion in 2014. As seen in the case of Maharashtra state, greater collaboration between local government and businesses can help solve some of the major problems the new CSR regime might face. Regardless, by taking a bold step towards social responsibility, India has proven its worth not only as a competitive player in the international economy, but also as a global leader in ‘responsible growth’.
Photo: Kolkata Flower Market (2010), by Arne Hückelheim via Wikipedia. Licensed under CC BY-SA 3.0.
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