What is corporate social responsibility?

Indian companies have spent over Rs 1 trillion under corporate social responsibility, since the framework for corporate spending on community came into force in 2014-15, a senior official in the ministry of corporate affairs told a national daily this week.

Corporate social responsibility, or CSR, refers to a self-regulating business model that companies can utilise to be socially accountable. By practising corporate social responsibility, a company can be conscious of the impact it has on economic, environmental, and social factors.  

CSR is a broad concept. It can take many forms depending on the nature of the company and industry. Apart from impacting society, CSR activities can also help build a stronger bond between corporations and employees. It can help both employers and employees feel more connected.

In order to be socially responsible, first and foremost, the company needs to be accountable to both itself and its shareholders. In normal practice, companies adopt CSR programmes once they have grown their business to the point where they can give something back to society. Hence, CSR programmes are usually implemented by large corporations.

But, why do companies engage in CSR activities? This is because the company believes that customers are more likely to do business with a brand that they perceive is ethical. Some companies are also motivated by their personal convictions.

It is legally binding too. Under the Companies Act, 2013, a certain class of profitable entities must spend at least 2 percent of their three-year annual average net profit towards CSR activities in a particular financial year.  

Companies having a net worth of at least 500 crore rupees or a minimum turnover of Rs 1,000 crore or a net profit of Rs 5 crore or more during the immediately preceding financial year have to spend on CSR activities.

There are various types of corporate social initiatives. There is corporate philanthropy, where a company makes donations to charity via a corporate foundation. There can be company-organised volunteer activities. Companies can adopt socially-responsible business practices, such as producing ethical products. There can also be company-funded advocacy campaigns.