Importance of environment in the CSR mandate of India

By Saptarshi Basu Roy Choudhury on January 17, 2019

The previous article on making corporate social responsibility (CSR) mandatory mentioned that such a need arises due to the responsibility of profit-driven companies towards society including the environment. The CSR mandate caters to the strategies needed for building a cleaner environment. The importance of environment stems from its inclusion in the concept of sustainability as put forward by the Brundtland Commission in its report in 1987. The report emphasized maintaining a balance between the needs of the present generation and that of the future generation. It identified three dimensions of sustainability namely social, economic and environment. It argued that environmental concerns are significant and sustainable development is the one that satisfies the needs of the present generation but not at the cost of the ability of the future generations to satisfy their own needs (Kuhlman & Farrington, 2010).

The last two decades witnessed the development of social progress as a prescribed responsibility for businesses. This led to the emergence of CSR. It includes voluntary actions taken by companies for social and environmental development. Furthermore, CSR involves additional efforts made by companies for realizing the positive effects of their business practices on society and the environment. In this context, this article focuses on the importance of environment in the CSR mandate in India.

Significance of the environment in models

In a CSR model as proposed by Carroll, (1999) and depicted in figure 1, environmental responsibilities come as a part of ethical responsibilities. These basically refer to the obligations of the corporations towards the society and their conducts intended to contribute to the well-being of the society. Environmental responsibility is one of the main elements of social obligation as it focuses on sustainable development. Therefore the discussion of the environment in CSR centres around the social responsibility of businesses (Kolk, 2016). Environmental responsibility refers to engaging in business practices that benefit the environment.

Figure 1: A model of corporate social responsibility by Carroll
Figure 1: A model of corporate social responsibility by Carroll

It is to be noted that the concept of CSR incorporated the theme of business ethics in the 1990s’ (Carroll, 1999). This is because of the growing importance of business in today’s society (Manku, 2016). As stated, any business unless takes into account the negative externalities of its operations, its growth will not be translated into development. Here negative externality means the adverse effects of business operations or production of industries on the environment. More specifically, these adverse effects are realized in terms of environmental pollution.

According to the study by  Gani & Sharma, (2009), there is a direct relationship between environmental pollution and business environment. The empirical findings of the study suggest that global pollution measured in terms of CO2 emissions rise as there is more trade (as a percentage of gross domestic product), an increase in per capita income and an increase in the size of the industrial sector. A previous article mentioned the problem of growing pollution in India due to industrial production. The implication of these findings is that it is important to consider the environmental effects of businesses around the world, thereby signifying the role of environmental responsibilities in CSR.

CSR mandate of India

The CSR activities of India are governed by section 1 of clause 135 of the Companies Act, 2013. The provisions of the Act include the companies having an annual turnover of INR 1000 Crores and above and having a net worth of INR 500 Crores and above or operating with the net profit of INR 5 Crores and above. The new rules prescribe that companies must spend at least 2% of their average net profits of the preceding three financial years on CSR activities (Ministry of Corporate Affairs, 2018). These profits do not include the profits that arise from the branches that are functioning outside India. In the context of the environment, the focus areas of the Rule include environmental sustainability, ecological balance, conservation of natural resources, protection of flora and fauna and maintenance of air, water and soil quality. Following is the scope of the environment in the CSR mandate.

  1. Organizing programmes on environmental management.
  2. Pollution control.
  3. Green belt development.
  4. Animal care.
  5. Land Restoration.
  6. Job development related to agro products.
  7. Afforestation.

Moreover, Rule 8 of the CSR mandate states that the annual report should include a summary of the projects and programs proposed to be undertaken as a CSR initiative. Furthermore, the committee will have to state the roles, responsibilities and monitoring mechanisms in the committee report. Other clarifications in the context of CSR rules are stated in the draft issued in September 2013 (Pwc, 2013). As per the rules, the surplus arising out of the CSR activities should be reinvested into CSR initiatives. Also, the companies can pool their resources with other companies in order to implement the CSR initiatives.

Implementing and enacting the CSR mandate

The main purpose of the CSR guidelines stated in the Companies Act, 2013 is meant for corporates to take initiatives in the form of actions through community involvement. The policies are framed to assist the companies in developing a long term vision of overall development.

The government of India initiated the corporate social responsibility for environmental protection (CREP) by setting strict guidelines for 17 polluting industries. The new generation of entrepreneurs has recognized that environmental stability is one of the essential prerequisites for achieving long term growth and sustainability in the market. For this purpose, the corporates should value the strategies that ensure sustainability for their businesses (Singh, 2015).

The recent CSR trend in India reveals that most of the top 100 listed companies have been following the mandatory provisions of Companies Act, 2013. These include publishing their CSR policies on their websites and disclosure of activities in the annual reports. The bright side is that corporates have started taking initiatives for the protection and conservation of the environment. This is being done by adopting changes in the production process, use of green technology, optimal use of raw materials, their sustainable harvesting and recycling (Pargaien, 2016).

For example, the state-owned public enterprises Navratna Company and India Coal Ltd invested US$ 67.5 million for environmental and social issues in 2010-11 (Prathima, 2015). Further, many companies like New York Life, HSBC India have initiated a green movement by application of renewable energy technologies. These companies have also asked their customers to shift to e-statements and e-receipts. Many leading Indian banks including State Bank of India stopped issuing paper receipts of transactions done in ATM and started sending messages to the mobile phones of the customers instead. Therefore, it indicates that reputed business organizations in India are delivering great efforts to fulfil social responsibilities. This has created a benchmark for other growing companies who have to implement CSR activities in their business practices.

Need for reducing the gap between intentions and actions

To address the environmental concern through CSR initiatives, the intentions of corporates need to be translated into actions. Environmental risks are part of social risks. However, as mentioned by (Manku, 2016), mitigations of social risks in India are driven by complying with Government legislation rather than considering a broader set of issues. This is restricting the approach of the companies for dealing with social risks. Also, there are no mandatory regulations that govern the implementation of CSR Rules.

Therefore, it needs a combined effort on the part of the Government and business communities to effectively follow and implement CSR practices. The government needs to frame mandatory rules and regulations to govern CSR initiatives. On the other hand, businesses need to not only realize their social responsibilities but recognize the benefits of CSR by including communities and societies in which they operate. Only then, they will be able to make a step forward to fulfilling the environmental responsibilities that are expected of them as per the CSR framework.