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Mandatory CSR in India: Not the Way Forward

| Wednesday May 25th, 2011 | 0 Comments

The latest in the long debate about mandatory CSR in India comes from the Corporate Affairs Minister Murli Deora. He, along with leading industrialist Ratan Tata,  recently voiced that they would like to make a 2% spend mandatory on CSR activities. Just in March this year, it was announced that CSR will not be mandatory due to severe resistance by many many Indian industrialists.

Both the US and EU have been calling for regulation of sustainability reporting. As far as India as concerned however, there is yet to be clear definitions of what CSR entails. Indian businesses by and large follow a charity-based, philanthropic, social-initiative based CSR approach. While there is nothing wrong with this approach, the status quo will not shepard India into the next era of business competitiveness.

The key focus areas for Indian CSR needs focus beyond health and education schemes. Areas for focus include:

  • Electricity Generation: India has a severe power shortage. There are several companies which already focus on CSR that can do a lot to change the situation by encouraging a model of decentralization and increased use of renewable resources.
  • Environmental Pollution: Rivers, lakes and cities are polluted due to lack of regulation as well as high population. Encroachment on agricultural land and forest land is a common occurrence. This not only hinders biodiversity protection but also impacts human health. Education is not the only means by which awareness can spread. Companies should invest in holistic community building exercises with a strategic CSR focus  that puts environmental initiatives in the fore-front.
  • Biodiversity Protection: This of course falls in a ‘beyond business’ category of CSR but it is nevertheless important. Business operations that have minimal impact on biodiversity should be the new mantra for Indian business.
  • Employee Engagement: This is the most important thing that Indian business miss out on. CSR initiatives for the most part do not have a trickle down effect to the people that really matter. Employees are brand ambassadors and change creators. Businesses must start galvanizing on this powerhouse of resource to better implement their CSR strategy.

A working paper by Loannis Loannou of London Business School and George Serafeim of Harvard Business School that talks about the consequences of mandatory CSR, concludes that it does work as “it could give policymakers and companies themselves added impetus to increase transparency around ESG issues.” However I was struck by how many cautions could be applied to the Indian business scenario.

The most obvious one is that incidences of green-washing could rise. The most worrying trend that could be predicted with mandatory CSR without the absence of regulatory guidelines is that  the compulsion could force many companies to look at CSR as an add-on to ‘business as usual’ and not as a different way of doing business.

The debate for Indian at this point should not be whether to make CSR mandatory or not. Rather it should be about guidelines and guidance that make CSR initiatives more attractive, so that more companies will get themselves involved.


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