Corporate Social Responsibility is the people friendly arm of companies and businesses across the world. But what is it exactly in nature and is the pledge to help society a real requirement?
--BY SANJEEV SHARMA
Many companies in Nepal are engaged in various activities of social importance. From education and health, livelihood of marginalized communities, infrastructure development in rural areas, increasing inclusiveness to preservation of heritage or ecological conservation, MNCs, BFIs, business houses and other corporate institutions, big and small, are seen conducting a number of activities across a wide range of areas as part of their corporate social responsibility (CSR). This has led to an increased feeling among the general public that businesses here are not only about generating company profit but are also working towards the betterment of society. Many prominent businesses in the country have embedded social activities into their core operations modeled as sustainable business practices.
The CSR Concept
Being responsible socially is an established concept for modern businesses though in today’s liberal economic environment, it is not legally obligatory in most cases. However, corporate institutions are seen actively doing various activities benefitting both the society and their business in a sustainable manner. Having emerged in the mid-20th century in the western economies, CSR is in fact a shift from the old model of profit making and taking it all to sharing or ‘Giving it back’ the generated profit to the society in order to create a sustainable business environment. Prominent thinkers including the revered Austrian-American management consultant Peter F Drucker have highlighted the importance of CSR in today’s business context. While mentioning profit as the primary motive for businesses, he has opined that it is not the only motive-“Leaders in every single institution and in every single sector … have two responsibilities. They are responsible and accountable for the performance of their institutions, and that requires them and their institutions to be concentrated, focused, limited. They are responsible also, however, for the community as a whole.”
While the concept of CSR has garnered extensive media attention and debates over the years with some prominent economists including the Nobel laureate Milton Friedman completely rejecting the idea of businesses doing social activities, the global business literature has widely covered social obligations of businesses and has modeled CSR in a variety of ways that have laid the foundation of modern day CSRs.
Among them is the highly regarded Carroll’s CSR Pyramid model developed by an American economist Archie B. Carroll, Professor Emeritus of Terry College of Business, University of Georgia. The Pyramid is a well-defined structure consisting of four layers that, according to Prof Carroll, are the essential components of a company’s social responsibilities. As per him, Economic Responsibility is the first layer of the Pyramid followed by Legal, Ethical and Philanthropic responsibilities. He has termed the Economic Responsibility or profit making of a company as the most crucial element, the very foundation upon which other responsibilities reside.
While there are many definitions of CSR at present, thinkers in recent years have agreed that such initiatives as business strategies integrated with core business objectives and competencies to create positive business, social and environmental values have become embedded as the working culture of businesses. The companies that have realised the importance of CSR not only think about the benefits to the investors but also treat their employees, producers and end-user of their products as stakeholders.
Philanthropy and CSR
Since charity and donations have been long entrenched in Nepali culture, the country has seen kings, nobles and merchants doing philanthropic activities throughout the ages. The legend of merchant Sankhadhar Sakhwa, for instance, clearing the debts of all the citizens of Kathmandu some 11 centuries ago still reverberates among Nepali speakers. Following the centuries old tradition, the business community in modern times has also been contributing for many charitable purposes stating them as part of their CSR activities. Nevertheless, some experts differentiate philanthropy and CSR practices.
“Philanthropy is basically guided and motivated by the feelings and sentiments of individuals or groups for social welfare and good causes. Though it is a good thing to get engaged in philanthropy, its long term impacts are limited,” says Prof Dr Dev Raj Adhikari, former Dean of Faculty of Management, Tribhuvan University. “CSR, meanwhile, is done in organised ways by evaluating the impact of such activities for the targeted communities or groups alongside the businesses themselves that are engaged in such activities.”
According to him, some western writers have mentioned philanthropy as part of the CSR initiative, while it may not serve the core objective of the companies. “I think it will be appropriate to state philanthropy as a peripheral part of CSR,” he adds.
Externalities and CSR
Experts say that CSR can largely impact the externalities, factors of costs and benefits that are not reflected in the market price of goods and services of firms. “There is a clear correlation between the social performance of a company and its reputation, brand positioning, sales and other business elements,” says Prof Dr Adhikari. He mentions that it is important for businesses to keep their stakeholders and customers happy to become sustainable in the long run. “Nevertheless, the sound financial health of the companies is also required to run CSR programmes,” he adds.
CSR as Business Strategy
In a time when competitiveness has grown rapidly, Nepali businesses are employing integrated CSR tactics in order to create a positive and sustainable environment benefitting both the society and their business in the long run. As companies from various sectors have different degrees of expertise in their related fields, they create proper CSR strategies aiming to achieve intended results.
Soft drinks producer Coca-Cola, for instance, focuses on the protection of the environment by putting its money into lowering the effects of its operations on the environment. Similarly, CSR initiatives of BFIs are mainly focused on raising the level of financial literacy, employment generation, education, health, gender empowerment along with numerous philanthropic activities that can be advantageous to the communities as well as the bank in the long term.
Likewise, companies from the manufacturing sector are covering wider areas in their CSR efforts including education, health, economic empowerment and income generation initiatives such as skill and capacity building of the deprived communities, inclusiveness, entrepreneurship building, and the environment alongside various other activities targeted towards establishing goodwill and creating market opportunities in a sustainable manner. In the meantime, ICT companies and mobile service providers are focusing on IT education, improving ICT infrastructures in the rural and remote areas and providing technological support to the communities along with other CSR work.
Meanwhile, hydropower developers are seen constructing roads, schools, health facilities and infrastructure related to electrification in the villages where they built hydel projects. Conservation of cultural heritage sites is also an area of priority through which they are earning the goodwill of ordinary Nepalis. In most cases, companies partner with NGOs, INGOs and volunteer organisations in order to effectively reach out to the targeted communities for effective CSR results.
Experts call these initiatives Strategic CSRs. Prof Dr Adhikari who has been leading a team of scholars to research the social responsibility initiatives of companies in Nepal says that the economic domain of CSR is predominant at present. In a recent research report published in the British law and management journal Emerald, the team found out that the economic domain of CSR is followed by philanthropic, legal and ethical domains. “From the analysis, we inferred that the economic domain of CSR is predominant clearly indicating Strategic CSR is growing in Nepal at present,” he mentions.
As per the research findings, companies in Nepal in recent years have realised the need for institutionalised CSR undertakings. Meanwhile, it was also observed that the CSR activities are helping Nepal to achieve some Millennium Development Goals such as eradication of extreme poverty and hunger, knowingly or unknowingly.
Supporting Humanitarian Causes
Apart from the integrated CSR activities, Nepali businesses also actively extend their hands for humanitarian causes as in the event of natural disasters. After the devastating April and May earthquakes of 2015, the country saw the private sector quickly respond and rush to aid the victims. Companies and private sector associations quickly came forward to provide relief materials and helped the authorities in recovery efforts. They have contributed or have committed to contribute large sums through the Prime Minister’s Disaster Relief Fund along with distributing essential supplies to the quake victims. Many have also been continuing their support in various ways by building temporary shelters, schools, organising health camps, providing livelihood trainings and employment opportunities for the people of the affected areas. Similarly, prominent business houses such as the Chaudhary Group have constructed thousands of transitional homes and have committed to build permanent homes for the ongoing rehabilitation process.
Nepali companies have been allocating a certain amount of money for CSR and philanthropy purposes from their profit. Nonetheless, many companies here, especially the private limited ones, have chosen not to disclose such expenditures publically. However, by analysing some of the available data it looks like the businesses are allocating money fairly when it comes to fulfilling their social obligations and commitments. Nimbus Holdings, for example, allocates Rs five million annually for CSR and has spent Rs 60 million till date. The CSR expenditure of Ncell, meanwhile, has totaled Rs 388.55 so far, according to the company.
Is it Necessary to make CSR Mandatory?
In recent years, CSR has become a global subject of debate over whether or not it should be made mandatory. Some are stressing that CSR initiatives should come under a legal framework to make the businesses ‘more responsible’ towards the society while others consider them as unnecessary. In India, the amendment of the Companies Act in 2013 sparked debate as the Act mandated companies to spend at least two percent of their average net profit in CSR activities. Following the Indian example, the Nepal government also introduced a provision in the recently amended Industrial Enterprises Act which requires companies to spend at least one percent of their net profit for social initiatives. Earlier, Nepal Rastra Bank in the Monetary Policy for FY 2016/17 also provisioned banks to spend at least one percent of their profit in CSR.
Prof Dr Adhikari opposes such ideas. “The businesses themselves need to come upfront realising their responsibilities towards society. Forceful CSRs cannot be fruitful and achieve intended results,” he stresses.
‘‘Integrating social responsibility in business activities helps poor and includes them in development initiatives’’
What are your key findings in the corporate community relations?
We have done a lot of studies regarding Corporate Social Responsibility (CSR). It has five levels as far as AIM is concerned. The first level is the most common where firms make donations and other financial contributions and companies decide to put aside certain funds that they make available to the low income groups. This is a very simplistic view of CSR activity to provide the underprivileged groups with money or resources. It is the most common, basic and easiest way to conduct a CSR activity. However, it is the most unsustainable too. When you give or contribute money, it is not something that is going to last long and change the society.
The second level is when the companies not only make financial contributions but also allow their employees to work voluntarily in the projects. This kind of voluntarism involves companies more into the social works because now they have to allow their employees to do something. When they do that, it is a little bit more engaging. However, this level is also not very sustainable because the first priority of the volunteers is their job. The helping part is not their job. The third level is little bit more involved in community relations. This is where we have a company which now enters in a relationship with a community or with a sector. With this approach, the relationship lasts longer with the community. Say it is a particular group of women. The relationship becomes stronger when you spend more time with them and put more effort for them. If the companies work with the communities for a year or two, they see them through a particular end. The companies are more committed in this level. But it is not the main business of the company as it is an extra activity for them.
The fourth level is involving in terms of engagement of companies with the communities. When the firms decide to take the social responsibility and put it into the practice of their business. They start saying ' if we are working with the communities, why don't we work with our employees? Why don't we help our labour force? Why don't we do thing with them rather than going out with outside communities?’ So this becomes a part of their business culture.
The fifth one is the most important as well as the most difficult to do. This is when a company says 'we are going to conduct development activity and that will be a part of business for us.' I can think of some companies in the East Asia such as Manila Water. The firm is a Filipino water company which provides water for Metro manila. Providing water is a profitable as well as a highly regulated business. When you are supplying water in a big city like Manila, you are providing water for those who can pay for it and those who can barely afford it. So you need to find ways to supply water to everybody. If those who can't afford to buy are nor supplied, they start to steal water. So a company like Manila Water turns around and says, ' let's do this as our business strategy. Not only we will supply water to the people who can afford, but also to the population who can't afford on a subsidized or socialized basis.'
Another example is the Thai group Charoen Pokphand (CP). The company is in agri-business, it deals with small farmers who are not rich and have to work hard to make things happen. What CP does is it in effect takes the whole supply chain which is the part of the business including all the small farmers it works with ultimately bringing farmers into its agri-business system. These two are the best examples of CSR activities. The companies are not just voluntarily involved in CSR activities. They have integrated their social responsibility as a part of their business activity. This helps the poor people and includes them into development activities. For me this is the best way to do business.
Extracted from an interview printed on NewBiz, May 2015 issue. – Editor
“CSR initiatives in Nepal should be linked up with the country’s Millennium Development Goals”
Why is it important for businesses to engage in CSR activities?
The paradigms of business over the years have shifted vastly. The business needs of companies are different at present than what they were three decades back. 30 years ago CSR was mainly taken as philanthropic work. CSR is no more confined to philanthropy. Companies in developed and also in many emerging nations have been using strategic CSRs aiming for long term sustainability in business in competitive ways. Basically, strategic CSRs are business strategies that are integrated with core business objectives and competencies to create business values along with positive social and environmental values embedded in the day-to-day business culture and operations of companies.
Looking at the Nepali context, for a long time we have had traces of CSR as philanthropy religiously and culturally. Businessmen over the centuries have been active in building temples, public resting places, stone water taps, providing donations for social causes and various types other contributions. However, in modern times, the companies here are conducting CSR activities differently.
What factors differentiate CSR and philanthropy?
Philanthropy is basically guided and motivated by the feelings and sentiments of individuals or groups for social welfare and good causes. Though it is a good thing to get engaged in philanthropy, its long term impacts are limited. CSR, meanwhile, is done in organised ways by evaluating the impact of such activities for the targeted communities or groups alongside the businesses themselves that are engaged in such activities.
Some western writers have mentioned philanthropy as part of the CSR initiative, while it may not only serve the core objective of the companies. I think it will be appropriate to state philanthropy as a peripheral part of CSR.
How are the companies in the west and emerging nations employing strategic CSRs?
Strategies are basically formulated and implemented to enhance market positions of companies enabling businesses to work differently. To support the market position, strategic CSR policies are employed. They formulate specific CSR strategies depending upon factors such as available resources, core expertise and coverage areas. The modalities of CSR vary from business groups or companies. The Indian industrial conglomerate TATA, for instance, is famous for its CSR modality which is called TATA CSR focusing on sustainability. Similarly, Microsoft’s policy is also noteworthy. The US tech giant provides computers and software solutions to community colleges for free which is indirectly advantageous to the company. It also allocates substantial funds for CSR in health, public education and IT empowerment of communities across the world. Nonetheless, regardless of the modalities, businesses are taking their business strategies and social responsibility in integrated ways.
What are your observations on the CSR initiatives of Nepali companies?
Businesses here are doing various activities such as supporting or establishing community education institutions, libraries, health institutions, constructing drinking water supplies as part of their CSR initiatives. However, the CSR goals of the companies are not integrated with national priorities. I think the CSR initiatives here need to be linked up with Nepal’s Millennium Development Goals (MDGs).
At present, CSR initiatives in China can be taken as a good example. Following the government’s announcement regarding the plantation of trees to tackle the problems created by deforestation, numerous Chinese companies, big and small, are engaged in planting trees across the country as part of their CSR activities. This is an example of an integrated CSR model where the companies have the chance to demonstrate their initiatives for ecological conservation while also supporting the government’s re-forestation policy.
Secondly, the level of institutionalisation of CSR is low here despite the approaches of some business groups and companies in recent years. Many big business houses and companies with substantial turnovers and employees are not seen engaged in institutional CSR initiatives besides sporadic philanthropic activities.
Nowadays companies across different countries carry out their CSRs under the Triple Bottom Line framework which is the 3P (people, planet and profit) approach, which are actually about social equity, environmental and economic factors. The concept targets improving the lives of the people who are in fact the stakeholders of the businesses, including the employees. Similarly, the businesses look to work for environmental sustainability. After that the real economic profit and social benefits are enjoyed by the society.
What are the key findings in your research on the CSR initiatives in Nepal?
Our research is based on the economic, ethical, philanthropic and legal domains of CSR. We questioned 21 people from the Nepali industrial and business community to analyse the qualitative and quantitative aspects of the domains. It appeared that the economic domain of CSR is highly active in Nepal followed by philanthropic, ethical and legal domains. From the analysis, we inferred that the economic domain of CSR is predominant clearly indicating strategic CSR is growing in Nepal at present. We found that many companies in Nepal in recent years have realised the need for institutionalised CSR undertakings. Similarly, we also observed that the CSR activities are helping us to achieve some MDGs such as eradication of extreme poverty and hunger, knowingly or unknowingly.
Similarly, there are some efforts to add effectiveness and transparency to CSR activities. Pokhara Tourism Council, for instance, has been drafting a CSR guideline for its affiliated companies. This is a positive step as many tourists visiting Nepal, nowadays, are concerned about their spending. They want to know if the benefits accrued through the tourism industry are really benefitting the society or not. They want to know whether the money they spend here is really a source of revenue to the country or goes somewhere else.
How do you think CSR activities can be a spur to good and ethical business practices?
Theoretically, the aim of businesses is to deliver greater good to the society. That is why code of conducts are formulated and implemented regarding business practices. CSRs in the modern world in many ways define ethical and good business practices. The delivery of products and services do not directly define such exercises. CSR compensates the gaps. We need comparative studies of the profit levels of firms to find out the gaps. If the companies and firms with high profit levels maximise their CSR activities, they are regarded as businesses maintaining ethical values at optimal levels. If such companies spend less in social initiatives, they are considered to have a low level of social responsibility. Companies need to follow the ‘Giving Back to the Society’ approach, a prevailing concept in the modern world.
What are your suggestions for companies who wish to adopt CSR as sustainable business models?
CSR can largely impact the externalities. There is a clear correlation between the social performance of a company and its reputation, brand positioning, sales and other business factors. It is important for businesses to keep their stakeholders and customers happy to become sustainable in the long run. Nevertheless, the sound financial health of the companies is also required to run CSR programmes.
Meanwhile, the government also needs to encourage companies so that they can increase CSR activities. Concession of taxes can be helpful in this regard. Companies with extended CSR programmes should be given tax deductions. Since the money for social initiatives comes from profit, the government can deduct tax rates for the expenditures allocated under CSR headings.
The monetary policy for FY 2016/17 has mandated BFIs to allocate at least one percent of their profit for CSR. How do you view this decision?
CSR is not mandatory and nowhere in the world is it forced. There is no need for obligatory provisions. The businesses themselves need to come upfront realising their responsibilities towards the society. Forceful CSRs cannot be fruitful and achieve intended results.