Corporate SOCIAL Responsibility Final

2011corporate SOCIAL responsibilitya gentle approach to our earth and its people

SURAJ GUHA THAKURTASURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY,KERALA.

corporate SOCIAL responsibility

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SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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Preface

The corporate India based in and around cities has been flourishing and marching ahead whereasrural India still remains desperately poor. The gap between two Indias needs to be bridged or at least narrowed if India is to be counted as a developed country someday. The corporate India can play a key role in bridging this gap. Perhaps there is a fortune at the bottom of the pyramid for the corporate sector and it can only be mined if rural India is brought into the mainstream of development and not leftbehind. As per United Nations and the European Commission, Corporate Social Responsibility (CSR) entails triple bottomline: profits, protection of environment and fight for social justice. Since our Foundation through its Institute of Rural Research and Development (IRRAD) is heavily engaged in the last two, we are keenly interested in learning from the survey the efforts being put in by the corporate India towards CSR. The concept of CSR applies equally to individuals and corporations as it does to the State. It is a joint and shared responsibility of civil society, activist groups, Government and corporate sector to create appropriate means and avenues for the marginalised and bring them to the mainstream. The success of CSR lies in practising it as a core part of a companys development strategy. It is important for the corporate sector to identify, promote and implement successful policies and practices that achieve triple bottomline results. There are over 700,000 registered companies in India out of which about 6545 are traded on the Indian Stock Exchange. They need to ask themselves how best they can bring about social justice, and of protection the environment in co-operation with other sectors of the economy. To create a winwin situation, it is essential for all of us to work together to alleviate abject poverty and improve miserable living conditions that exist in rural India. I congratulate Times Foundation for bringing out the first ever national survey on Corporate Social Responsibility among leading business firms, corporate houses and public sector organisations thus paving the way for the formation of CSR alliance in India and enabling to convert issues of importance into advocacy.

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Research Methodology

The researcher used a combination of primary and secondary research techniques, based onparticipatory and ethical research principles. It included: web based research, review of print literature, visits to selected sites to witness CSR within the context of childrens issues, and interviews/ group discussions with selected representatives of industry, representatives from Chambers of Commerce and Industry, members from IT industry and financial institutions, representatives from foundations and trusts floated by corporations to promote CSR. During the course of the study, the researcher interviewed a number of corporate executives, most of whom were responsible for CSR functions in their respective organisations. He also had extensive discussions with representatives of Trade and Industry and Chamber of Commerce. Similarly, experts on CSR issues from not-forprofit sector were also consulted, so were NGO activists. The researcher also made field visits to a few sites where CSR initiatives were operational. While selecting the companies, efforts were made to select companies from a variety of sectors (at least, in India where there were hundreds of companies to choose from, as against Bangladesh where the choice was very much limited and Nepal where there was no choice at all) to get a comprehensive picture. In India the companies were chosen from following categories: Companies considered to be pioneers in promoting CSR (TATA group) and having a long history of philanthropic activities (Birlas). Financial institutions involved significantly in CSR (ICICI Bank). IT companies (WIPRO, Satyam) Public sector company (NTPC) Manufacturing companies from various sectors (Forbes Marshall, Asian Paints, Dr Reddys laboratory). Multi National Companies (IKEA, Intel). The outcome is based on these interviews, consultations, field visits and web and print literature review. Limitations of the study: The study has been carried out with a view to map and understand whether children are supported by the various CSR initiatives of the corporate sector in the region and how. It does not go into depth of how a company defines and practices CSR and whether a particular company is promoting CSR as it is generally understood. The focus of the study is on childrens rights in the domain of CSR and not on CSR per say.4 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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Further, the term CSR itself is used very widely ranging from compliance with law to purely charitable activities. In that sense the study has its own limitations vis--vis promoting understanding of CSR from a new angle. Another limitation the study pertains to actual visits to project sites where children form a part of CSR initiatives of the company. The project sites and the head offices of the company, where most of the persons responsible for CSR were located, were at geographically different locations (barring a few) and hence it was not possible to visit both due to paucity of time and the amount of travel involved. Therefore, most of the findings are drawn heavily from personal interviews, presentations and available literature rather than all this plus actual project site visits. This also holds true for number of companies visited in Nepal and Bangladesh. And finally, though the title of the study is CSR and Child rights in South Asia, the study does not cover all the countries in South Asia. It is based on reviews done in only three countries, India, Bangladesh and Nepal. Getting logistical support from countries like Pakistan and Sri Lanka, within a limited period of time, could be attributed to this limitation.

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ABBREVIATION

CRP CSR

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Child Rights Programming Corporate Social Responsibility

UNCRC United Nations Convention on the Rights of the Child CCC Clean Clothes Campaign CII Confederation of Indian Industry COP Communication on Progress CSR Corporate Social Responsibility ETI Ethical Trading Initiative GCS Global Compact Society (India) GDI German Development Institute IPF India Partnership Forum NGO Non-governmental organization PSU Public Sector Undertaking PWC Price Waterhouse Coopers UN United Nations UNDP United Nations Development Programme UNGC United Nations Global Compact

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LIST OF CASES

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CHAPTER 1

INTRODUCTION

The Sanskrit saying , Atithi Devo Bhav, means the one who comes to you for beingthe society. Thus, the phrase Social Responsibility has its roots in Indian context.

served,

should be taken to be as God, is considered as the highest order of responsibility, be it to individuals or to

Corporate social responsibility (CSR) is a term describing a company's obligation to be accountable to all of its stakeholders in all its operations and activities. CSR has several strategic implications. The first is that CSR can be an integral element of a firm's business and corporate-level differentiation strategies. Therefore, it should be considered as a form of strategic investment. Even when it is not directly tied to a product feature or production process, CSR can be viewed as a form of reputation building or maintenance. A second strategic implication of the firms perspective is that one can generate a set of predictions regarding patterns of investment in CSR across firms and industries.. In particular, the focus is on issues relating to industry evolution, market structure, firm dynamics, and the role of asymmetric information in the context of CSR. Thus ,the present exploratory research focuses the Corporate Social Responsibility as a determinant of market strategic issues , with the various dimensions of CSR and its relevance for emerging markets , it also throw light on redesigning marketing paradigms for the global competition.

A historical perspective:India had a very well developed commerce and industrial sector since ancient times. All the philosophical, religious and spiritual literature available of that period is testimony to this fact. The great Indian philosopher Kautilya (4th Century BC) in his book Arthshashtra has described in detail the trade and crafts, manufacturing, agricultural, mining and forestry sector present during1 the time of Maurya Empire.

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L.N. Rangarajan, Kautilya, The Arthashastra, Penguin Books India

2 Jawaharlal Nehru, The Discovery of India, Penguin Books India, 2004, page 113

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Reference to presence of trade and craft is also found in Vedic literature, the Jataka tales and in Mahabharata one of the greatest Indian epics of all times.3 In modern times, the establishment of the Industrial sector can be traced back to 1911 when Jamshedji Tata laid the foundations of heavy industry by starting the TATA Iron and Steel Works. Today, India has one of the fastest growing economy in the world with a GDP of USD billion 576 in 2003-044. The economy is doing very well with real GDP growth of 8.5 per cent in 2003-04, 7.5 per cent in 2004-05 and 8.1per cent in 2005-06. According to some experts, the share of India in world GDP is expected to rise from 6 per cent to 11 per cent in 2025 and thus it is expected to emerge as the third super economic power after the US and China.4 Industrial, manufacturing and service sector has contributed immensely to this economic growth. Industrial sector is quite diversified and spread throughout the country. The banking sector and financial markets are well developed. The IT and BPO industry is thriving and growing at a fast pace with a potential to capture more than 50 per cent of the global off shoring market by 2010 5. 30. The term Corporate Social Responsibility might be new to Indias corporate world, the concept is not. Social responsibility of business has been a subject of discussion in India since time immemorial. Several references towards this end can be found in ancient Indian philosophical and spiritual literature. Vedic literature (around 2000BC) views business as an instrument of wealth for welfare, to attain socially desirable goals, through ethically worthy means, resulting in a generation of healthy, wholesome individuals, who carry ethical values and positive impulses into their community62. Kautilya (4th century BC) in his epical work, The Arthshashtra, has enunciated about the principles of fair trade which were designed to promote the welfare of the people.8 In recent times, many business houses believe that the role of business in society should not be limited to creation of wealth for its owners and promoters but also for the larger society. The early pioneers of Indian Industry, whether TATAs, Birlas, or Bajajs, firmly believed in the concept of social responsibility of business. The founder of TATA Steel, Jamshedji Nusserwanji Tata, expressed this very clearly when he said: We generate wealth for the Nation. What comes from the people must, to the extent possible, therefore, get back to the people3 Government of India 4 The NASSCOM, Mckinsey Report 20051 5 Garavi Gujrat, Asian Newsweekly, GG2, NetNews 06/04/2005

6 Vedanta in Action, Central Chinmaya Mission Trust, Mumbai, pages 26-2 9 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.

corporate SOCIAL responsibility(Jamshedji Nusserwanji Tata (1903).

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Gandhiji went on to elaborate this concept further by emphasizing the moral responsibility of business through his idea of Trusteeship. He viewed owners of capital, as Trustees holding resources on behalf of the society, which to produce goods and services, will benefit society, at large.

The founder of Bajaj group, Shri Jamnalal Bajaj said: Our wealth should be utilized for improving the quality of the society and the nation. We should never fail to spend at least a portion of our incomes on the social, economic and educational development of the province where we live.

Most corporate bodies traditionally view CSR as an extension of a financial input for a humanitarian cause. This tradition has not only continued but has grown over times with many corporate houses engaging in social development. Since the early 1990s with the onset of globalization and opening up of markets to transnational corporations, Corporate Social Responsibility (CSR) is being increasingly emphasized. With globalization has come the influx of information, which has raised expectations among various civil society institutions about the role of transnational corporations in meeting their share of socially responsible practices. Hence, the corporations are not being only judged by the profits they make for their shareholders, but also by the impact they make on the wellbeing of the community. The performance of a company is not only being measured in terms of economic impact but what is known as triple bottom line impact, i.e. economic, environmental and social or Triple P Impact, People, Planet and Profit. Terms like shareholders wealth is being replaced by stakeholders wellbeing and maximisation of profit is being gradually replaced by the concept of optimisation of profit. CSR is denoted by different names; corporate social responsibility, corporate citizenship, corporate philanthropy, community relations/affairs, etc. Whatever the terms used, the underlying assumption is, doing good for the society. This business of doing good is understood differently by different people and defined differently. Business for Social Responsibility, a global organisation that helps member companies to make CSR an integral part of their business operations, defines it as achieving commercial success in ways that honour ethical values and respect people, communities and the natural environment. The World Business Council for Sustainable Development describes CSR as business commitment to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life.

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CSR IN INDIA: The Current trends A cursory glance at the Indian Corporate scene would show numerous examples of social initiatives being promoted by various companies. Almost all the big industrial houses, be they in public or private sector, either implement social development project themselves or support NGOs and Governments initiatives on this. Even the small and medium industries are not lagging behind. According to Confederation of Indian Industry (CII), approximately Rs. 3,000 crores (around 600 million US$) is the extent of corporate philanthropic spending in India per year.

Corporate social responsibility (CSR) is: An obligation, beyond that required by the law and economics, for a firm to pursue long term goals that are good for society The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as that of the local community and society at large About how a company manages its business process to produce an overall positive impact on society.

However, Corporate Social Responsibility as practiced in India is in its evolutionary stage. The earlier models of corporate giving could broadly be classified as ethical (Gandhian trusteeship model) and statist (public sector enterprise). The earlier proponents of social responsibility whether in public or private sector sought to promote these models by designing and implementing community development projects in the vicinity of their works. Along with this, another preferred way was to donate either in cash or kind, promote sports and games, art and culture and provide services like health, education drinking water, etc. While majority of companies still prefer to operate the concept of CSR this way, the CSR scene is increasingly becoming more stakeholder oriented than before. Companies are becoming strategic in their CSR activities, as against majority of earlier cheque-book type corporate philanthropy efforts. CSR is becoming more institutionalised and slowly there is a recognition that it should be congruent with the mainline business strategies of the corporations and should not be seen as a nonstrategic, public relations type of exercise.

While earlier, the companies were satisfied with community development activities this is no more the case. Corporate sector and foundations floated by it are chalking out what David Korten refers to as11 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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third generation strategies, which seek to address policy and systemic issues9 . Companies are also laying more emphasis on sustainability, replicability, scalability and impact measurement of their social initiatives. In the last few years, CSR has become a very hot topic of debate, discussion and hype not only in the west but also in India. With the opening up of the economy, the Indian corporate sector which was till then more or less insulated from the onslaught of multinational corporations, was suddenly exposed to real competition. The economic reforms which marked the liberalisation process had increased pressures on the performance of business and industry. With the process of globalisation set up in motion, awareness about environmental sustainability, human rights, consumer activism and corporate governance also increased. The advancement in global CSR field led to a substantial growth in the number of external standards produced by various organisations, both Governmental and Non-Governmental. Global standards like AA1000, the Global Reporting Initiative (GRI), United Nations Global Compact and Asian-Pacific Economic Co-operation (APEC), Business Code of Conducts, are some of the examples of how increasingly the corporate sector is expected to become more accountable to its stakeholders. These standards have not just evolved externally. There is an evident effort to frame standards internally as well. The Tata Council for Community Initiatives (TCCI), a network of Tata companies with an objective to collectively evolve a common direction for social responsibilities for the TATA group has come out with a TATA index for sustainable human development. Another factor which is influencing the promotion of CSR is that of public expectations from companies about their social roles. A poll carried out by TERI-Europe and ORG-MARG in 2001 in India, suggests that people expect the companies to be actively engaged in societal matters. Majority of the general public surveyed feel that the companies should be responsible for solving social problems as well as providing good products at cheaper prices, following labour standards and being environmentally friendly10. Thus, CSR is being seen as an integral part of corporate world, not only by outsiders but also by the corporations themselves. This could be gauged by the fact that in the World Summit on Sustainable Development (WSSD) held in Johannesburg in September 2002, a large number of Corporate Czars from all over the world were present. In fact, there were more leaders from business and industry than the leaders of Government in the summit. 9 David Korten, Getting to the 21st Century 10 Altered Images: The 2001 State of Corporate Responsibility in India Poll, Tata Energy Research Institute

Corporate Responsibility (CR) has emerged as a significant theme in the global business community and is gradually becoming a mainstream activity. The growing emphasis on corporate responsibility is affecting the

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relationship between companies and their various stakeholders, such as investors, customers, vendors, suppliers, employees, communities and governments.

The CR trend is being driven by a variety of factors, such as the erosion of trust in large corporations, the globalization of business, the corporate-governance movement, the rise in importance of socially responsible funds and sheer competitive pressures. This last factor, however, does not necessarily imply that firms emphasising CR will beat the competition. It may produce such intangible benefits as brandenhancement, stronger employee morale and greater investor confidence. But, on the tangible side, it is harder to prove that CR leads to higher profits. Indeed, it is easier to quantify the costs of emphasising CR than the benefits. A full-fledged CR programme at a large multinational can cost tens of millions of dollars, or as much as 2% of total revenue.

The worldwide development of CR, then, is neither linear nor uniform. At this stage, CR seems like the proverbial elephant being felt by different blind menit is interpreted in many ways, but, nonetheless, is a large, single body and one that is on the move. If CR is to progress to the next stage of its development, a major challenge is to establish more widely accepted ways to measure CR. At the moment, there are many competing standards of measurement. CR also remains a controversial subject, rejected by many corporate boards as an unwelcome and unnecessary intrusion into company affairs. The arguments, if anything, prove that CR is very much a live topic and one that has to be addressed by the global business community.

Corporate social responsibly is the continuing commitment by business to behave according to business ethics and contribute to economic development while improving the quality of the life of the workforce and their families as well as the local community and society at large. And also corporate social responsibility has generated a great deal of debate in business as well as in corporate circles in recent times. This debate centered around two major issues.

The primary issue is concerned with the extent to which corporations should be involved in social responsibility. The secondary issue is whether corporate social responsibility is a developed country trend and if corporations operating in developing countries have any or different types of obligations to CSR. Many experts differ in their views of the nature and extent of corporate social responsibility. Some perceive corporate social responsibility in a narrow sense and thereby view CSR in terms of supply of goods and

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services to society at a profit within a regulatory framework (Friedman, 1970). Therefore corporate social responsibility is not a threat to achievement of economic goals of a corporation; rather CSR is an opportunity and can be the basis of economic development of firms in terms of competitive advantage in global market. Businesses can not exist unless customers exist. Businesses run as long as the customers are satisfied. Gaining satisfaction of the customers in the long run does not end in ensuring quality products and services itself. Todays society expects more from a business. Since businesses can earn profit only if society consumes its products, society expects that a part of the profit should be spent for the betterment of the society at large.

A business of today must run its activities in a socially acceptable way if it desires to sustain in the long run. Businesses should operate without jeopardizing the fate of the future generation. And for that, business There are four dimensions of corporate responsibility:

Economic - responsibility to earn profit for owners. Legal - responsibility to comply with the law (societys codification of right and wrong). Ethical - not acting just for profit but doing what is right, just and fair. Voluntary and philanthropic - promoting human welfare and goodwill.

needs to think for the society, environment, and stakeholders of it. Long run relationship with the stakeholders can ensure long run sustainability of a business. This is the reason why corporate social responsibility currently has gained so much importance.

The meaning of CSR is analyzing the interdependent relationships that exist between corporations and economic systems and the societies and also discussing the level of any obligations of a business has to its immediate society; a way of proposing policy ideas on how those obligations can be met as well as a tool by which the benefits to a business for meeting those obligations can be identified.

The main objectives of this study are having an idea about corporate social responsibility under the competitive world. Focusing on the diverse dimensions of CSR is also our motto. What is the position of Bangladeshi companies regarding corporate social responsibility is our another objective. The entirety of CSR can be discerned from the three words contained within its title phrase: corporate, social, and responsibility. Therefore, in broad terms, CSR covers the responsibilities corporations (or other for-profit organizations) have to the societies within which they are based and operate.14 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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More specifically, CSR involves a business identifying its stakeholder groups and incorporating their needs and values within the strategic and day-to-day decision-making process. Therefore, a business Society within which it operates, which defines the number of stakeholders to which the organization has a responsibility, may be broad or narrow depending on the industry in which the firm operates and its perspective. Figure: Significance of Corporate Social Responsibility Commitment

Shareholder

Partnership Supplier

Corporate Sector - Company - Firm - Industry - Organization

Trust Consumer s

Employees

Respect

Three Dimensional Aspects of CSR:The purpose of corporate social responsibility (CSR) is to make corporate business activity and corporate culture sustainable in three aspects: Economic aspects. Social aspects. Environmental and Ecological aspects.

Economic aspects of CSR:15 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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The economic aspects of CSR consist of understanding the economic impacts of the companys operations. Economic issues have long been overlooked in the discussion on corporate social responsibility. For many years, the aspect has been widely assumed to be well managed. However, it is actually the least understood by many of those shaping the corporate and public policy agendas, and underrepresented the corporate responsibility agenda.

The economic aspects of CSR is often mistakenly considered to be synonymous with financial issues, which is why it has been assumed easier to implement than the other two pillars of the temple. However, the economic responsibility is not simply a matter of companies being financially accountable, recording employment figures and debts in their latest corporate responsibility report. The economic dimension of the sustainability agenda should rather consider the direct and indirect economic impacts that the organizations operations have on the surrounding community and on the companys stakeholders. That is what makes up corporate economic responsibility.

a) The Multiplier Effect The economic performance of a company has direct and indirect impacts on all of its stakeholders including its employees, local governments, non-profit organizations, customers, suppliers, and the communities in which the companies operates. For example: a good economic performance makes it possible to develop operations for the long term and to invest in development and the well-being of employees. The employees of the company get good salaries, from which they purchase goods and services as well as pay taxes. These activities fuel the local service industry, government programs and the community activities. This multiplier effect becomes all the more important if the company is one of the largest employers in the communities.

b) Contribution through taxes Companies are major contributors to the well-being of the area surrounding their operations, for example through the local tax base. Therefore, the question arises: is it responsible for a business to see corporate taxes purely as to cost be avoided, rather than part of their social contract with society? Taxes have a

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corporate SOCIAL responsibilityCorporate social responsibility means: Conducting business in an ethical way and in the interests of the wider community Responding positively to emerging societal priorities and expectations A willingness to act ahead of regulatory confrontation Balancing shareholder interests against the interests of the wider community

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Being a good citizen in the community

significant impact on the creation and distribution of wealth: tax avoidance, though perfectly legal, deprives the community in the area of the companys operation of well-being.

c) Avoiding Actions that Damage Trust A companys license to operate depends upon the trust and support of the local communities where it operates. The shift in power from the public the private sector emphasizes the importance of this trust and the obligations and responsibilities that come with it. Some company activities are potentially very destructive to the trust earned from the community or otherwise cannot be regarded as economically responsible. These should be avoided or at least carefully considered. Example of such harmful company behavior include: bribery and corruption, tax avoidance: and concentration of rewards and incentives of the companys performance to few individuals only instead of fairer distribution among the personnel. The company should also stop to consider the economic effects of changes in locations and/or operations to the community.

Social Aspects of CSR:Social responsibility is the newest of the three dimensions of corporate social responsibility and it is getting more attention than it has previously had. Many organizations are becoming increasingly active in addressing social concerns social responsibility means being accountable for the social effects the company has on people -even indirectly. This includes the people within the company, in the supply chain of the company, in the community the company is in and as customers of the company which means the whole lot of stakeholder. It refers to the managements obligation to make choices and take actions that will contribute to the well fare and interests of society as well as those of the organization. The following aspects have been found to be key the social aspects of CSR for an organization:

a) Responsibility towards Customers -

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The idea of treating customers with respect and attention is not new to business: often being responsible to customers has a direct positive effect on the companys profits. There are, however, broader social responsibilities including providing good value for money. These responsibilities may include such issues as the safety and durability of products or services; standard or after sales service; prompt and courteous attention to queries and complaints; adequate supply of products or services; fair standards of advertising and trading; and full and unambiguous information to potential customers.

b) Responsibility towards Employees Businesses are major contributors to the employment generation of the community. However, social responsibility to employees extends beyond terms and conditions of the formal contract of employment. Companies need to come up with wider expectations that todays employees have for the quality of their working life. Such expectations include taking care of the personnels welfare and safety at work and upholding their skills and motivation for the work. Beyond these expectations, a socially responsible company secures a just treatment and equal opportunities for all its employees, regardless of gender, age, race, or religion.

c) Responsibility towards the Community Companies depend on the health, stability, and prosperity of the communities in which they operate. Often majority of the companys employees and customers come from the surroundings area especially so for SMEs. The reputation of a company at it s location, its image as an employer and producer, but also as an actor in the local scene, certainly influences its competitiveness. Many companies become involved in community causes, for example by providing additional vocational training places, recruiting socially excluded people, sponsoring local sports and cultural events, and through partnerships with communities or donations to charitable activities.

Environmental and Ecological aspects of CSR:Environmental concern and sustainable development is a key pillar of the corporate social responsibility. Environmental and ecological issues have been an important topic of discussion for the past thirty years in the business world the longest time of the three dimensions corporate social responsibility. The knowledge and issues within the dimensions have progressed across a landscape of changing business realities. Environmental aspects put in place in the 1970s with the first real understanding of the environmental impacts of business. Now, in the 21st century, we are faced with new challenges.18 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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a) Environmental Impact Corporate activity may have many types of effect s on the environment. Usually environmental impact refers to the negative effects occurring in the surrounding natural environmental due to business operations. Such impacts may include: overuse of natural, non-renewable resources of energy, pollution wastage, degeneration of biodiversity, climate change, deforestation etc. Since many business related environmental problem transcend national boundaries, most companies s are thus actors in global environment. To obey CSR in case of environmental aspects corporations can take the following steps:

Measuring Environmental Impact- Environmental impacts can be measured in several ways through environmentally extended input-output tables, material input per service unit (MIPS) calculations, ecological footprint and life cycle assessment, to name a few. Ecological footprint measures the amount of natures resources consumed in a given year, and compares it to the resources available in the world. Life cycle assessment (LCA or eco-balance) is used to assess the environmental performance of a product from raw materials in the beginning of the production process all the way to disposal at the end of use. The MIPS value is calculated by dividing the amount of material the product or service causes to move e.g. the amount of earth moved in mining , not just the metal used during its entire life span by the amount of benefits and value its brings. Environmental Management- To truly commit to its environmental responsibilities a company should change its traditional modes operation towards a more environmentally oriented one. The environmentally more responsible perspective could include such issues as an emphasis on increased resource productivity, cleaner production and active dialogue with the companys stakeholders. Many businesses have found that establishing an environmental management system is the best basis for good environmental performance. Quality, health and safety issues can also be integrated into the same management system.

b) The Win-Win of Environmental Responsibility Several individual companies have found that improving environmental performance may also have beneficial effects on the company itself. Using less material and streamlining processes to create less waste may lower the costs of operation significantly. Moreover, the close review of operations, which is needed to improve the environmental performance, may reveal other improvement points, such as risk and material loss. A responsible public image may also attract more customers. These kinds of improvements as well as19 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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the investments behind them are often referred to as win-win good for both the environment and profitability of the company. The principle of win-win situations has been established for a number of years and most recently recognized in the commissions 6th Environmental Action program. The program explains, how the European Union and member State governments can fulfill their role in helping business to identify market opportunities and undertake win-win investments, the action program also set out a number of other measures aimed at business: establishment of a compliance assistance program to help business understand the environmental requirements of the European Community; development of national, but harmonized, company environmental performance reward schemes that identify and reward good performers and encourage voluntary commitments and agreements.

Is CSR the same as business ethics?

There is clearly an overlap between CSR and business ethics Both concepts concern values, objectives and decision based on something than the pursuit of profits And socially responsible firms must act ethically

The difference is that ethics concern individual actions which can be assessed as right or wrong by reference to moral principles. CSR is about the organizations obligations to all stakeholders and not just shareholders.

- Managing Corporate Responsibility Another approach is for companies to issue CR reports and to assign someone to manage their corporate CR programme, either in a full-time or a part-time capacity. Again, the models vary widely. In some companies, CR officials are full-time high-level executives and the company issues detailed annual CR reports separate from annual reports. Our report allows us to capture in one concise package where we are and where we are going with CR, says Jim Walter, senior vice president of Worldwide Quality Assurance (who oversees CR as part of his duties). Chiquita, for example, has had a full-time CR executive for four years who reports to the board of directors.

At other companies, CR is regarded as a public relations or marketing function, often relegated to a junior public relations staffer who writes a one- or two-page CSR study that forms part of the standard annual report.Other companies practise CSR without using the term. They engage in activities that could be20 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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described as CR, such as the promotion of philanthropy, fair trade, environmental protection, human rights and so on, but dont know or dont care to include these activities under CR. On the other side of the coin, many companies like to promote various activities as being CR-friendly, but appear to be normal business practice. For example, the Japanese convenience store chain, Lawson, boasts that it is environmentally friendly by reducing power consumption in its stores and having more fuel efficient delivery trucks, but both measures are ones that any company would pursue to save money, with or without CR. CR practice varies widely, but the overall trend is clear. General Electric, for example, appointed a full-time vice president for corporate citizenship two years ago. The CEO of GE, Jeff Immelt, was recently quoted as saying Its up to us to use our platform to be a good citizen, because not only is it a nice thing to do, its a business imperative. Intel has also for the last three years appointed a full-time person to be responsible for CR, but someone based in the public affairs division rather than at an executive level. We need a single person who can manage the relationships with the various CSR, NGO and sustainability groups, says David Stangis, who is charged with the task. Intel issues an annual CR report that uses GRI standards. Its 2003 global citizen report is 40 pages long, covering issues such as the recycling of electronic waste, community programmes and labour relations. The company also holds special briefings about its non-financial accounting for socially responsible investors and other groups.

The idea of better communication is an essential one to CR. Among executives in the survey, the three top ways in which they report they are improving CR are strengthening governance structures (63%), implementing open and candid conversations with stakeholders (60%), and providing special training for executives and employees (46%). Investors have a similar attitude, saying that they can improve CR through private dialogue with companies and also requests to companies to improve governance structures. These results show the importance of transparency in dealings with stakeholders, such as employees and shareholders.Software case study

Corporate responsibility: a false notion?

Programming responsibility

Dozens of software houses have in recent years begun to sell programmes designed to help companies conform with CR standards. At least 50 or 60 companies are writing some kind of software, says Indeed, the arguments of Olam, Alibaba GRIs Ms Slater. The GRI body itself is seeking to develop a software programme that companies can use to implement GRI standards and issue CR reports. When GRI sent out KERALA. 21 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, a request for companies offering to develop the technology, it received 50 proposals. At Infosys, CR and software converge. While the company supports a number of charities and environmental efforts (such as using recycled toilet water to irrigate its lawns), Infosys uses IT to manage its

corporate SOCIAL responsibilityand the Easy Group are a variation of what critics of CR have said for years: that the best, and only, business of a company is its business. Left alone, a company will maximize profits (done within a legal framework), resulting in the maximum happiness for all stakeholders. The advocates of CR, say these critics, Imply there is something shameful in companies making profits by providing

22

goods and services to consumers. So, CR implies that redemption can only be found through being responsible as a good corporate citizen.

But critics say that CR distracts companies From being successful, throwing sand into The gears of global capitalism by increasing the burden of regulations and other costs, and thus ultimately eroding the benefits that accrue to global stakeholders. One of the clearest critiques has come from an economist, David Henderson, the former head of the economics department of the OECD, and currently a visiting professor at the Westminster School of Business. In a 2001 treatise entitled, Misguided Virtue: False Notions of Corporate Social Responsibility (published by the New Zealand Business Roundtable), Mr Henderson wrote: CSR is flawed in its prescription, as well as its diagnosis. What it proposes for individual businesses, through stakeholder engagement and giving effect to the triple bottom line, would bring far-reaching changes in corporate philosophy and practice, for purposes that are open to question and with worrying implications for the efficient conduct of enterprises. Across economic systems and political boundaries, it would strengthen existing tendencies to regulate transactions, and to limit competition, in ways that would further restrict the opportunities and freedom of choice of people and enterprises.

Poor practices can be expensive:22 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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Of course, a company doesnt have to be dedicated to CR to seek to improve workplace safety, be transparent or build a good brand. But these figures do highlight a negative point: a company that pays no attention to CR is not necessarily going to have lower costs and be more profitable than one that does. In other words, while the bottom-line benefits of CR may be hard to quantify, the reverse is also true: the lack of CR doesnt guarantee higher profits for a company, all other things being equal. Companies that pollute often have tremendous inefficiencies in manufacturing. For example, coalfired plants with a dirty burn arent efficient, says Ms Brown. Companies that lack CR may gain some shortterm advantages over those that have it, she says, but over time it is not clear that they remain competitive. Poor labour relations, high pollution and similar CR problems will erode the performance of a factory, not help it, she says. The same is also true for issues such as corruption. Bribery is an expensive business model, she says. Whenever companies begin to globalize, they tend to embrace CR faster than those who stay at home, in her view. You tend to look for sustainable models as soon as you go abroad, she says, since an outsider entering a new market will be forced to depend on rules to succeed, as it has fewer local connections than entrenched domestic players. This is where some companies can gain an edge by utilizing CR to build a clean image. We have a competitive advantage because the reputation of Chinese companies is so low in the global market, says Jack Ma of an online trading company, Alibaba.com, based in Hangzhou. Mr Ma emphasizes what he calls the three trusts in his company: the first between the company and customers, the second between the company and employees, and the final one between the company and investors. We want to be known as the best employer in China, also the company with the best CR, he says. It is Alibabas strong brand image that helps drive the business. Because Alibaba has gained the trust of traders outside China, it can be a bridge to bring small Chinese companies to the world market. Mr Ma has reinforced the companys image by certifying Chinese suppliers as being trustworthy partners for Western buyers. These days, dozens of companies are willing to pay Alibaba thousands of dollars a year to be certified as a trusted Alibaba supplier. Obviously, this business model requires Alibaba to maintain its credibility with Western buyers; otherwise the entire companys future would be threatened.

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Three years ago, some salespeople were accepting kickbacks from companies to list them as our trusted suppliers, says Mr Ma. I had a clear message: no kickbacks. I would rather go bankrupt than do this. We had to fire the salespeople who were doing this. Therefore everyone knows that when you do business with Alibaba it is clean.

Conclusion and Recommendations:CSR s an important business strategy because, wherever possible, consumers want to buy products from companies they trust; suppliers want to form business partnerships with companies they can rely on; employees want to work for companies they respect; and NGOs, increasingly want to work together with companies seeking feasible solutions and innovations in areas of common concern. Satisfying each of these stakeholders groups allows companies to maximize their commitment to another important stakeholders group their investors, who benefits most when the needs of these other stakeholder groups are being met. The winning companies of this century will be those who prove with their actions that they can be profitable and increase social value. Companies that done well on those issues, increasingly shareowners, customers, partners and employees are going to vote with their feet to that company. Corporations should consider three dimensions of CSR for running successfully in this competitive world. CSR as a strategy is becoming increasingly important for businesses today because of three identifiable trends: Changing social expectations Increasing affluence Globalization

There is an implicit contract between big business and society or indeed between whole economic sectors and society. Bangladesh is a fledgling democracy needing much advancement in its application and intellectual domains CSR is not a product but service that affects the society at large. Ineffective operations of CSR ha created an unbalanced society, ultimately contributing to a top heavy and non- sustainable business model. The gap between rich and poor has risen due to hegemonic control of the profit making institution called corporations; the corporations of Bangladesh are purely under the guidance of the rich whose motive are self-gratification and advancement. This equation stays valid to a point and then naturally loses coherence and justification because any relationship to sustain some element of parent-child attributes must be present. A rapacious corporation will ultimately tumble as it will become disenfranchised from the public its shareholders and will cease to find profit; their market size will shrink as the purchasing power of public will be depleted due to excessive profiteering and not giving back to the community. In the short run,24 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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this predicament is not tenable but given for the profit driven psychology, a disaster can be awaiting in the medium to long run. Sustainable and responsible organizations can only avert such fiascos and CSR is the guiding principle ensuring corporate success in Bangladesh and elsewhere. Bringing CSR practices in Bangladesh sets a definitive milestone in the total development of corporate Bangladesh. The goal is to maximize true value and benefit for an organization, while protecting the huge investment corporations make today in their brands. CSR asks to companies to ensure their business operations are clean and equitable, and contribute positively to the society in which they are based. Key steps on the road to integrating CSR within all aspects of operations include: Ensure the commitment of top management, and particularly the CEO, is communicated throughout the organization. Appoint a CSR position at the strategic decision-making level to manage the development of policy and its implementation. Develop relationships with all stakeholder group and interest. Incorporate a social or CSR audit within the companys annual report. Ensure the compensation system within the organization reinforces the CSR policies that have been created, rather than merely the bottom line.

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26

CHAPTER 5

OBJECT OF THE TOPIC

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27

CHAPTER 5

CONCEPT

Corporates are traditionally known as engines for driving the economic performance of an entity, its success being measured in terms of high returns on equity at individual plane and its contribution to the nations economic growth on a collective plane. Do they have any social or environmental responsibility? This paper begins with an attempt to define the concept of Corporate Social Responsibility (CSR) with

The concept of corporate

social relation to the newer concept of environmental ethics and extending to the boundaries of corporates responsibility involving themselves in the international carbon trading market. The paper would give reasons as to howexactly Carbon trading is an excellent answer to the prevailing disrespect shown by the Corporates against originated in the Environment. Having defined the concept as it is commonly understood or as propounded by the

the 1950s in

theoreticians of CSR as an applied concept in the context of the environment, the paper seeks to examine the position in the Indian context, with some historical background, and the current practices, including the

USA and the

concept came setting up of the National Authority, under the provisions of the Kyoto Protocol, laid down by the UNFCCC, into and its compliance. The sustenance of these expanding environmental operations doesnt hold a future

promise without adherence to the OECD principles, UN millennium development goals and the concept of prominence in27 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.

public debate during the 1960s and


28

CSR, which repeatedly are laying stress on realisation of the losses caused to the environment and the responsibility of corporates towards these losses. The generally accepted principle is that if a company has caused some damage to the environment, be it in the form of air or water pollution, it owes a debt to the society to make up for it. The issue is as to whether the march towards becoming environment conscious and socially responsible is how to chalk out a peaceful way of harmonizing the corporate world with ecology and environment. The Indian economy has been on a growth trajectory and recorded an annual growth rate of about 8% for the third year in succession. Post-liberalisation policies of 1991 have a significant visible impact. Further, the corporate sector accounts for a major part of this growth story by way of its contribution to the secondary and the tertiary sectors of the economy. Indian markets offer vast business opportunities for the international business and this interest is visible from the investment coming from overseas corporate world. The Indian corporates are also increasingly acquiring an important role in international operations as can be seen from the acquisitions of overseas businesses by the Indian companies and their role with respect to their environmental responsibilities. The United Nations Framework Convention on Climate Change (UNFCCC) was adopted in June 1992 by over 180 countries at the Earth Summit in Rio de Janeiro and came into force on 21 March 1994. The UNFCCC provides a legal framework that enables Parties to the Convention to start the process of stabilising Greenhouse Gases (GHG) in the atmosphere. The Kyoto Protocol adopted under the UNFCCC in December 1997, came into force on 16 February 2005. The Kyoto Protocol commits industrialised signatory countries (.Annex I. countries) to reduce their GHG emissions by an average of 5.2%, compared with 1990 emissions during the period 2008-2012 (often referred to as the first commitment period). Under the Kyoto Protocol, Annex I countries may achieve these emission reductions either domestically or by supplementing their domestic efforts through three international market-based or flexible mechanisms which will be discussed later. The Kyoto Protocol sets targets for industrialised countries to cut their GHG emissions like carbon dioxide, methane, hydroflurocarbons, perflurocarbons and sulphur hexafluoride, nitrous oxide. These gases are mainly responsible for global warming, the rise in global temperature, which may have catastrophic consequences for life on earth. The targets for reducing emissions then become binding on all the countries, which have ratified the Protocol. The two main industrialized countries, which have not ratified the protocol, are Australia and United States. The agreement acknowledges that developing countries contribute least to climate change but will quite likely suffer most from its ill-effects. These countries do not have to commit to specific targets, but have to report their emissions levels and develop national climate mitigation programmes. China and India,28 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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potential major polluters with huge populations and growing economies, have both ratified the Protocol. As of now, 165 countries have ratified the Protocol. The paper attempts to combine the concepts of CSR and environmental degradation, with special emphasis on carbon trading and the role of corporates to comply with their CSR y involving themselves in the carbon trading market and in this way, have a profitable business and a reputation of being socially responsible at the same time. The first section of the paper defines the concept of CSR, with special emphasis on CSR in the Indian Context. The second section describes the environmental degradation and the role of corporates to counter the same. Corporate Social Responsibility (CSR) There is no universally accepted definition of CSR. There are varied views on what CSR is and what it is not. Having become a buzzword in boardrooms and the media, CSR is more often misunderstood as giving back to the society and considered to be synonymous with philanthropy. The dominant school of thought is that CSR is no philanthropic activity and a business must earn for what it invests. The company does it for its own long term good. Drawing a parallel with Publicity and Public Relations, it is argued that philanthropy could earn publicity but CSR, like Public Relations is a long term investment with assured returns. It advocates that CSR constitutes a series of initiatives taken by a company in its enlightened self-interest. Definition of CSR It would be interesting to derive a meaning of the concept with the dissection of each of the words. CSR is not a difficult concept and can be explained as: Corporate means organised business; Social means everything dealing with people, the society at large; Responsibility means accountability between the two.

From the above, CSR could be defined as the process of business operations carried out while ensuring compliance with legal requirements, as also linked to ethical values, to an extent. CSR means open and transparent business practices that are based on ethical values and respect for employees, communities and the environment. It is designed to deliver sustainable value to the society at large as well as to the shareholders. Now, there is no single, commonly accepted definition of CSR, even across global corporate bodies. It refers to business decision making linked to ethical values, compliance with legal requirements, and respect for people, communities and their environments. CSR is seen as more than a collection of discrete29 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


30

practices and occasional gestures or initiatives motivated by marketing, public relations or other business benefits. Rather, it is viewed as a comprehensive set of policies, practices and programmes that are integrated throughout business operations and decision-making processes. The concept of CSR is based on the idea that besides public authorities, companies also should take on responsibilities of social issues. According to more recent approaches, CSR is seen as a concept whereby on a voluntary basis social and environmental concerns are integrated in the companies business operations and in the interaction with their stakeholders. The idea of being a socially responsible company means to go beyond legal compliance and to invest in human resources and the environment. An external programme of good deeds will not protect a firm whose actual operations harm its surrounding society. Thus, being purely philanthropic externally is not enough. Also, at the same time, complying with the law is the minimum behaviour to legally stay in business and has nothing to do with the societys expectations, which are essential for the word social to have any meaning in CSR. The Indian perspective Broadly speaking, there are two views with regard to the CSR in India. The first view, considered to be more conservative, is that if a company is legally compliant and has been equitable in terms of (i) distribution of income and surplus, (ii) truthful and transparent in its disclosures, (iii) provision of a safe and healthy environment for its workers, (iv) payment of timely dividend to shareholders, (v) takes care of the qualitative and service aspects of its business with regard to their customers, and (vi) prompt in after-sale services, it is CSR & Environmental Ethics: The Indian Context 6 compliant with the principles and tenets of CSR, which it owes to all its stakeholders in some way or the other. However, the other school of thought takes its operations beyond the narrow confines and believes that this is not CSR, but this is the point where CSR begins. According to this view, a company simply becomes a good corporate citizen by doing all this but it still has a long way to comply with its CSR. Here, CSR is loosely referred to what a company does, apart from its obligations, for example, development of surrounding areas like parks, roads, hospitals, day-to-day services; taking care of the interests of people who are connected with the company, e.g. shareholders, people living in surrounding areas who suffer because of the companys day-to-day activities like degradation of environment in terms of pollution, deforestation, etc. In all such cases, the company owes a duty to the society to make up for the damage caused by them and also to provide them better conditions for living, as they have been an important part of the growth of the company. CSR does not mean that the company has to indulge in philanthropic activities. There is a thin line of distinction between CSR and Philanthropy. What we are talking about here is CSR, and certainly not philanthropy, a concept which does not entail any legal obligation or pressure.30 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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A further insight into the concept of CSR takes us to the two broad approaches to CSR. The first approach is the Traditional Approach. The basic theme of this approach is doing good to look good. Basically, this approach was followed for a long time, till recently, and the companies following this approach undertook to perform their CSR only for the sake of it, only because it would fetch them recognition in the market. It did not practice these activities because it was genuinely interested in the well being of the society. The mere reason behind it was to build its corporate image. Commitments were short term, allowing the organization to spread the wealth over a variety of organizations and issues through the years. The new approach or the Modern Approach has its underlying objective, doing all that we can to do the most good, not just some good. It supports corporate objectives as well. This is a win-win situation for all because when a particular company does well to the society genuinely and for a cause, it has to be good, and along with this process, it succeeds in building a name for itself. Vikramaditya Singh Malik & Roshan Santhalia The million-dollar question as of now is whether CSR has been or should be mandated or not. As of now, there is no law that recognizes or enforces the concept of CSR, but still companies do comply with their responsibilities, which may be for their personal gains to their reputation, name or even profits. The debate as to whether there should be a law to enforce the concept of CSR has recently arisen and with the passing of various judgements by various courts in India, including the Supreme Court of India, precedents have been set which go in favour of CSR acquiring the statutory backing and are in specific reference to the environment. Following cases deserve a mention: National Textile Workers Union Vs. P.R. R: It was held by the Apex Court in this case that the traditional view that a company is the property of the shareholders is an exploded myth. According to the new socio-economic thinking, a company is a social institution having duties and responsibilities towards the community in which it functions. Obviously the Honble Supreme Court of India is referring to CSR, when it talks of duties and responsibilities towards the community. The generally accepted view is that if a company has the resources and has come a long way in its progress, it owes a debt to the society and the community in which it has progressed. Also, it is agreed that if a company has caused some loss to its surrounding areas, it is its obligation to make up for that loss, whether technical or environmental, as a part of its CSR. Panchmahals Steel Ltd. Vs. Universal Steel Traders : In this case, the Gujarat High Court has pointed out that a company has three-fold reality: Economic reality31 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.

corporate SOCIAL responsibility Human reality, and Public reality

32

It also noted that keeping the environment clean is a sentiment gaining momentum after the Bhopal Gas Tragedy of 1984. Birla Zauri Agro Chemical Ltd., Goa Case (April 1975): In this case, the Goa High Court ordered the closure of the companys operations because the effluents of the company were polluting the sea causing CSR & Environmental Ethics: The Indian Context 8 large-scale deaths of fish and also polluting the wells of villagers and damaging the crops. Here the company was obviously violating the environment laws. The company has a statutory duty in such cases to take care of the pollutants and maintain the environmental balance. It follows the principle that the polluter pays. As a responsible corporate citizen, the company should have set up an effluent treatment plant not only as a part of its statutory obligations but also in fulfillment of its CSR objectives. Now, since this paper discusses the role of corporates towards their CSR and especially towards the environment, further emphasis is being laid on CSR and the novice concept of carbon trading, in the wake of the recent problems arising out of global warming and the awareness in this respect, especially in India.

Environmental degradation by Corporates in India : One of the major provisions of Indian State Policy is to maintain environmental standards along with promoting economic growth. However, the same becomes difficult, as it has to be implemented through the archaic bureaucratic lines that still haunt the countrys basic political and civil system. Indian Corporates in the contemporary times have taken full advantage of this not so strict environmental control by the government and have been successful in maximizing profits for themselves. However, over the last few years the Indian Corporates are realizing that it is in their favour that they adhere to their social responsibility and grow in a manner that is more sustainable. Indian Industries have opened up post 1991 reforms that took place in the country allowing freedom from strict rules and regulations that had made working of Indian Industries very difficult. In this post reform scenario, Indian industries have widely increased the production capacities and basic infrastructure leading to increasing amount of pollution. With the increasing liberalization and globalization of the Indian Economy it seemed almost axiomatic to assume that the greening of India would only be successful if it was made into a paying proposition in commercial terms.32 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


33

Indian Companies like Reliance group of Industries, Tata Steel Group and other big corporations have created a lot of hassle and trouble in the environment over the post 1991 scenario. Therefore, it is imperative for such corporations to pay back to the community as a whole in order to compensate for their activities. E.g. The Indian Oil Corporation refinery at Vadinar in Gujarat has been a cause for huge marine pollution over the past years. The refinery has polluted the Western Coast of Indian through Oil spillages, oily wastage etc. Carbon Trading at the Indian Level : Carbon trading is an umbrella term that includes the trading of GHG reduction credits that were defined in the 1997 Kyoto Protocol of the Climate Change Convention, first drawn up in 1992. The key idea behind carbon trading is that, from a global point of view, where carbon dioxide comes from is far less important than total amounts. The carbon market which enables emissions to be cut with the minimum price tag creates a choice: either spend the money to cover the costs of cutting pollution (emissions), or else continue polluting (emitting), and pay someone else to cut their pollution. There are two main ways to exchange carbon. The first is the cap-and-trade scheme whereby emissions are limited and can then be traded. Under Kyoto Protocol Annex I countries can trade between each other. The European Trading Scheme is a cap-and-trade scheme and the largest companies-based scheme around. It is mandatory and includes 12,000 sites across the 25 European Union member states. The compliance is critical and under Kyoto obligations, industrialised countries have 100 days after final annual assessments to pay for any shortfall- by buying credits or more allowances via emissions trading. Failure to do so leads to further penalties. There are also some voluntary cap and- trade schemes. The Chicago Climate Exchange is such a scheme. Interest in carbon trading at regional level is increasing in America, even though the US Government has decided not to ratify Kyoto Protocol. In voluntary schemes, there is no provision of a penalty. The Kyoto Protocol laid down the excellent idea of Carbon Trading at the Global level with various countries having specified amount of Carbon Emissions Limit. Presently, various Indian Companies are practicing carbon trading, but the same is being done at the international level. Although India has no commitments to fulfil as it is a part of the Non annex I countries in the Kyoto Protocol but a system which can actually replicate the international system of carbon trading at the domestic level would give India the first mover advantage. Due to the same, India would solve, in advance, the problem of fulfilling the commitments raised by Environmental protocols in the future and at the same time; the Indian Industries would be able to sell off the surplus carbon credits to countries outside. It is obvious and definite that with India coming up as an international hub for trade and commerce, the pollution levels of the country would rise. In that case, there would be protocols on the international level33 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


34

that would restrict Indian activities to curb emission outburst. Therefore, if India can actually learn something from the contemporary system of carbon trading then India would not have to face the issue and its implications in the future. The concept of Carbon Trading can be used at the domestic level within India where the large corporates can be given a certain amount of carbon credits and whoever exceeds the same can be penalized. This plan should be restricted only to the bigger corporates in the first phase and the smaller corporates in the second phase. The Indian corporates shall be divided on the basis of their production levels calculated in terms of the net worth of production in Indian Rupees. Further, the Corporates shall be assigned with carbon credits based on their net worth production. This is imperative because there is a direct relation between their Corporate Social Responsibility and their contribution to the economy of the country. The amount of credits shall be revised after every five years through a survey conducted by the national authority setup under this plan. It is obvious that the bigger players would be in the need of larger amount of carbon credits as compared to the smaller players within this large industry group. Therefore it is imperative that sale and purchase of carbon credits is also allowed at the national level. The same is again a reiteration of the concept as mentioned under the Kyoto Protocol. The benefits of such a plan on the domestic level would be immense, if and only if the plan is executed at the grass root level through a very efficient and able national authority, to be setup under this plan. The industries would now refrain from exceeding their carbon-emitting limit, as it would act as an automatic deterrent on their profits. The plan would benefit the smaller players and would encourage them to reduce their carbon emissions so that they can sell off their excessive carbon credits. It is imperative that the carbon trading being done at the domestic level has a completely different and separate system so that the national carbon units and the international carbon units are not combined and confused, which would otherwise lead to a mockery of the trading system. The fundamental thought behind this is that trading would take place at two parallel levels that do not intersect or interfere with each other. It can be reasonably approximated that a system of sale and purchase of carbon credits would actually incite the Indian Corporates to reduce pollution and start taking up jobs that would further help the environment. Companies all over the world are doing the same but the important thing is that at this stage and for the Indian companies, it is not mandatory, as India is a non-Annexure 1 country. Two Indian refrigerant companies, one from Gujarat and the other from Haryana are leaders in global carbon trading. Vadodra-based Gujarat Fluorochemicals Ltd (GFL) is likely to see its bottomlines grow more by selling carbon credits, a waste product, than their main business, refrigerants. In the last quarter, Gurgaon-based SRF made Rs 149 Crore from the transfer of CERs; its net profit stood at Rs 89 crore. GFL34 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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was the first Indian company to get registered for a CDM project in March 2005 for 3 million CERs. Out of the total CERs issued by the National CDM Authority, SRF and GFL have close to 40 percent between them. India alone has 59 % of the world total.19 It is a reflection of the preparedness Indian enterprises have shown in exploiting a new opportunity. The Energy and Resources Institute, or TERI, a non profit group in India has partnered with the Chicago Climate Exchange to help South Asian Countries reduce greenhouse gases while selling carbon credits to polluting companies in the United States. The project will offset 1.5 million tons of carbon dioxide emissions over 18 months. In fact the G-8 summit being held at Berlin this year from 6-8 June, 2007 is mainly for the purpose of discussing climatic change due to the greenhouse gas emissions and the role of countries in this regard. Only time will tell whether such talks are useful in persuading the 8 most industrialised nations to reduce their economic expansion activities and care a little more for mother nature.

As of now, India is still not ready for a substantive law for the enforcement of CSR. However, certain judicial pronouncements are a positive indication that the country is slowly getting ready for such a law. India is coming out of the traditional view of doing for the sake of it and coming forward and realising their responsibilities. When the concept of CSR begins to be understood as a business oriented concept, without which the business would become difficult, it will be the time when India may be ready for statutory backing to the CSR. Notwithstanding the above and any amount of sermonising on the CSR platform, ultimately we have to remember Milton Friedmans famous quote that the business of business is business. It reinforces the view that all CSR is driven by business interests and it is best left to the judgement of a corporate as to what makes good business. Globalization has been a force that has been all-pervasive and has impacted India in a great way. It has led to a new global order and the success of a country lies in its ability to face the upcoming challenges, and to emerge in the global order with a winning outlook. The way India has responded to the Kyoto Protocol has been commendable and it has created a lions share for itself in the global carbon trading market. This is a perfect example of Indias resilience and its capability to modulate its policies in a changing world arena. It is also very crucial for India to capitalize on this success and to further consolidate its market share. It will face a lot of competition from countries like China and Brazil in the carbon market in the near future. It will ask for great foresight and management skills of the Indian companies to fend off such competition in carbon trading. India should also try to develop industrial techniques and production methods, which utilize renewable sources of energy. The best technique to match up to the challenges brought about by globalization is to anticipate the future commitments under international treaties and obligations. India will have to cut its GHG35 SURAJ GUHA THAKURTA. MAHATMA GANDHI UNIVERSITY, KERALA.


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emissions under the second commitment period of the Kyoto Protocol, which starts from 2012. India should try to frontload its preparations to meet its commitment under the Kyoto Protocol and concentrate on harnessing renewable sources of energy. The right approach is to understand that the environmental problems should not be read in isolation, they have a direct impact on the economic condition and human development in a country. India should frame its environmental policies and legislations keeping this aspect in mind. The United Nations Millennium Development Goals should be the leading light in any such exercise, which are strived for by all the member-nations of the United Nations.

Corporate Social Responsibility Impact of globalisation and international business:Corporate Social Responsibility (CSR) is associated with the conduct of corporations and in particular whether corporations owe a duty to stakeholders other than shareholders. Whilst the phrase Corporate Social Responsibility may be gaining momentum, the concept itself is not new. The question as to whether corporations owe duties to broader stakeholders has been debated at various times throughout the twentieth century.

The CSR debate has largely revolved around the conduct of multinational corporations (MNEs) and other large private companies which, due to their size, have the ability to significantly influence domestic and international policy and the communities in which they operate. Central to the debate is the perceived deficiency of national and international law remedies regarding corporate accountability, in particular the ability of available regulation to successfully regulate a corporations conduct in jurisdictions outside the corporations home state. Proponents of CSR argue that the efficient functioning of global markets depends on socially responsible business conduct.

There are a number of factors relevant to the current CSR debate, including: i. globalisation and the proliferation of crossborder trade by MNEs resulting in an increasing awareness of CSR practices relating to areas such as human rights, environmental protection, health and safety and anticorruption; ii. organisations, such as the UN, the Organisation for Economic Cooperation and Development (OECD) and the International Labour Organisation (ILO), have developed compacts, declarations, guidelines, principles and other instruments that outline norms for acceptable corporate conduct;

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corporate SOCIAL responsibilityiii.

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access to information and media enables the public to be more informed and to easily monitor corporate activities;

iv.

consumers and investors are demonstrating increased interest in supporting responsible business practices and are demanding more information as to how companies address risks and opportunities relating to social and environmental issues;

v.

recent high profile corporate collapses have contributed to public mistrust and the demand for improved corporate governance, accountability and transparency;

vi.

commonality of expectations by citizens of various countries with regard to minimum standards corporations should achieve in relation to social and environmental issues, regardless of the jurisdiction in which the corporation operates; and

vii.

increasing awareness of the inadequacy of current regulations and legislation with regard to CSR matters and the regulation of MNEs.3

Interestingly, the fundamentals of CSR are considered to be universal reflecting the globalisation of business and economies. The traditional ethos of maximising shareholder value without regard to other stakeholders is an outdated notion in todays global environment. CSR not only sits comfortably with the mantra of maximising shareholder value, sustainable CSR practices enhance shareholder value.

Definition A single globallyaccepted definition of CSR does not exist, as the concept is still evolving. The language used in relation to CSR is often used interchangeably with other related topics, such as corporate sustainability, corporate social investment, triple bottom line, socially responsible investment and corporate governance. However, various individuals and organisations have developed formal definitions of CSR, including4: The commitment of business to contribute to sustainable economic development, working with employees, their families, the local community and society at large to improve their quality of life (World Business Council on Sustainable Development).3

Strategis Canada, An overview of Corporate Social Responsibility, Part 1,

at 14.06.06.4

Australian Government, CSR Defined at

16 June 2006.

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Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business (Business for Social Responsibility). A set of management practices that ensure the company minimises the negative impacts of its operations on society while maximising its positive impacts (Canadian Centre for Philanthropy). The integration of business operations and values whereby the interests of all stakeholders including customers, employees, investors, and the environment are reflected in the companys policies and actions (The Corporate Social Responsibility Newswire Service). It is important to differentiate CSR from charitable donations and good works, ie corporate philanthropy and human rights.

The debate The CSR debate broadly focuses on whether a corporations sole purpose is to maximise shareholder wealth (shareholder primacy principle), vs. the ability to consider a broader range of stakeholders in its decision making. The debate has been the subject of commentary throughout the twentieth century and continues to be relevant due to the size and power of MNEs and the globalisation of business operations. The debate in each era has been triggered by different catalysts. Traditionally the debate focused on the power of corporations, particularly large national and multinational corporations, however the debate has evolved over time to consider broader social impacts such as the environment, employee and community rights. Areas of focus throughout the twentieth century included: i. 1930s general debate as to the role and purpose of corporations, i.e. solely a shareholder focused vehicle or an entity with wider responsibilities;5 ii. 1950s focused on the disproportional power of the US corporation compared to other nations;

1960s and 1970s the corporations role in relation to environmental degradation, minority rights and consumer protection; iii. 1980s and 1990s targeted the social impact of the proliferation of corporate raiders and hostile takeovers;6 and

5

Andrew Clarke, The Models of the Corporation and the Development of Corporate Governance (2005) 1. Corporations and Market Advisory Committee, Corporate Social Responsibility Discussion Paper (November 2005) 7.

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corporate SOCIAL responsibilityiv.

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the current debate weaves all the elements of previous debates together from a global and community perspective and is focused on whether regulation should be expanded to encompass CSR matters.

The following quotes illustrate the consistency of thought over time with regard to corporations having social obligations: i. In 1932 American commentator, E Merrick Dodd argued companies, like individuals, should strive to be good corporate citizens by contributing to the community to a greater extent than is generally required and therefore the corporation as an economic institution has a social service as well as a profit making function;7 ii. In January 1973 The Confederation of British Industry published the Watkinson Report A new Look at the Responsibilities of the British Public Company which observed that there must be and be seen to be an ethical dimension to corporate activity and concluded companies must recognise that they have functions, duties and moral obligations that go beyond the immediate pursuit of profit and the requirements of law; iii. In 2001 Robert Hinkley observed corporations exist only because laws have been enacted to provide for their creation and give them licence to operate. When these laws were enacted most corporations were small and their impact on society was insignificant Today corporations are our most powerful citizens and it is no longer tenable that they be entitled to all the benefits of citizenship, but have none of the responsibilities8. The shareholder primacy proponent argues that a corporations sole reason for existence is to maximise shareholder wealth whilst obeying the laws of the countries within which the corporation operates. Economist Milton Friedman famously argued that because shareholders own corporations, the only social responsibility of business is to increase profits. Friedmans argument gained traction, especially after the publication in 1976 of an influential paper, Theory of the Firm, which stated shareholders are principals

7

Andrew Clarke, The Models of the Corporation and The Development of Corporate Governance (2005) 3. Kerrie Burnmeister, Corporate Responsibility A Matter or Ethics or Strategy, Blake

8

WaldronDawson at 11 June 2006.

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who hire directors as their agents to manage corporations, and the job of directors is to increase shareholder wealth through every means possible, short of violating the law.9 Proponents of CSR argue that, for a corporations longterm success and profitability, its directors must consider the interests of shareholders and other relevant corporate stakeholders such as employees, consumers and the communities in which the corporation operates. Current proponents of CSR maintain there is demonstrated evidence that corporations which implement relevant and sustainable CSR practices perform better and attain greater competitive advantage. Despite the various arguments, much of the corporate industrialised world has attempted to find a balance with regard to the corporations impact on a wider group of stakeholders, whilst also focusing on maximising shareholder wealth. A recent global survey of corporate executives revealed that, overwhelmingly, executives embrace the idea that the role of corporations in society goes beyond simply meeting its obligations to shareholders.10 This view is also supported by a recent survey of global investment managers which recognised that environmental, social and governance matters may be crit

Corporate SOCIAL Responsibility Final

Documents

corporate india

corporate sector

corporate houses

social justice

concept of csr

success of csr

research methodology

web based research