Corporate Social Responsibility and Its Comparative Analysis

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Introduction

The term Corporate Social Responsibility as its name suggests is the responsibility or rather the obligation upon duly incorporated companies to have a sense of responsibility towards the society at large which is inclusive of the community and the environment. The company has a social responsibility which includes undertaking policies which promote the welfare and the well-being of the society such as considering the importance of environment protection and sustainable development. The Legislature and the Judiciary in the 21st century have started laying great emphasis upon the environment conservation which is visible through various legislations introduced by the Legislature such as the Environment Protection Act 1986, The Air (Prevention and Control of Pollution) Act and such similar acts. The Judiciary has also played an important role through incorporating the international principles of Sustainable Development and Precautionary Principle which is evident in judgements like M.C Mehta vs Union of India, A.P Pollution Control Board vs M. V Naidu. Therefore, it is important for the companies as well to incorporate all such provisions and aspects to ensure environment protection and thereby fulfill its social responsibility towards the society at large.

Corporate Social Responsibility (CSR) is a business-oriented approach towards achieving sustainable development by undertaking various initiatives to mitigate the impact of corporate activities the economy, society and the environment which are all vital aspects of ones’ life. Therefore, CSR is more than just a business decision rather it is a method of conducting ethical business.

Position in India

The Companies Act of 2013 was introduced by the Legislature in order to regulate the functioning of a company and the various aspects related to it like incorporation or registration of a company. The Act of 2013 prima facie was introduced to replace the Companies Act of 1956 however, it was welcomed into the corporate sector because of its new and robust provisions containing e-governance, enhanced accountability of companies and the concept of Corporate Social Responsibility.

Corporate Social Responsibility is not just one provision included in the Companies Act of 2013 rather it is a method of conducting business for which the Act has formulated Section 135, Companies (Corporate Social Responsibility) Rules and Schedule VII which prescribe mandatory provisions for Companies to fulfil their CSR obligations.

Corporate Social Responsibility is applicable upon every company including its holding or subsidiary having a net worth of Rs. 500 Crore or more, or a turnover of Rs. 1000 crore or more, or a Net Profit of Rs. 5 crore or more during the immediate preceding financial year.

A foreign company having its branch office or project office in India, which fulfils the criteria specified above will also fall under the ambit of CSR. However, if a company ceases to meet the above mentioned criteria for 3 consecutive financial years, then it is not required to comply with CSR Provisions till such time it meets the specified criteria.

The Company’s Act of 2013 infused the concept of corporate social responsibility, prior to this Act, corporate social responsibility was seen as a philanthropic act. According to the traditional Indian concepts, every company has a moral duty towards the society and environment however, after the implementation of the Company’s Act of 2013 it imposed a legal obligation upon companies.

The core principles of Corporate Social Responsibility are based on social ethics, business ethics, integrity and traditions which have been embedded in the Indian culture since the early 90’s which was also observed when Mahatma Gandhi introduced the concept of trusteeship to foster socio-economic growth. India was one of the first countries to legislate on the need of corporate social responsibility and hence undertook initiatives to ensure that the same was being followed in the practical world. Therefore, the Company’s Act of 2013 by implementing policies of CSR introduced a new era in the field of company law.

Comparative Analysis

Position in The United States

Corporate Social Responsibility is not a mandatory provision by law in the United States however, it is interpreted as a moral obligation every company has with respect to the society, culture or environment wherein it operates and carries out its commercial functions. Corporate Social Responsibility is termed as a “soft law” since it is not enforceable by any statute. However, like in India there has been a massive shift of focus of not only the society but also the Judiciary towards ensuring protection of the environment and the rights of the society. It is very likely that Corporate Social Responsibility would become a “hard law” and enforceable in the court of law because of the importance that is being placed upon the environment and the society at large in the 21st century.

It is not just particular countries enforcing CSR rather the United Nations in 2011, itself endorsed the “UN Guiding Principles on Business and Human Rights” (“UNGPs”). The UNGPs “provided the first global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity.” The principles established by the UNGP’s help in building a legal framework of specifically defined rights, duties and causation, have been almost universally embraced and apply to all businesses, large and small. Thus, companies should have CSR programs that are “litigation ready” when it comes to human rights, because the UNGPs will inform the content of reasonable business practices, which has critical implications for transnational civil and commercial disputes. In other words, the UNGPs create transnational tort liability of corporations to third parties.

Position in the United Kingdom

In the United Kingdom, CSR originated during the 1800’s when a few benevolent entrepreneurs recognised the need and importance of providing employee’s security and ensuring proper living conditions as ultimately, the work efficiency would depend upon the employee’s morale and contentment. During the 1800’s the aspect of ensuring employee’s contentment and proper living conditions was relatively new which eventually led to the introduction of CSR which is now prevalent in every country across the globe.

In the United Kingdom, CSR is not enforced by a mandatory legislation unlike India. It is rather considered as a moral obligation. The lack of any such legislation to enforce CSR has led to the initiation of voluntarily action by companies to implement CSR in their day-to-day functioning. The Confederation of Business Industry has stated that policy of voluntary CSR procedure is to grant flexibility to every company to implement CSR policies as per their cost and expenditure which defines their core competency. Even though there may be no statute or legislations in UK to enforce CSR but it is very much prevalent in practical scenario by way of guidelines which narrow down the scope of CSR.

The Judiciary of the United Kingdom has not formally mandated the process of CSR but has acknowledged that the directors of every company should not only be held liable to its shareholders but to all the stakeholders. In the landmark judgement of AP Smith Manufacturing Co. v. Barlow, it was held that the Companies must acknowledge their duty towards the society and therefore discharge their social and private responsibilities.

Conclusion

Everyone rather every company recognises the impact of climate on the well-being of every individual and the world is at a turning point today. If decisions taken by every company and individual are not prosperous and sustainable in nature, it can be very well be stated that the future generations would not be able to enjoy the natural resources as lavishly as we do, this places great significance upon CSR practices around the globe.