Corporate social responsibility (CSR) is a self-regulating business model that helps the Company to be socially accountable — to itself, its stakeholders, and to the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental. To engage in CSR means that, in the normal course of business, a company is operating in ways that enhances the society and the environment, instead of contributing negatively to it.
CSR is also known as:
- Corporate conscience.
- Corporate Citizenship.
- Responsible business.
Corporate Social Initiatives
Corporate social responsibility consists of six types of corporate social initiatives:
- Corporate philanthropy: Company donations to charity, including cash, goods, and services, sometimes via a corporate foundation
- Community volunteering: Company-organized volunteer activities, sometimes while an employee receives pay for pro-bono work on behalf of a non-profit organization
- Socially-responsible business practices: Ethically produced products which appeal to a customer segment
- Cause promotions: Company-funded advocacy campaigns
- Cause-related marketing: Donations to charity based on product sales
- Corporate social marketing: Company-funded behavior-change campaigns
Common CSR Actions Include:
- Environment Sustainability:
- Waste management.
- Renewable energy.
- Community Involvement:
- Raising money for charity purpose.
- Employing local workers.
- Engaging fair trade practices.
- Ethical Marketing:
- Companies who do their business ethically are placing a higher value on their customers, they do not manipulate their consumers.
Ministry of Corporate Affairs (MCA) has realized the importance of Corporate Social Responsibility and had recently notified some provisions. According to The Companies Act 2013 following companies should contribute at least 2% of their average net profit for immediately preceding 3 financial years, companies who have to follow this criterion are:
- The net worth of the companies should be Rs. 500 Crores ormore.
- Turnoverof the companies should be Rs. 1000 Crores or more.
- Net profitof the companies should be Rs. 5 Crores or more.
Why Business Need to Follow CSR Compliance
The stakeholders of a business including investors, managers, employees, and consumers have started to understand how economic growth of a business or an industry is linked with the environmental and social well-being. Although this is just a voluntary activity by a business organizations, it has become an integral part of business activities as undertaking social activities can indirectly benefit the organization for the long run. Because when an organization operates in an environmentally, socially and economically responsible and transparent manner, it helps the organization succeed in particular through social acceptance & shared value.
Pros and Cons of Corporate Social Responsibility
· Improved Company Reputation:
Making policies of corporate social responsibility and implementing the same with a genuine action, can help in building or improving the reputation of a business. If a company’s behaviour creates a negative impact on the community and because of this there is a loss or reduction in the profitability of the company. CSR has become one of the methods to improve the reputation of the business and increase its profitability.
· Better customer relation
Corporate social responsibility is to get involved the community where the business is operating. Getting involved with the community where the business is operating helps in building a trust relationship between the business and the customer. This trust relationship helps in building a long-term relationship with the society and helps the business the benefit of the doubt that if at any time something’s goes wrong customers rather thinking or assuming a malicious intent will trust the company. Customers tend to stick with the companies that get involved in the society in which it is operating.
- Shareholder Resistance
Investors generally acquire shares in those companies which are socially responsible but the ultimate aim is to earn maximum return. There are some companies like Toyota which have earned because of CSR.
The cost or expense incurred in adopting CSR policy is one of the drawbacks. Organization of programs for the reduction in the environmental impact requires a huge expense in availing equipment apart from the ongoing cost. After incurring such a heavy expense there is no guarantee or clear evidence that implementing such policy would increase the profitability of the business.
Corporate Social Responsibility is a broad concept that can take many forms depending on the company or industry. Through CSR programs, charity, and volunteer efforts, businesses can benefit society while boosting their own brands.
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