By Sreeram Mohan, Priya Ranjan, Satya Tiwari
The term ‘Corporate Social Responsibility’ or simply ‘CSR’ has its origin much earlier than the terms ‘corporate sustainability’ or ‘sustainability’ or ‘ESG’. In its original sense, CSR denotes the company’s duty towards the society; to give back to the society a portion of what the company has taken, for e,g, natural resources like water, land etc. in addition to the utilization of human capital. Further, due to business activities, companies may have a negative impact on the people around them, for e.g. water, land, and air pollution, noise pollution, livelihood loss, and impacts on the ethnicity and culture of the locality. While companies, by the virtue of being itself, generate economic value and enhance livelihood opportunities for at least some stakeholders, there might be another group facing the negative impacts and the purpose of CSR is to mitigate such externalities for the society.
As a positive step towards improving the quality of life and the well-being of the community, Section 135 of the Companies Act 2013 mandates Indian businesses to contribute to the overall development of the country with a specific focus on disadvantaged, vulnerable and marginalized communities.
In addition to this earlier mandate, the 2021 mandate by the security exchange board of India (SEBI) requires the top 1000 (as per the market capitalization) listed companies in India to prepare a Business Responsibility and Sustainability Report (BRSR) which has a portion dedicated to the community as a stakeholder. The 8th principle of National Guidelines on Responsible Business Conduct (NGRBC), the crux of BRSR, deals with the CSR aspect and states that ” Businesses should promote inclusive growth and equitable development”. This Principle builds upon the national and local development agenda as articulated in government policies and priorities.
As CSR activities and expenditures have been legally mandated for quite a few years, most companies have a robust mechanism to track the impact of such measures and to report it publicly. Hence, most companies in the initial stages of sustainability/ESG reporting in India tend to over-report on CSR.
While CSR and ESG both are related, they are not quite the same. ESG or sustainability is the wider gamut covering all the potential impacts and dependencies of an organization and the community impacts form a part of the “social” triad of ESG. While CSR is mostly viewed from the perspective of duty and morality, ESG is seen as a strategic approach for the company to sustain longer in the market by creating long term net-value for all its stakeholders. The activities that the company undertake as part of their ESG strategy will be purely due to long-term business sense of doing so and addressing the material issues that otherwise could potentially impact its sustainability.
For the same reason, the companies who are reporting ESG performance, need to focus holistically on all its material issues and not just report its CSR impacts.
Below is an example citing the initiatives taken by RIL comparing its CSR efforts and ESG efforts to showcase how CSR in the Indian context differ from the ESG.
Source: Systems approach to environment, social and governance (ESG): Case of Reliance industries - Dr. Monica Singhania, Dr. Neha Saini
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