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Corporate Social Responsibility(CSR)

June 29, 2012

Corporate Social Responsibility (CSR) is organisation’s performance against economic, social and environmental parameters.

The theory behind CSR is that companies can be profitable while at the same time minimize their negative impact on the stakeholders. Many studies were conducted to understand whether ethics pay and found a positive correlation between better financial performance and better social performance.

In recent years CSR has become an independent business practice and has gained much attention of chief executives, board of directors and executive management teams of larger companies. They understand that a strong CSR program is an essential element in achieving good business practice and effective leadership. Companies have understood that their impact on the economic, social and environmental landscape directly affects their relationship with stakeholders, investors, employees, customers, business partners, government and communities.

Requirement for CSR Audit and reporting:

Social responsibility is a major concern for management from a reputation risk perspective. Typically, reputation risk is associated with fraudulent reporting, regulatory actions against a company, or misconduct of individual officers (for example, personal tax fraud). However the scope of social responsibility has been expanding continuously to include several aspects that are perceived by the public to be the social impact of business actions.

Such initiatives are also subject to internal controls and should be considered for periodic review of their accounting and oversight processes.

The audit interalia would encompass whether the target corporate has formulated CSR policy which adequately addresses the CSR concerns, whether adequate resources were provided, whether proper internal control systems were adopted, whether safety measures required if any were taken, whether the corporate has been able to fulfill their social responsibility in an effective and efficient manner.

Recognition of CSR reporting in global:

In the post-Enron era, the number of companies reporting their social and environmental impact on society has increased immeasurably.

CSR reporting is akin to reporting financials, but rather than focusing on the numbers (i.e. profits), there is an emphasis on the people and planet impacts.

From the information gathered by the writer, presently environmental reporting is mandatory for public corporations in Sweden, Norway, Netherlands, Denmark, France and Australia. Although Japan and the U.K. do not have mandatory CSR disclosures, most companies in these countries choose to participate. Despite the lack of regulations in the United States requiring companies to disclose, increasingly more and more companies are issuing CSR reports for a variety of reasons. Research suggest that there are three main theories for this increasing trend

  1. to manage the perceptions of key stakeholders;
  2. to convey the organization’s values to the public,
  3. to establish that the organization’s activities are in line with social norms.

CSR activities and reporting requirement in India:

Corporate Social Responsibility is not a new concept in India. Corporates like the Tata, the Aditya Birla, Indian Oil Corporation and Reliance to name a few, have been involved in serving the community to the extent possible since long time. Many more organisations have been doing their part services through donations and charity events.

Some of the big corporates in India have set up CSR policy, their vision and mission beside giving sufficient support to ensure to adhere to the policies, creating internal controls, audit and reporting.

The parliamentary panel has recommended having a clause in the Companies Bill, 2011 that makes it mandatory for companies to contribute to corporate social responsibility initiatives and report on their performance including giving an explanation if they cannot perform.

With this I wish to conclude by stating that whether said recommendations become law or not, it is in the interest of Society that one has to take such initiatives, have a proper internal control and reporting mechanism.


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