Corporate social responsibility practices in the times of COVID-19: A study of India’s BFSI sector

This paper is part of a series ‘This is not CSR’ to discuss the purview of corporate social responsibility in India. DTE brings you the series along with ‘Partners in Change’ and 'Corporate Responsibility Watch'. 

Hrishikesh Jha has mentored the authors for the paper. 

An abstract

Purpose

The purpose of this study is to explore the various definitions and descriptions of Corporate Social Responsibility (CSR); elaborating upon the scope of corporate social responsibility in India by studying the deployment of CSR practices over the last few years.

This paper examines how certain CSR activities undertaken by various companies don’t fit the bill from the lens of ethics, legality and business responsibility. Such activities may not necessarily have violated the letter of law, but the spirit of such activities is what is required to be looked at.

Approach

It is a cross-sectional study, which involves qualitative analysis of CSR practices followed by companies operating in India.

Findings

The main findings of the study are that CSR is now presented as a comprehensive business strategy, arising mainly from performance considerations and stakeholder pressure.

The focus has shifted from the pre-decided planned framework of CSR to activities related to fight against the novel coronavirus disease (COVID-19), which would reap indirect benefits from the operating segment in which companies operate.

It has become apparent that the focus has been somewhat one-sided in nature, with the bulk of attention going to the corporate processes, motives and outcomes of such efforts. 

Practical Implications

The study clearly defines the importance of mandatory rules and regulations to be adhered to by companies falling under the ambit of CSR. The paper will be useful in understanding shortcomings and opportunities in the times of pandemic. 

Introduction

CSR is a self-regulating business model that helps a company to be socially accountable — to itself, its stakeholders and 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 ordinary course of business, a company is operating in ways that enhances the society and environment instead of contributing negatively to them. (Chen J, 2020) 

CSR is a broad concept that can take many forms, depending on a company and its industry. Through CSR programmes, philanthropy and volunteer efforts, businesses can benefit the society while boosting their brands.

As important as CSR is for the community, it is equally valuable for a company. CSR activities can help forge a strong bond between employees and corporations; boost morale and help both employees and employers feel more connected with the world around them. (Chen, 2020)

CSR has become a common practice across industries. Seemingly a majority of the companies are interested in various philanthropic and CSR endeavours. But whether the CSR expenditure is contributing towards needy areas or is contributing to existent funds / schemes is a topic that has various opinions and answers.

Most companies have long practiced some form of corporate social and environmental responsibility with the broad goal of contributing to the well-being of the community and society and on which they depend.

But there is increasing pressure to dress up CSR as a business discipline and demand that every initiative delivers business result.

If in doing so, CSR activities mitigate risk, enhance reputation and contribute to business results, then that is all for the good. But for many CSR programmes, those outcomes should be a spill-over, not their reason for being.

The companies must refocus their CSR activities on fundamental goals and provide a systematic process for bringing coherence and discipline to CSR strategies.  

CSR history in India

India has a long, rich history of close business involvement in social causes for national development.

In the initial years, there was little documentation of social-responsibility initiatives. After Independence, JRD Tata — who always laid a great deal of emphasis to go beyond conducting themselves as honest citizens — pointed out that there were many ways in which industrial and business enterprises can contribute to public welfare beyond the scope of their normal activities.

Since then, there has been a growing realisation towards contribution to social activities globally with a desire to improve the immediate environment. Slowly, it began to be accepted, at least in theory, that business had to share a part of social overhead costs. (Singh RG, 2010)

The last decade of the 20^th century witnessed a swing away from charity and traditional philanthropy towards more direct engagement of business in mainstream development and concern for disadvantaged groups in the society. This has been driven both internally by corporate will and externally by increased governmental and public expectations.

An ideal CSR has both ethical and philosophical dimensions, particularly in India where there exists a wide gap between sections of people in terms of income and standards. 

India is the first country in the world to make CSR mandatory, following an amendment to the Companies Act, 2012 in April 2014. 

CSR trends in India 

Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate India has increased significantly. According to a survey, companies spent 47 per cent higher in 2018 than in 2014-15, contributing $1 billion (around Rs 7,400 crore) to CSR initiatives. (Associates DS, 2020)

A regulation, only five-years-old, required companies to step outside their comfort zone onto a steep learning curve.

On an average, the reporting rate among eligible companies in the last four years has been 64 per cent. Companies spent 68 per cent of the prescribed CSR amount in the last four years, totalling Rs 52,000 crore. (Ventures SS, 2020) 

Listed companies in India spent Rs 10,000 crore in various programmes — ranging from educational programmes, skill development, social welfare, healthcare and environment conservation.

The Prime Minister’s Relief Fund saw an increase of 139 per cent in CSR contribution over last one year (2019-20). The education sector received the maximum funding (38 per cent of the total), followed by hunger, poverty and healthcare (25 per cent), environmental sustainability (12 per cent) and rural development (11 per cent).

Programmes such as technology incubators, sports, armed forces, inequality-reduction saw negligible spends. (Associates, 2020)

Is it really CSR?

The widely accepted idea of CSR is to pursue ‘shared value’ to create economic value that also creates value for the society. According to a research, however, most companies practice a multi-faceted version of CSR that runs the gamut from pure philanthropy to environmental sustainability.

Moreover, well-managed companies seem less interested in totally integrating CSR with their business strategies and goals, than in devising a cogent CSR programme aligned with the company’s purpose and values. (Edmondson B, 2020)

A company’s CSR projects should typically be divided among three theatres of practice —

1. Focus on Philanthropy 
2. Improving operational effectiveness 
3. Transforming the business model 

It is neither practical nor logical for all companies to engage in same types of CSR. Programmes are driven by diverse factors, including the industry and the societal environment in which the businesses operate and the motivations of the people who run and govern each company.

For example, a manufacturing company might have rich opportunities to reduce its environmental impact while a financial services company might find it difficult but might be more successful in the social sphere— with significant initiatives supporting financial inclusion and literacy. (VS Kasturi Rangan, 2015) 

CSR in times of COVID-19

COVID-19 has been considered a global pandemic by the World Health Organization (WHO). The contagious disease tremendously disrupted socio-economic circumstances of the planet.

Social-distancing played a pivotal role in mitigating the spread of this deadly infection. The Government of India and state governments announced lockdowns throughout the country in March 2020 in order to promote social distancing, which basically directed the public to maintain distance both socially and physically.

Extended lockdowns worsened economic troubles. Heavy population and a lack of awareness (due to a lack of education) added to the problems.

Here comes the importance of CSR, which played a crucial role in the times of this pandemic, when people are trying their level best to get through the challenging times.

CSR is a ‘self-regulating business model’ that implies the procedures of interaction by a company with its stakeholders and the general public at large, creating a scenario of being socially responsible. 

According to Section 135 of Companies (CSR) Rules, 2014 and Schedule VII of Companies Act 2013:

Every company with a net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more during the immediate preceding financial year, must have a CSR committee and spend at least 2 per cent of average net profits earned during three immediate preceding financial years to CSR activities.

In the present era of COVID-19, the Government of India is inspiring companies to provide social support. According to a March 23, 2020 Ministry of Corporate Affairs circular, all expenditures incurred on activities related to COVID-19 would be added as permissible avenues for CSR expenditure.

Funds may be spent for various activities related to COVID-19, under the following items of Schedule VII:

• Eradicating hunger
• Poverty
• Malnutrition
• promoting healthcare, including preventive healthcare
• Sanitation, including contribution to the Swachh Bharat Kosh set up by the Centre for promoting sanitation and making available safe drinking water
• Disaster management, including relief, rehabilitation and reconstruction activities

Further, A general circular (No. 21/2014, dated June 18, 2014) mentioned that the items in Schedule VII are broad-based and may be interpreted liberally for the purpose of donations being made with respect to COVID 19.

This announcement from the ministry was welcomed by Corporate India. It created a win-win situation for companies with existing CSR obligation and funds at disposal who wanted to contribute to relief and meet statutory requirements of The Companies Act at the same time.

The response to the government’s call to support COVID-19 efforts has been overwhelming. Crores have been donated to various government funds.

Considering the huge sum of funds at stake for the relief efforts, corporates are struggling not just in finding a reliable implementing partner but also in figuring out a way to monitor and track the use of the donated funds and assessing their impact. 

With the announcement by the government that any amount donated by companies in support of the fight against COVID-19 will qualify as CSR, a majority of the companies either contributed to the PM CARES Fund or for various other purposes that contributed to protecting health and preventing hunger of the affected.

Such activities were ethically and morally correct, but the companies broadly interpreted the circular in a way that would reap indirect benefits to their operations or simply contribute to the existing fund.

(Anoo Bhuyan, 2020)

The banking, financial services and insurance (BFSI) segment is the primary driver of a nation’s economy. Companies in the financial services industry manage money. However, the contribution of this sector has always been under-rated in comparison with other sectors, especially the manufacturing segment.

Over the years, BFSI companies have been seen participating in CSR activities that do not garner visibility. Hence in order to highlight the importance, contribution and existence of the BFSI segment and to boost its morale, this paper focuses on the actions of BFSI companies in times of COVID-19.

Industrywise COVDI-19 response (funds committed) 

(Bhagyashree Patil, 2020)

The table below shows the contributions made by various companies in the BFSI sector in India in the COVID-19 times: 

Today’s customers are highly attuned to whether the brands they prefer are ‘socially responsible’. Many CSR projects may not be in tune with laid guidelines of the government, but may be morally right.

Such companies have put forward an argument in their defence explaining why at times it is important to reach out to the section of people – in and around whom they operate. This is with the sole motive of creating a positive brand image while executing their moral obligations.

Effective CSR gives a company the power to stand out in today’s saturated market and connect with customers on a level that ensures long-term loyalty and potentially even brand advocacy. (Ray SK, 2020) The pandemic gave them a chance to connect and create market visibility for themselves.

CSR is more than just a tool for exceptional public relations or a strategy to outsmart competition. Companies believe that by showing customers that they stand for something, they establish that their business exists for reasons that are bigger than ‘making profits’.

The support and donations extended by most of the corporates in times of the pandemic portray the fact that CSR programs work best when they look and feel authentic.

While the companies need to be careful to select a cause that the community can get behind, the companies also need to build a social responsibility program that reflects the identity of their brand and is their unique selling propositions.

There is no point in just tagging corporate responsibility on the end of brand-messaging. Making it an inherent part of the company’s vision and mission is what defines the company. 

Ultimately, the most important thing to keep in mind is that when a company uses corporate social responsibility to build and improve its brand — sincerity is the key. There needs to be truth in every claim the company makes. The organisation needs to really show to its customers that it is devoted to a cause. (Ray, 2020)

Some companies performing CSR by promoting social awareness for social-distancing: Notably, McDonalds, Audi, Coca-Cola, Volkwagen and many more.

McDonalds sent a message to the society by bifurcating its ‘M’ logo into ‘n – n’ to represent social distance. Similarly, Audi separated the four rings in its logo and explored a tagline to keep distance. Volkswagen also presented a new logo with a gap between V and W.

Coca-Cola also introduced spaces between letters in its logo with a message “staying apart is the best way to stay united”. (Ray, 2020)

The way customers interact with brands today is changing. For companies to engage and connect with today’s even-more empowered consumer, they need to ensure that their identity, and their behaviours they engage in, has the right impact.

In a world where the target audience demands a business that not only delivers exceptional products and services, but also contributes to the community, becomes more transparent and takes an active role in addressing universal issues, corporate social responsibility has become a mandatory requirement for any organization in India.

Almost half the reputation of a company comes from public response to what it does to support the current environment. (Thorpe D, 2013)

The companies with the best practices operate coordinated and interdependent programmes across the CSR portfolio. Some initiatives indeed create shared value; some, though intended to do so, create more value for society than for the organisation and some are intended to create value primarily for society.

Yet all have one thing in common: They are aligned with the company’s business purpose, value for an company’s important stakeholders and the needs of the community in which the companies operate.

These companies of course, stand in contrast to those that are focused solely on creating value for their shareholders. (Kasturi Rangan, 2015)

The conclusion

Business houses all over the world are realising their stakes in the society and engaging in various social and environmental activities. The need of the hour is to formulate effective strategic policies and adopt various instruments, according to a company’s history, its content and peculiarity in relationship with its different stakeholders so that CSR can be best implemented towards its goals — sustained environmental, social and economic growth.

The BFSI sector in India has shown interest in integrating sustainability into their business models but its CSR reporting practices are far from satisfaction. There are few companies which report activities on triple bottom line principles. As a matter of fact, the standards for rating CSR practices are less uniform in comparison to that for financial rating.

Most companies use CSR practices as a marketing tool and many are only making token efforts towards CSR in tangential ways such as donation to charitable trusts, NGOs, sponsorship of events etc. Few have a clearly defined CSR philosophy.

Mostly, companies implement CSR in an ad-hoc manner, unconnected with their business process and don’t state how much they spend on CSR activities. Further, voluntary actions are required to be taken by the financial bodies to ensure the socio-environmental feasibility of projects to be financed. 

There are several companies in India involved in diverse issues such as healthcare, education, rural development, sanitation, micro-credit and women’s empowerment. Analysis of several surveys in India suggests that though many companies in India have taken on board the universal language of CSR, it seems to be in a confused state.

Individual companies define CSR in their own limited ways and contexts. The end result being all activities undertaken in the name of CSR are mainly philanthropy or an extension of philanthropy. It

seems that CSR in India has been evolving in domain of profit distribution. There is a need to increase the understanding and active participation of business in equitable social development as an integral part of good business practice. (Singh, 2010)

The BFSI sector plays a major role in the financial improvement of any country. This research gives a basic idea of the general practices being followed by the bank.

From the above findings, it can be concluded that companies in the sector play an outstanding role to bring out the relationship between the organisation and the society. Companies are striving to benefit the society in every manner.

It can also be concluded that there’s more media coverage of events but actual implementation of activities is somehow lacking. Most companies are building customer loyalty, reputation, employee motivation, brand value and employee-retention by CSR activities.

It will be wise if the companies focus on areas the society need by understanding them. This will, in turn, ensure universal advancement of the country.

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