Corporate Social Responsibility or Redressal?

Today’s world is under a ‘green’ pressure. Addressing, Sustainably Analysing and Propagating sea change should be the ASAPs of the new age.

The unending list of environmental issues in India which need to be paid heed signifies the prerequisites awaiting action which still tend to be more of a slow burn. Thus, sustainable financial practices shall act as catalysts of change.

In 1953 Howard Bowen, an American economist, coined the term “Corporate social responsibility” — a fundamental morality in the way a company behaves towards society. Following ethical behaviour towards the stakeholders and recognising the spirit of the legal and regulatory environment. 

Breaking down this definition, the phrase — “legal & regulatory environment” humours one’s mind. 

The emergence of the business world has been a stepping stone in aligning individual and collective interests. Adam Smith addressed the alignment in terms of the “invisible hand.” He observed that individuals, focusing on self-interest without giving any consideration to the broader outcomes (implying the consequences of their actions on the market for a particular good) seemed to be guided by an unseen force. In other words, under functional marketplaces, participants outsourced their concerns for societal interests to the invisible hand. 

Simply put, market participants, through painting a self-serving picture, ended up promoting collective interests unintentionally. 

In this respect, the need for CSR was undefined. 

Subsequently, shedding some light on a well-proven fact – markets don’t always function justly, and individual interests are not bound to yield collective goals. Therefore, a “need” was defined for the businesses to assess their workings on an economic and social front to reach a consensus of adequate measurement methods. The inquisition being—what makes businesses, turn the social wheel?

Time and again measurement methods under CSR have been under scrutiny. Following which businesses prepare to publish annual auditable reports by adhering to a three-step process of assessing, monitoring and reporting.  

Thus, directing the companies to make better decisions concerning which social initiatives to take up, improvement in the efficiency of their programs and convincing sceptical stakeholders of the value of their efforts.

To grasp this concept fully, let’s undertake Coca-Cola’s journey of CSR. 

It is argued that companies start adopting sustainable working measures after undergoing a reputational crisis such as public defamation. Coca-Cola’s Indian subsidiary was unable to evade this crisis, and in 2006, the government of Kerala banned the manufacture and sale of Coca-Cola products in the state premises. The product was labelled unsafe because of the high quantity of pesticides. However, the ban did not last for long and later that same year the Supreme Court of India overturned the Kerala High Court’s decision. The lengthy legal procedures that the company faced were not the only consequence of the conflict.

The brand suffered grave losses in terms of consumer trust and reputational damage in India and abroad. Company statistics showed an overall sales drop of 40% within two weeks after the release of the 2003 CSE report. Gradually, Coca-Cola changed its strategy to include measures for damage-control that addressed the grievances of the Indian communities’. In 2008, the company published its first environmental performance report following its operations in India, covering activities from 2004 to 2007— undertaken to help its tarnished image. Further, it launched the Coca-Cola India Foundation, Anandana, which works with local communities and NGOs to cater to local water problems. But perhaps the most commendable change in strategy by Coca-Cola consisted of launching various community water projects in India. An example is the rainwater harvesting project, where CocaCola’s operations partnered with the Central Ground Water Authority, the State Ground Water Boards, NGOs and communities to address water scarcity and depleting groundwater levels through rainwater harvesting techniques across 17 states in India. In conclusion, it appears that the controversy in India was a learning experience for the company and motivated them to adopt a more proactive CSR policy on a global scale which focuses on water management.  

It is noteworthy that Coca-Cola publishes a separate sustainability report as well as an annual water report. 

The Measurement 

As per the Company’s Act, a company shall set aside an amount equal to 2% of the average net profits for carrying out annual CSR activities falling under the three immediately preceding financial years annually. The allocation of funds subsequently yields a long term benefit of a better reputation and a short term benefit of the immediate impact. 

Measurement of environmental impacts often require some form of conversion methodology, such as the estimation of carbon dioxide emissions resulting from the consumption of heating oil. In other words, the measurement of an initiative is always in terms of the problem addressed, in the above example, Coca-Cola started working for water scarcity measures and set annual targets in terms of percentage renewal of the water level. The problem under the study is of organic substance discharge.

Organic substance discharge can be detected either by determining the concentration of the emitted substance along with the time and place of the emission or by assessing the overall quality of the effluent when specific assessments are difficult to make due to the diverse nature of the components of the discharge. 

Measurement methods:

• Biochemical Oxygen Demand (BOD), which refers to the amount of oxygen that would be used if all the organic components in water were consumed by bacteria.
• Total Suspended Solids (TSS or SS) are solids in water, which constitute an indication of high concentrations of bacteria, nutrients or pesticides and can harm aquatic life/cause problems for the industrial use of water.
• Total Organic Carbon (TOC), which measures the organic content of a sample that can be oxidised to Carbon Dioxide.
• Chemical Oxygen Demand (COD), which is the amount of oxidisable material as measured by the potassium dichromate test.

Coca-Cola has considerably improved its reporting activities by being up to date with the advances in GRI guidelines which assist in measurement methods. (There is no single, universally accepted method for measuring the impacts of company activity on biodiversity. However, there are developing initiatives and schemes which provide a model for companies to report qualitatively on their biodiversity impacts in a holistic and integrated way such as the Global Reporting Initiative).

Companies need to note that the key areas they choose to work on lead to rewards in terms of positive engagement in the stock price. 

Source: Sustainability Report 2016, Coca-Cola

Thus, it’s imperative to note that laying a foundation and sticking with what’s right overtime by judiciously working for the society should be the ideals that businesses follow. It’s the realisation that the resources are limited and despite the unlimited wants the “need” shall fall into place. 

References:

• “What is CSR?”; by Sage publications 

• “Environmental Key Performance Indicators”; by Reporting Guidelines for UK Business; 
• “Four Case Studies on Corporate Social Responsibility: Do Conflicts Affect a Company’s Corporate Social Responsibility Policy?”; by Cristina A. Cedillo Torres, Mercedes Garcia-French, Rosemarie Hordijk, Kim Nguyen, Lana Olup