India’s new mandatory CSR legislation and “clean green” policies are taking companies in the wrong direction.
By Wayne Visser
Part of the Searching for Sustainable Business series
Misguiding The Arm Of The Law
In my last blog post on sustainable business in Nigeria, I ended with a call for better policy on corporate social responsibility (CSR) – and a caution against mandating CSR directly, as Nigeria has proposed.
This is unfortunately a lesson that India has failed to heed.
In the past week, major reforms to the country’s Companies Act of 1956 were approved. Many of the changes are a laudable attempt to bring India’s business sector up to date with international trends in corporate governance, transparency and anti-corruption.
But through the same legislation, India is taking giant leap backwards on CSR. The new Companies Bill requires companies with profits over 50 million Rupees ($816,000) in the last three years to spend at least two percent of their profits on CSR. At a time when most of the world has moved beyond defensive and philanthropic modes of CSR, toward promotional, strategic and transformative approaches, India’s policy virtually guarantees that its companies will remain stuck in an out-dated charitable mind set.
Charity Sometimes Faileth
The Indian legislation allows companies the freedom to choose the issues that their CSR efforts will tackle, which at least in theory allows some scope for strategic alignment of social and environmental issues with business activities. The policy also suggests that failure to spend the required percentage on CSR – or to adequately explain the reasons why – can result in penalties.
However, the problem in India -- as in many developing countries -- is that the capacity to monitor and enforce is severely challenged by weak, failing or corrupt governments.
India – along with Nigeria and Malaysia, who are also pursuing the mandatory CSR line – should learn from the United Kingdom’s mistakes. Britain created something similar – a Minister for CSR – in 2003, and eventually abandoned it in 2010 as a largely ineffectual strategy. The reason it failed in the U.K., and will most likely fail in India, is the same reason that CSR departments often fail in companies: lack of integration into the core functions of the organization, and lack of political or economic clout.
Regulate The Issues, Not CSR
In my view, governments should focus on effective regulation of the issues that sustainable business is trying to address (biodiversity loss, labor conditions, climate change, transparency, etc.) rather than regulating sustainable business activities per se.
India could have learned valuable lessons from South Africa’s corporate governance reforms, which integrate sustainability, or from the U.K. and U.S.’ legal reforms on social enterprise, or from Canada and Spain’s community development companies.
Instead, by regulating CSR directly, they are more likely to create bureaucracy, stifle innovation and invite corruption.
Strengthening Inclusive Business
There are some other aspects of the new Companies Bill that could inadvertently have a bigger positive impact on socially responsible business than its mandatory “CSR tax.”
For instance, the ability to file class action suits has been bolstered, which could allow stakeholders to take legal action against irresponsible companies. The bill also requires that companies disclose the difference in salaries between directors and employees, thus addressing one of the most neglected issues in CSR and sustainability, namely equitable income distribution.
This equity clause comes closer to the transformative agenda that is so urgently required in CSR, not only in India, but around the world. It builds on the promising trend of inclusive business that has been gaining momentum in India over the past decade.
Long before Michael Porter and Mark Kramer’s idea of “creating shared value” (CSV) was introduced, India became a seedbed of innovation for “bottom of the pyramid” (BOP) strategies, following work by CK Prahalad, Stuart Hart and others.
One of the BOP cases I investigated in some detail when I did my CSR lecture tour of India in 2010 is A Little World, a rural microbanking enterprise. Anurag Gupta, the Indian social entrepreneur who founded the company, has used mobile phone and biometric scanner technologies to make banking accessible and affordable to poor households.
As a result, a “mini-branch” costs only $80 to run per month, and millions of illiterate, undocumented villagers can get low-value bank accounts for the first time in their lives. The case study is written up in detail in my book, The Age of Responsibility, and remains a great example of inclusive business.
Green Does Not Always Mean Good
There are also many inspiring examples in India of how clean technologies like renewable energy and water purification are bringing vital utilities to poor households.
However, research by fellow Cambridge academic Emma Mawdsley suggests that some of these success stories mask ongoing inequalities of development in Indian society. She presents extensive evidence of how, for example, Delhi’s “clean, green” campaign has mainly benefited the middle and upper classes, while the poor have suffered.
This pattern of social injustice is reflected in the way New Delhi is tackling its air pollution problems, with policies that impact badly on the poor. Small polluting industries were relocated with little or no compensation for owners or workers. Older vehicles that do not use Compressed Natural Gas (CNG) sold to other city transport fleets, thus displacing rather than reducing pollution. Even the focus on air pollution represents a middle-class priority, rather than the most pressing need of the poor — clean, available water.
Criminalizing the Poor Under The Green Guise
Looking at the issue of water, Mawdsley is similarly critical.
The poor are often criminalized for water theft (estimates indicate that as much as 50 percent of Delhi’s water is unaccounted for in official meter readings
and thus “wasted”), while the authorities turn a blind eye to middle- and upper-class illegality. This common practice involves the falsification of meter readings and technologies that can enhance water amounts extracted from already legal connections or from illegal/unregistered ground water sources (through tub and bore wells).
“the pursuit of profitable environmental policies, technologies and change is
desirable if we are to move towards greater sustainability, but the political and social nature of their impacts must be recognized. ‘Green’ does not automatically mean ‘good.’ There will always be winners and losers, but there is a real danger in India at least that the drive towards greater sustainability will have some regressive social outcomes.”
A Grand Experiment in Sustainable Business
From my own experiences and research, I believe India is certainly a space to watch on sustainable business, and its progress is far from being a foregone conclusion.
Whereas there is a sense of order and control in China’s great transition, India is far more chaotic and unmanaged (or unmanageable?). It is almost as if there is a grand experiment in sustainable business – democratic, messy, ad-hoc Indian style, versus controlled, managed, sanctioned Chinese style.
Which will prevail is a question for future historians. I think it’s too soon to place bets on either. If we’re lucky, both will succeed in their own way.
Oil on Troubled Waters: Can Shell Make Good in Nigeria?
Yin And Yang: Striving For Sustainable Harmony In China
Going Glocal With CSR: Multilateral Musings In Mexico
How South Africa Led The World In Corporate Governance & Economic Empowerment
Ties that Bind: Experiments in Community Business
Meme-Splicing in the Land of the Rising Sun
Lessons from Africa’s Wild Frontiers
Searching for Sustainable Business: The Life Story of a Global Movement