The assumed dichotomy between business profitability and responsibility to society, is one that is continually challenged through modern business models especially now with the Fourth Industrial Revolution in full throttle. There has indeed been an elevation of the Triple Bottom-Line agenda, “Profit, People, & Planet”.
Coupled with the international focus on the achievement of SDG-s, certain practices that aim to attain social benefits have become more prevalent.
Corporate Social Responsibility (CSR) can be defined as the collective of such business practices that aim for the betterment of internal and external stakeholders, as well as society and the environment.
While CSR is generally not mandated by law, businesses benefit from it in a number of ways which may justify the costs incurred.
CSR: Eligibility vs Effectiveness
As there are no guidelines to box-in CSR practices, they may take many forms and programme structures depending on the businesses. For example, ensuring fairer employment conditions such as raising the length of maternity/paternity leave may be classified as CSR when reporting, without any legal implications.
While some may argue that not pigeon-holing such practices allow for more innovation and consumer engagement in the social agenda, a question of effectiveness must be raised.
- Ad-hoc practices such as one-time donations or case-specific employment benefits which should be counted as philanthropy, are reported without assessment of sustainable social benefits.
- “Greenwashing”, which is fundamentally the implementation of CSR activities to COMPENSATE for social costs incurred by core activities, is generally ineffective unless in terms of improving perceived image in the eyes of certain stakeholders.
- Programmes or practices which do not make use of the business’ core competencies, assets, and human resource do not accrue as many benefits as desirable.
The main hindrance in terms of effectiveness of CSR programs is in the lack of monitoring of sustained benefits that they accrue. In most cases, only spending on such activities is reported in individual Annual Reports. Independent studies on impacts of CSR are generally constrained by a lack of resources or by small sample sizes rather than being an aggregate level report. An example may be the Annual CSR reports carried out in Bangladesh by CSR Center, which is constrained by a lack of quantitative data regarding sustained impacts of examined businesses.
A Picture of CSR in Bangladesh:
Bangladesh Bank introduced the mainstreaming of CSR guidelines for the financial sector in 2008 which maintains that companies in the financial sector may allocate a percentage of post-tax profit for CSR activities. However they cannot spend more than 30 percent of their CSR outlay on the education sector, 20 percent on the health sector, and 10 percent for climate risk or disaster management.
Failure to adhere to commitments initially reported are liable to legal repercussions.
51 scheduled banks spent BDT 239.33 crore in the January-June period of 2019 as opposed to BDT 627.13 crore spent in the same period of 2018. The reason for the decline may be due to the poor performance of the banking sector and the lack of liquidity they are facing.
There are no specific guidelines for CSR activity in other sectors or fields but social businesses, NGOs, etc continue to carry out a plethora of CSR activities throughout the years. Some of these include Microfinance Institutions and Non-banking Financial Institutions such as IPDC Ltd facilitating easier access to finance for those unable to avail them, Developmental Organizations such as the International Finance Corporation, The Asian Development Bank etc working on energy access for the rural population, Start-ups such as Sheba.xyz, Misfit, and Syngenta AG proffering social benefits through technological innovation such as ease-of-access platforms, connecting market players digitally, Internet of Things technology among many other types.
Organizations such as British American Tobacco and Unilever recognize the need for eliminating ambiguity in CSR reporting and publish separate social reviews based on their activities. This allows them to brand as Green Businesses despite an apparent difference between the nature of their CSR and Core activities.
The Incentives for CSR Activity
Companies carrying out CSR Practices stand to gain certain benefits from it which include:
- Corporate Tax exemptions from fulfilling CSR commitments in terms of budgetary allocations. Bangladesh Bank offers a conditional 10% income tax exemption.
- Improved brand image and possible higher added-value to products on the basis of ethical considerations. An example may be BAT Bangladesh being awarded Asia Responsible Entrepreneurship Award in 2014 under Green Leadership by Enterprise Asia for their Aforestation activities.
- Less stringent regulation on core activities by monitoring bodies or the Government. An example may be the heavy compliance standards of bodies such as Alliance & Accord on RMG.
- Improved likelihood of receiving investments, especially from foreign investors.
- Improved worker motivation and productivity
In general, CSR Gains may be separated into forecasted Financial benefits for the firm and Social/Environmental benefits. Decisions can be taken on whether to implement or abandon the activity based on a number of external factors as well as business objectives.
Way Forward for CSR in Bangladesh
As previously mentioned, the main lacking for CSR in Bangladesh is the lack of regulated reporting of CSR activities barring the financial sector. There is also a lack of mandated minimum spending on CSR Activities which leads to lower national spending on such activities.
France, Denmark, South Africa, China, and India have all adopted policies that require a minimum of net profit to be used for CSR activities given they have exceeded a certain financial size or threshold.
While a minimum spending policy may be cumbersome to growth for Bangladesh, reporting can be mandated.
The Global Reporting Initiative (GRI) has formulated standards for reporting CSR activities and has a reach of over 100 countries. Similarly the International Organization for Standardization (ISO) has formulated the ISO-26000 which is a guideline for social responsibility and aids in the design of socially beneficial programmes and activities for businesses around the world.
The importance of governments in promoting CSR is defined through standard-setting and incentivising such activity. Generally, companies able to meet their own pre-determined CSR spend are given benefits such as corporate tax exemptions and technical support in implementing and communicating CSR programmes. Aforementioned reporting standards can also be standardised to serve as a seal of approval for companies that become certified upon meeting set criteria. This is extrinsically beneficial as it strengthens the brand image.
Bangladesh would benefit from adhering to such standards and possibly mandating CSR reporting. This in turn would allow the formulation of more data-driven reports in addition to existing aggregate ones such as those by CSR Center, Bangladesh. This may be done by mandating compliance with global reporting standards as aforementioned or having separate reports for Social Activities through the year, which not only reports recent developments, but follows up on previous effects and whether they have sustained.
Holistic growth all across the nation is just as important, if not greater, an indicator of performance as GDP growth. CSR allows Businesses to bring about such growth. Therefore it is paramount that it is done right.
Sartaz Zahir, Trainee Consultant at LightCastle Partners, has prepared the write-up. For further clarifications, contact here: [email protected]
- 1. Financial sector Corporate Social Responsibility (CSR) engagements: Indicative Guidelines for expenditure allocation – Bangladesh Bank
- 2. IDLC Monthly Business Review – IDLC
- 3. Banks’ CSR spending drops by 62pc in Jan-June – NewAgeBD
- 4. CSR Centre – CSR Center