Relevance: GS-2: Government policies and interventions for development in various sectors.

Key phrases: CSR, Companies Act, 2013, moral responsibility, ESG compliance, government-funded incubators, deep tech start-up, societal problems.

Why in News?

• In 2019, Finance Minister Nirmala Sitharaman announced that the scope of corporate social responsibility (CSR) is being expanded to allow firms to support research and innovation by government-funded incubators, or agencies funded by central and state governments or public state utilities.

What is Corporate Social Responsibility?

• According to the United Nations Industrial Development Organization, Corporate Social Responsibility is defined as a business management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.
• CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives, while at the same time addressing the expectations of shareholders and stakeholders.
• Prior to Companies Act 2013, CSR in India has traditionally been seen as a philanthropic activity. And in keeping with the Indian tradition, it was believed that every company has a moral responsibility to play an active role in discharging the social obligations, subject to the financial health of the company. CSR was influenced by family values, traditions, culture and religion.
• In India, Corporate Social Responsibility has been made mandatory through provisions under Section 135 of the Companies Act, 2013. According to the law, a company needs to spend at least 2% of their average net profit made during the 3 immediately preceding financial years for CSR activities.
• On April 1, 2014, India became the first country to legally mandate corporate social responsibility.

Which Factors drive CSR?

• Firstly, it’s a compliance issue. Most Indian companies must spend 2 per cent of their average net profits over the last three years towards CSR activities.
• Secondly, it is increasingly being leveraged to build a positive brand identity for corporations and help their ESG compliance. Brand image has gained importance as stakeholders have become more aware and involved in social issues. Employees, investors and consumers are now looking to associate with organisations that are equally interested and committed to doing social good as them. For ex. Borrowing rates from several European banks are tied to a company’s commitment to ESG and social impact.
• In response, corporate India is also striving to present a more holistic brand image to the public. The challenges, despite this growing awareness, remain in identifying the right partners and projects, as well as in selecting projects that are long-term impactful, scalable, and are self-sustaining.

Why Leveraging CSR for funding tech innovations is Important?

• In 2019, Finance Minister Nirmala Sitharaman announced that the scope of corporate social responsibility (CSR) is being expanded to allow firms to support research and innovation by government-funded incubators, or agencies funded by central and state governments or public state utilities.
• It is now widely acknowledged that the key to a non-linear scale-up of any project lies in leveraging technology. Solving societal problems is no exception. A policy environment that encourages CSR investments in technology-led solutions has made sustainable and scalable solutions a reality. Additionally, collaborations with local bodies and the establishment of governance and community engagement structures can ensure these projects become self-sustainable in the long run.
• There is a vibrant and thriving start-up ecosystem centered around most higher education institutions. These institutions are centers of high energy innovation and pioneers in developing technologies and innovations for social impact.
• For example, IIT Madras is home to one of the best deep tech startup ecosystems in the country with one new tech start-up being incubated every week. Working across sectors such as healthcare, education, agriculture, skill development, housing, energy, clean water, etc. these companies present an enormous opportunity for companies to partner and make deep social impact.
• CSR can be used to meaningfully support the tertiary education sector in a number of ways. Funds can be channelled into the implementation of socially relevant projects conceptualised by faculty members, or for supporting scientific research that will unravel the answers to key scientific questions underlying social problems.
• Further, grants can be given towards government-recognised incubators, setting up new incubators, supporting existing incubators to hire more people through internships and fellowships, and providing seed funding for start-ups. The fact that the government’s CSR policy allows a company to choose to intervene at any point in the end-to-end tech value creation process is a great enabler.
• Several examples of such projects that aim to tackle major social issues across domains can be presented. Some of the examples include creating sustainable construction materials that are affordable and recyclable, developing India-centric greening options such as novel heat and power management systems and addressing socio-technical issues (such as flood management systems) by carrying out in-depth risk analytics on relevant parameters.
• Projects such as these enabled through CSR funding and led by higher education institutions accelerate the transition from laboratory to actualisation and serve communities in innovative ways.
• Leveraging CSR for innovation through educational institutions such as the IITs also presents an opportunity to harness and nurture the potential of the students and faculty. These institutions and incubators are hotbeds for creating the next generation of innovators.

Way forward:

• Globally IIT alumni are contributing to the development of sustainable companies. There is also a heightened sensitivity and responsibility among these young individuals to find innovative solutions to social issues. Corporate India needs to recognise the vibrant intelligence and talent of these highly motivated individuals and invest in them for socially relevant initiatives aimed at improving society.
• Be it sanitation, energy, water, agriculture, or energy, there is a tech-enabled solution for every critical need waiting to be researched, developed, and implemented. It is time for companies to leverage their CSR to invest in projects which will create transformative value in the long term, drive change, contribute to the research and innovation ecosystem, and nurture future talent by building partnerships with institutions of learning.
• CSR should be invested to create unimaginably novel tech solutions to chronic societal problems.

Source: The Hindu BL

Mains Question:

Q. “CSR has an opportunity to encourage the informal sector as well as the citizens to indulge in social as well as national development”. Illustrate.