Corporate Social Responsibility vs Corporate Sustainability

The start of the new year is also an advent into the last quarter of financial year. Anyone in the accounting profession knows what this means… Expediting the process of closure of books of accounts.

This year however things are a bit different. Along with the preparation of financial reporting, certain class of entities are also mandatorily required to prepare non-financial reporting. SEBI requires some listed companies to prepare a Corporate Sustainability report called Business Responsibility & Sustainability Report (BRSR) to showcase not only their profitability & return to shareholders, but also how it achieves the Environment, Social & Governance objectives.

This new requirement has led to certain doubts in the minds of executives in these entities, as to the relevance of this report, since traditionally in compliance of Section 135 of Companies Act, 2013, they already are required to allocate a percentage of their companies’ profits to fulfil its CSR obligations.

So what’s the difference between Corporate Social Responsibility (CSR) & Corporate Sustainability (CS)?

Definition

CSR – Corporate Social Responsibility can be defined as organisations’ continuing commitment to operate ethically and augment its economic development while improving the standards of living of its employees & their families, including the upliftment of the local community at large.

CS – Corporate Sustainability is the utilisation of resources for its current needs, without compromising the needs of the future generations. Core values are imbibed in the ability to exist and sustain life.

Scope of Activities

CSR – A Measure for an entity to meet its social goals in the localities and society they operate in. Often this is aimed to build reputation and brand image and used along with sustainability.

CS – Sustainability along with meeting its social goals, follows the “Circle of Sustainability” which focuses on four domains: Economic, Ecological, Cultural & Political.

Legislative Background

CSR – In the Indian context CSR was introduced first time in the Companies Act, 2013 under Sec. 135, which mandated certain specified companies to form a corporate social responsibility committee to oversee its CSR obligations.

CS – Corporate Sustainability in its present form is based on the National Guidelines on Responsible Business Conduct (NGRBCs). Various mechanisms and guidelines urged the Indian authorities to form NGRBCs such as:

·         Section 135 of Companies Act, 2013

·         The UN Sustainable Development Goals (UNSDGs) 2015

·         Paris Agreement on Climate Change (2015)

·         Core Conventions 138 and 182 on Child Labour by the International Labour Organization (ILO)

Nature of Legislation: whether Mandatory or Voluntary? 

CSR – CSR commitments need to be mandatorily followed, only once the entity crosses prescribed threshold limit in terms of Net-worth, Turnover or Net-profit

CS – Although the reporting via BRSR has been mandated by SEBI for certain corporates, who are to issue non-financial report in the prescribed format. Underlying principle as a concept is voluntary in nature and should be used by all organisations, wherever possible, irrespective of their size and scale of operation, sector of engagement, structure, or location. This is also applicable to foreign multinational companies that operate in India.

Dependence on Quantum of Profits 

CSR – As per the requirement of the statute the company needs to spend at least 2% of the net profits, in pursuance of its CSR policy. So effectively the scale of CSR initiative is directly a consequence of the companies “Bottom Line”. Companies making losses would be exempted from undertaking CSR activities.

CS – Corporate Sustainability on the other hand is concerned with the “Triple Bottom Line”, which deals with People, Planet & Prosperity. Profits certainly is one of the pillars of sustainability. However, the quantum of profits/losses is inconsequential to the ethos of corporate sustainability.

Nature of Activities and Geographical Boundaries 

CSR – As per Section 135 of the Companies Act, 2013, CSR activities to be undertaken by the company should be those as specified in Schedule VII. The entity also needs to give preference to the local areas in and around where it operates.

CS – Corporate Sustainability Report via BRSR Is essentially governed by 9 principles as laid in the (NGRBCs). Being broader in scope, there is no specific geographical boundation. The 9 NGRBC principles however, need to be in line with the organizations strategy and policies and not as a separate additional standalone system. The 8th principle (Inclusive growth & equitable development) is guided by Section 135 of Companies Act, 2013 i.e., the CSR provision.

Conclusion 

There has been a common practice to use both the terms interchangeably. At the same time, it should also be noted that CSR and CS both are not mutually exclusive.

The concept of CSR is more reactive and historical in its approach. Sustainability, on the other hand, provides a more proactive and holistic approach toward attaining environment, social & governance (ESG) goals.

Focus is on how sustainable the entity is in its pursuit of profits, rather than the application of those profits. Corporate Sustainability takes into account the entire value chain (from vendors & customers to the shareholders & locals) going beyond the regulatory perspective.

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