CSR: Business Strategy for sustainable development

As a reader you might be thinking sustainable development in terms of development of the larger society. An example will be a large corporate doing philanthropy for destitute in a natural resource laden tribal area where they have mining interest or some other interest. Does sustainable development for larger society includes sustainable development of the business itself? Do we assume that corporates are always benevolent souls and without any self-interest they genuinely contribute to the society?  They do contribute, the family businesses in India are a prime example to this. But is this always the case? For public sector enterprises in India CSR is mandatory. For private sector it is not mandatory but we have seen some amazing work done by the private enterprises which has real long term positive impacts on the society and the business itself.

The focus of this article is that CSR is a business case. The need of the hour is to embed the CSR strategy with the long term business strategy. The question is why? Does it contribute to the bottom-line?  Already there are cyclical problems in the economy; the margins are under pressure for various companies. In this kind of scenario where the demand and supply sides are both displaying constraints is it wise to implement CSR strategy? Is CSR contributing to ease the demand and supply constraints in any way? Is CSR contributing in developing new markets and targeting potential markets? CSR strategies are long term commitments which involve spending of financial resources. We will look at these issues in the subsequent paragraphs.

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As per ISO 26000 Corporate Social Responsibility is defined as follows:
Social responsibility (is the) responsibility of an organization for the impacts of its decisions and activities on society and the environment through transparent and ethical behavior that is consistent with sustainable development and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior; and is integrated throughout the organization. The different areas of CSR interventions are community, workplace, marketplace, and environment and supply chain. So let’s focus on the community stakeholder first. Remember Coca Cola was banned from using ground water for its Plachimada Plant in Palakkad district, Kerala. The reason was the drought like situation that was created in that district because of the gross misuse of the natural resource. Let’s see the impact; it is well known that Coca Cola and Pepsi are already struggling in the Indian Market. They had to bring variants that suited the Indian Market like Nimbooz etc, which involved significant costs. Coke spends so much on its advertisement and distribution. So this single episode impacted both demand and supply adversely. From the supply point of view this plant was the only plant in Kerala, so it impacted the supply and distribution in Kerala. From the demand side, the company’s brand image received a blow. Kerala has higher per capita income and education levels than the average rest of India. Pepsi is an alternative to consumers in almost every part of India. So once consumer in his/her psyche relates the company to be working against the interests of the society and at the same there is an competitor of equal stature present in the market, then the company associated with violations is bound to suffer. Therefore development includes responsibility of using the natural resources ethically and efficiently. Community is a stakeholder for the business. Business must understand its economic, legal, and ethical responsibilities towards stakeholders as well as recognize the opportunities and challenges that every stakeholder presents.

Let’s focus on the famous eChoupal initiative by ITC. This project is perceived as IT for masses, which it should be because of the tremendous amount of improvement it has brought to the life of the common man. Farmers can look at weather forecasts, order fertiliser and herbicide, and consult an agronomist by e-mail when their crops turn yellow. At some eChoupals they can even buy life insurance, apply for loans and also check their children’s exam results. While much has been written about the social benefits of ITC’s eChoupal, the fact of the matter is that the project was conceptualised with a pure business focus to create farmer communities in villages to facilitate sourcing of high-quality farm produce for the company’s fast growing agribusiness. Here again from the supply side, ITC got a huge benefit because of elimination of middleman and a superior produce received by it directly from the farmer. Here ITC recognized the needs of the stakeholder, which is the farmer. In IT parlance, eChoupal is an intelligent blend of applications like CRM and supply chain management. For instance, by helping the farmer identify and control his inputs and farming practices, and by paying more for better quality, ITC has been able to preserve the source and improve the quality of produce. The portfolio of commodities sourced has been vastly expanded to include maize, barley, sorghum, and pulses, and the sourcing cycle is extended almost around the year. In the commodities market, these two factors are helping ITC create a definite competitive advantage. ITC now plans to leverage its eChoupal infrastructure to sell third-party products, provide rural market research services, and in the social sector, to provide services like health advisories and enable e-governance.

Just look at the benefit of this CSR activity for ITC. Do you still feel CSR is giving some pay checks to vulnerable people because the company has huge resources at its disposal? Enabling e-governance would mean partnering with the respective state or central government to implement their social schemes with the eChoupal platform. Who knows that the UID scheme in its entirety for social inclusion could be implemented in several states using this platform? Now again this amounts to bagging contracts from the government and as well as enabling the company to leverage any kind of power to lobby with the government. Come back to our theory of demand, supply and competition constraints. The increasing awareness of harmful effects of cigarette, demand for high tax on cigarettes, intense competition on FMCG side from HUL, P&G etc; in this scenario the eChoupal CSR strategy proved to be the business growth story for ITC.

Look at the innovations happening around us. These ideas are not like patents that Apple has. India requires its own kind of innovations. We all have heard about Rural BPOs and Self Help Groups (The famous Shakti project by HUL, which was emulated later by so many corporate). These are aimed at providing livelihood to the poor but at the same time an innovative method by the company to improve the bottom line. Lizzat Papad is such a famous brand. All of us know about it. These papads are made by household women, who make papads and supplement their family income so that their family can live a decent life. Is this some charity by Lizzat Pappad; no it’s their business model. Though full kudos to those thinkers who thought about developing such a model. Such model provides an opportunity for dignified and safe work, which everybody deserves. These models are not only reducing the company’s supply constraints in a big way but also providing avenues for substantial cost reduction.

Larsen and Toubro was the one of the first organisations to screen its workforce for detection of HIV/AIDS. This happened when the first case of HIV/AIDS was detected in India. It is part of CSR in fact this dimension in CSR parlance is called workplace.  L&T has major stakes in it because its employees are mostly labour force who is more susceptible to the disease. Labour productivity is directly correlated with labour health and company’s productivity is directly correlated to labour’s productivity. Many organisations especially with large labour force thereby have employee’s health check up as a part of workplace CSR.

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GE on its part launched a 5 year project, $ 20 million commitment, where the company will use its extensive knowledge and technology in water purification, power generation, and health care to help upgrade existing hospitals and build new medical centres in Africa.

The company enlisted relevant stakeholders in the community (e.g. the health ministry to furnish supplies and assign a doctor; local community members to volunteer labour) and provided the necessary high-tech equipment (power generators, water purification) and project management expertise. The first major site was Ghana. This investment is in line with GE’s commercial interest. Don’t you think so that Africa and other underdeveloped and developing worlds have serious water purification, power generation and healthcare concerns? GE is sending its employee force to Africa for building a prototype which they will further leverage and cash in with expansion of their business in the above mentioned markets. The kind of branding will indeed help GE to generate top-of-the-mind recall among various government bodies and civic organisations, which could help the company to generate business in future. For GE the African market and the other emerging markets are the next avenues of growth.

There are number of examples which I can go on citing. But the fact of the matter is that in the new business environment, many organizations have developed clear CSR efforts as strategic branding and management approach in achieving a win-win outcome. Any prospective investor in the current scenario will invest in companies that act with good corporate governance and social responsibility.

Increasingly, company’s performance as a responsible business is key to its financial and stock market standing, helping to protect it from instability and share price volatility.

Look from any angle, say environment waste management or energy conservation. Study any environment waste management you will find an underlying effort to bring about operational efficiency. Let’s even leave aside operational efficiency; do you think that by polluting the river or fields or land or groundwater or air the company can run its operation successfully in long run. It was in Tata’s interest to build the steel city of Jamshedpur in a model city. This is called sustainability. Though there are short sighted companies which indulge in illegal activities to cause harm to environment but they are doing at their own peril. Let’s study this from the demand and supply point of view. What is land or water or air or groundwater; are they are not part of the supply side. If an industry set up in an area keeps on inefficiently using the groundwater of that area say for 5 years, then what it will doing in the 6th year. All the money saved from exploitation will be the lost from 6th   year onwards and then the company will have added expenses on its book in future.The demand side effects will be fall in its image. Corporate branding is very important in maintaining and attracting new customer base.

In my erstwhile organisation, the management had come up with an interesting way to reduce their electricity bill. Usually on the floor two to four employees shared a light depending on their seating arrangement. Now what they did was they provided a hanging switch, with a very aesthetic look, attached to every light. When the electricity consumption was studied quarter on quarter there was a substantial reduction. This company is an outsourcing company receiving majority of its business from the United States. There the companies want to outsource their work to those companies which are energy efficient. This is as per the definition of CSR by ISO 26000 (mentioned above) where even companies look for suppliers who are responsible in their business. CSR strategy is applied throughout the supply chain.

I hope that through this article I have explored the various aspects of CSR and convinced the readers that how the modern day CSR strategy is an integral part of the long term business strategy. The intention of this article is not to undermine the superb philanthropic work done by individuals and organisations in their own capacity but to explore new horizons.

[The article has been written by Vinit Chawla. He is an MBA from NMIMS, Mumbai prior to which he had worked with WNS Research and Analytics.]

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CSR: Business Strategy for sustainable development

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