Corporate Social Responsibility

Corporate Social Responsibility

Social Responsibility in the Context of a Business Enterprise

Social responsibility is about being ethically or morally responsible for actions that contribute to improving the quality of life of an individual, institutions or the society at large. For business enterprises, social responsibility is a self-regulation integrated across business activities that can lead to sustainable entrepreneurship.


Sustainable entrepreneurship is a continuous commitment and accountability of businesses to behave ethically and contribute to the economic development, environment along with improvement in the quality of life and of the society. Sustainable entrepreneurship is thus oriented towards long-term allocation of resources, investments, technological developments and organizational change for current and future generations. Accordingly, sustainable entrepreneurship is mostly adopted by large enterprises that interact with large number of stakeholders such as customers, employees, suppliers, regulators, etc in the form of a quasi-legal or self-regulating policy known as "Corporate Social Responsibility (CSR)”.


Social responsibility can nevertheless extend beyond the purview of large enterprises. Micro, Small and Medium Enterprises (MSMEs) can also indulge in social responsibility-related activities, also termed as Enterprise Social Responsibility (ESR).

 

What Constitutes Enterprise Social Responsibility (ESR) for a MSME?

The International Organization for Standardization (ISO)’s ISO 26000 working group provided a working definition for ESR / CSR as:

“…the way firms integrate social, environmental and economic concerns into their values, culture, decision making, strategy and operations in a transparent and accountable manner, and thereby establish better practices within the firm, create wealth and improve society.”


The definition indicates two dimensions through which MSMEs can indulge in ESR activities:

  • Internally across their business operations. Internal ESR mainly involves social compliances that focus of human resource welfare and favorable contribution to environment.
  • Externally in activities that are not directly related to their business. External ESR activities focus on community development by promoting education and social services through charities or donations, which are mostly undertaken by MSMEs as well as large enterprises.

 

What Constraints are Faced by MSMEs in Performing ESR Activities vis-à-vis Large Enterprises?

ESR implies responsibility of an MSME to contribute towards the welfare and well-being of all the elements that affect the business environment. However, MSMEs are constrained in terms of their size and operations in comparison to large enterprises that mainly differentiates ESR from CSR. The following are certain constraints experienced by MSMEs that not only restrict MSMEs survival but also limits them from choosing any particular activity related to social responsibility:

  • Constrained resources (manpower, financial, managerial, marketing etc)
  • Limited economies of scale or scope
  • Lack of benefits of advanced technology
  • Limited division of labor
  • Complete dependency on a product/market/buyer
  • Low bargaining power to higher risks due to lack of diversification.

 

What are the Benefits of Performing ESR Activities?

 

Easier access to capital

For making lending decisions, financial institutions can consider a business plan containing indicators of effective ESR management in an MSME. This business plan can be reflective of the enterprise’s capability of achieving long-term investment goals.

Global Market Access

Compliance to standards and certifications required  by select developed nations like US, Japan and countries in EU can facilitate reputation and continued business association for export-oriented SMEs

Positive Brand Equity

MSMEs that indulge in ESR are able to build strong reputation or brand equity thus representative of being a reliable and responsible enterprise in the minds of its customers/buyers

Effective Retention of Human Resources

Companies that indulge in internal ESR activities are able to create an extremely conducive work environment based on improved work ethics and conditions which ultimately results in enhanced development of human resources and reduced attrition rates

Improved Productivity

Employee efficiencies are higher in a favorable working environment that can result in improved productivity and cost-savings

Streamlined Supply Chain Relationships

MSMEs that have formally implemented ESR activities through international certifications and standardisation can avail from integration with global supply chains. This integration can provide consistent business from domestic companies and MNCs in India and abroad

Enhanced Risk Management

A socially responsible enterprise with its enhanced relationship with its stakeholders (domestic and foreign) is in a favorable position to anticipate and respond to any regulatory, economic, social and environmental occurrences or surprises

Robust Image

Continued improvement in stakeholder relationship of the company may evolve into more robust and enduring public, private and civil society alliances

 

What Specific Challenges are Faced by Indian MSMEs in Implementing CSR Activities?

MSMEs are subject to major challenges during implementation of ESR activities across their business operations. The four major challenges include:
 

Business Case

An MSME should obtain sustainability in the long-run such that the financial benefits can outweigh the costs of implementing ESR activities

Monitoring, Certification & Reporting

A process of determining credibility and reliability of ESR activities implemented in an MSME is not generally defined in India. Accordingly, the accountability and verification of enterprises adhering to ESR activities are not monitored and /or reported. However, most MSMEs acquire selected certifications for certain ESR activities for obtaining potential business orders from customers

Mainstreaming ESR in Supply-Chain

India does not have standard procedures that can help to mainstream ESR in the supply-chain. Accordingly, ESR in the supply chain is informally implemented by few MSMEs that have undertaken activities such as capacity building and providing financial support. Also, ESR in supply-chain is monitored through random inspections or site visits by stakeholders

Role of Public Policy

Public policy in India does not play a proactive role in regulating and enabling a feasible environment for ESR in MSMEs. Correspondingly, public policy can undertake four key responsibilities that includes – mandating, partnering, facilitating and endorsing ESR activities among MSMEs in India

The above mentioned challenges can be addressed through a collective and proactive approach from MSMEs, government bodies, consulting agencies, etc