“CSR Has To Be Related To Your Core Business”

As India moves towards a fresh code for business ethics, it is under pressure from global entities such as the Organisation for Economic Co-operation and Development (OECD) to get companies to adhere to international practices. BW's Anilesh S. Mahajan caught up with OECD's Chair on Investment and CSR, Roel Nieuwenkamp, who believes that it is not a good practice to enforce corporate social responsibility (CSR) through legal enactments.

Excerpts:

What is the OECD's view on sustainable development?
Open trade and investment policies have to be complemented with corporate responsibility. Many years ago, OECD was considered to be a ‘rich man's club'; but now that many developing countries have joined, it is far less so. There are eight developing country adherents to the OECD guidelines for multinational companies. And many more are joining like Costa Rica and Ukraine. They bring in a global prospective. As supply chains are more global, you need to have some kind of global standard for sustainability and for procurement. Companies from developing countries are confronted with guidelines when entering into global supply chains. If US or Japanese companies enter Africa, they still have to abide by OECD's guidelines.

How do you analyse India's policy on sustainable development?
The new voluntary guidelines for CSR (corporate social responsibility) are a step in the right direction. They are based on firm and compact international practices. It must be connected to globally accepted guidelines, such as that of the OECD's. Otherwise, it would become confusing for business as well. It is important to have coherence. They are, to a large extent, compatible with other international standards.

What is the difference between CSR practice in Europe and that in India?
I think what you call CSR in India is what we call corporate philanthropy in Europe. The definition (of CSR) is actually confusing. CSR in Europe is about environment, corruption and the aspects that are traditionally out of the social domain. It is much broader than the ‘social' aspect. But in most definitions, it would include taking care of your communities around your factories. What's not included is if you pay for a soccer team or you pay for an orphanage. It always has to be related to your core business. For example, if you have schools for the children of your workers. Not if you are paying for a school which is far away, and has nothing to do with your business.

Like an FMCG firm distributing shampoo sachets in rural India and calling it CSR...
I often find many definitions. You can make two distinctions, offensive CSR and defensive CSR. Defensive CSR is when you avoid doing harm; you do not contribute to adverse impacts on the environment. And take care of human rights and labour standards. The offensive type of CSR is more where you find win-win situations for your business and social, environment objects.

C.K. Prahalad would call it a bottom of pyramid strategy (for business). For me, it is also the offensive side of CSR, where the community benefits and you make money.

The whole purpose of business is to provide service and benefit the community and earn money out of it...
I agree, calling it CSR is stretching the definition a bit far in the offensive CSR category. But it could fall in the category of offensive CSR. The definition is very flexible. I have been part of so many discussions on what is to be called CSR... there is also an ethical aspect to it.

India is thinking about mandatory CSR. How does OECD look at it?
It is a little arbitrary. It is good if companies want to do that. If the 2 per cent is spent on philanthropy, it is still not CSR in your core business. You still have to invest in paying your workers well, look at the adverse impact on the environment. You cannot do all that with 2 per cent. CSR is relevant for what you do before profit, not where you spend after profit. Now internationally, supply chain responsibility is a hot topic amongst corporate, and is a big challenge. We at OECD consider this also as CSR.

Some aspects are taken care of under the Sarbanes-Oxley Act as well...
But that is more related to investments. And supply chain responsibility is in investments and in trade. The example I have is about the cotton industry in Uzbekistan. American companies buy cotton from traders in the country, who source it from farmers. These multinationals are considered to be responsible to cotton farmers, who are considered to be complicit because they allegedly force children to work in the cotton fields. It is sensitive to buy cotton from Uzbekistan. There are these complex issues, over which you do not have direct control. It is difficult because you are not doing it yourself; you are not harming the environment. The media and society still believe that you are doing it because you are buying from suppliers. You are asked to push your suppliers to change their behaviour.
For India Inc. too, it is important to understand these good business practices.

(This story was published in Businessworld Issue Dated 29-08-2011)