The Hindu Business Line : It could pay to do good

If the Minister for Corporate Affairs, Mr Salman Khurshid, has his way, India could become the first country to adapt innovatively the carbon credit system so that companies are enabled to give society something more than their products and services. At a recent event in New Delhi, the Minister put before the participants the idea of using carbon credit trading principles to further corporate social responsibility goals. According to Mr Khurshid, companies would be able to earn CSR credits and even trade in them, with firms that fall back on CSR simply buying credits from companies with a record of doing a lot of good for the ‘community’. The latter would earn CSR credits after a (proposed) government agency certifies the firm’s activities. Predictably, industry representatives have responded cautiously to the proposal which, while interesting, needs greater clarity. Would it be mandatory for companies to engage themselves in CSR activity? Would there be a stiff penalty for those that do not? If there were no stick in sight, why would companies seek to buy these credits?

It would also help if Mr Khurshid defines credit-earning activities more precisely. A good start would be to mesh the national development goals reflected in the various flagship programmes into the CSR credit system. Broadening the frame of reference and anchoring credit-earning responsibilities to specific ‘Missions” would also engage the corporate sector in functions often considered the bailiwick of governments alone. Environment protection could also become an attractive credit platform for firms that incorporate and conserve natural eco-systems in plans for townships or commercial complexes. In large part, the current violence and unrest in the mineral-rich States in eastern India emanates from the perception among local inhabitants of large corporations as destroyers of their natural habitat.

CSR credits could attempt some balance between industrialisation and preservation of traditional ways of living. The main issue for the policymaker would be the incentive to earn credits; what would those CSR credits get a firm, apart from some favourable publicity? Mr Khurshid offered a clue when he spoke of charity that attracts tax breaks as purely passive CSR. If national development goals earn CSR credits backed by tax breaks, firms would be tempted to discover the charms of social responsibility. For a market in such credits to develop, the government would have to make CSR mandatory and define the ‘floor’ limit for CSR goals, perhaps as a percentage of profits before tax. Credits accordingly earned could be carried forward; ‘surplus’ credits could also be bought by companies falling short of the CSR mandate. Then a market could develop on the admirable premise that it pays to do good.

Related Stories:
Cos may soon earn ‘credit’ for doing good
Why CSR often fails

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