Introduction
Years have passed since the time when air was fresh for the creatures to breathe, and water was edible for them to drink. The world now is a jar of garbage without a compost pit. It has been slaughtered and dragged into this black cloud of pollution exhaling slowly through the hole of the depleting ozone layer. While this remains the situation, one may ponder about the circumstances which led this green and blue turn into black and only black. The emerging grandeur world of companies have contributed their bit into this nasty evolution.Sure their development was essential for improving the economy of the drained colonized developing countries, but man practiced not development but malice. Mahatma Gandhi once said that there is enough for everybody’s need but not for everybody’s greed. The same is holding true now in the case of man exploiting environment for his selfish deeds.
In 2017, China emitted the highest amounts of carbon dioxide in the world, followed by the United States. 1 While China is the world’s biggest producer of carbon dioxide and has 20 of the world’s 30 most polluted cities, U.S. factories emit 3 million tons of toxic chemicals into the land, air, and water. 2 Both these countries exercise high scale industrial activities, and their emission gives evidence for the fact that increased level of industrial activities at an unbalance pace leads to massive destruction of the environment. Realizing this and putting efforts for sustainable development, the organizations and enterprises added the concept of Corporate Environmental Responsibility (CER) under the head of Corporate Social Responsibility.
This article aims to highlight the meaning of the two terms, Corporate Social Responsibility and Corporate Environmental Responsibility, and along with it analyzes how Indian companies have contributed their bit towards CSR and CER for the society. The article will also try to touch on the theme that whether CER should continue to form part of CSR or become separate from it.
I. What is Corporate Social Responsibility and Corporate Environmental Responsibility?
United Nations Industrial Development Organization defines Corporate Social Responsibility as a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. The European Commission defines it as the responsibility of enterprises for their impact on society and imposes the need for companies to work in a socially responsible manner. According to the Commission, CSR is important for enterprises as it provides important benefits in terms of risk management, cost savings, access to capital, customer relationships, HR management, sustainability of operations, ability to innovate and eventually profit. All this will make companies become more sustainable and innovative, thereby making the overall economy of the country more sustainable. Therefore, Corporate Social Responsibility could be understood to be a way for a company to give back to the society from which it has prospered. In order to give back to the society, they need to allocate their acquired resources for the benefit of the society. This could be done by investing in fields like education, heath, eradicating hunger and poverty etc. Among these many fields, one such field is that of environmental sustainability.
Thus, Corporate Environmental Responsibility forms part of the greater head of Corporate Social Responsibility. It refers to an enterprise’s active reduction of environmentally adverse behaviors and participation in environmentally beneficial activities in its daily business activities. In India, CSR and CER are encompassed in Companies Act, 2013. Section 135 of the Act lays that every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors and this committee should formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII. The company is required to spend in every financial year, at least two percent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.
Therefore, the company which qualifies the criteria of wealth set by the section of the Act, is required to form a committee to make sure that the company carries out the activities of CSR mentioned in schedule VII and allocates at least two percent of the average net profits of the company made during the three immediately preceding financial years. Schedule VII of the Act lists down 12 categories of activities under CSR, and the fourth category contains the provisions of Corporate Environmental Responsibility. The subjects of CER include:
ensuring environmental sustainability
ecological balance
protection of flora and fauna
animal welfare
agroforestry
conservation of natural resources and maintaining quality of soil, air and water (including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga).
In order to make the companies observe responsible business conduct, the government had constituted National Voluntary Guidelines on the Social, Environmental and Economic Responsibilities of Business but the same was altered to align the NVGs with the Sustainable Development Goals (SDGs) and the ‘Respect’ pillar of the United Nations Guiding Principles (UNGP) and named National Guidelines on Responsible Business Conduct (NGRBC). These guidelines give the businesses the opportunity to voluntarily perform above and beyond the requirements of regulatory compliance.
On the other hand, SEBI had mandated for 100 listed companies in 2012 to publish Business Responsibility Report, but in 2015, the list was added to 500 while the latest notification passed on November 2019 makes it compulsory for 1000 listed companies to publish the Business Responsibility Report. The Business Responsibility Report by SEBI was introduced in 2012, following the National Voluntary Guidelines on the Social, Environmental and Economic Responsibilities of Business to transparent the corporate management and allocation of resources towards CSR.
However, it has been observed that Global Reporting Initiative is far more comprehensive and encompassing in terms of content as compared to BRR format provided by SEBI. 10 Thus, SEBI should probably amend its format in accordance with GRI to give more comprehensive details about corporate management of the companies.
II. Indian Companies and their CSR
The Greener the product, better attractive it is to the consumers. The essence of being associated to the environment makes consumers want to but items that are eco-friendly. Also, having a good CSR allocation shows high ethics of the company and it secures a better reputation in the market. As this remains the situation, the Indian companies also try to keep pace with making their Business Responsibility Report clean and loaded with CSR allocation. However, analysis of the reports suggests a low impact outcome for environmental purposes.
Following data shows list of four top Indian companies and their allocation of CSR amount.
1) Reliance Industries Limited
Total spending on Corporate Social Responsibility (CSR) as percentage of profit after tax (%) is 909 crore as on 31st March 2020 (*2.08%). 11 However the major areas in which the CSR expenditure has been incurred include: 1. Rural transformation 2. Health 3. Education 4. Sports for development 5. Disaster response 6. Arts, culture and heritage 7. Urban renewal.
Therefore, environmental concerns do not form part of the major projects of CSR expenditure.
2) Oil India limited
Total Spending on Corporate Social Responsibility (CSR) as percentage of net profit (%) is 5.15%, according to the 2018-2019 BRR. However, the Annual Report on CSR activities show that under the Environment head, which includes Project OIL Urja on providing renewable, cost effective and clean energy solutions and activities on Biodiversity Conservation, only 01.56 Crore Rupees have been spent while over other heads of CSR, example Promotion of Art, Culture and Heritage, 11.74 crore rupees have been spent. While analyzing the major projects given under the report, the lowest amount was spent for the Environment head. Sure, promotion of Art and culture of society is required but the depleting conditions of environment need more attention that what is being given.
3) Tata Motors
Total CSR spent is 22.91 crores out of which 1.22 Crore have been spent for ensuring environmental sustainability. The amount spent by Tata Motors for environmental project in the mentioned years report was second lowest of all the projects under CSR. For example, under Employability Enhancing Skill Development, 5.58 crore were used and for education, 9.59 crores.
This shows that there is a stark difference between what the company spends for other heads and environment. While skill development and education are prime concerns for welfare of the citizens, allocation of 9.59 crore on them while just 1.22 crore on environment is significantly low.
4) ONGC
During Financial Year 2019, ONGC spent INR. 6,146 million on CSR initiatives taken up in the areas of education, healthcare, rural development, skill development, promotion of sports and other themes covered under schedule VII of the Companies Act. Though the company has carried out many social responsibilities like Swatch Bharat projects and Arogya -Samrakshan, its amount spent specifically for environmental projects remains limited of 17.70 million. It is the second lowest amount spent for CSR activities while education and healthcare have been devoted 230.96 and 131.23 million each. This shows the stark difference of the amount spent on the different activities.
ANALYSIS
Analyzing the CSR amount spent on different heads, it becomes clear that concerns for environment remain at the lowest or second lowest level. While tools for preservation of environment may not come cheap, but the expenditure spent by top companies suggest that they have neglected the seriousness that environmental sustainability should be given at this moment. They fail to understand that if the environment gets deprived of its resources, there would be no oil and gas to sell.
Even though CSR has been set up, for the sake of environment, CER should be distinguished from CSR. It is only when both are distinguished and CER stops being sub-part of CSR, can companies be made to truly diverge their gains into the benefits of the environment.
III. Major Legislations for Environmental protection against the Companies:
1) Environment Protection Act, 1986
In the wake of Bhopal gas tragedy, parliament passed Environmental Protection Act, 1986 to provide for the protection and improvement of environment and for matters connected therewith. The Act was also legislated to follow the principles of United Nations Conference on Human Environment held at Stockholm in June 1972. Section 16 of the Act specifically holds companies liable if they commit any offence of the said provisions while section 15 lists down the punishment for any offence made under this act. The sections are read as herein under:
Section 16: Where any offence under this Act has been committed by a company, every person who, at the time the offence was committed, was directly in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Section 15: Whoever fails to comply with or contravenes any of the provisions of this Act, or the rules made or orders or directions issued thereunder, shall, in respect of each such failure or contravention, be punishable with imprisonment for a term which may extend to five years or with fine which may extend to one lakh rupees, or with both, and in case the failure or contravention continues, with additional fine which may extend to five thousand rupees for every day during which such failure or contravention continues after the conviction for the first such failure or contravention.
Section 16 can be said to be lifting the corporate veil by imposing liability on every person who is responsible for the conduct of the company at the time when the offence was committed and when read with section 15, interprets that the responsibility holder of the company will be made liable for imprisonment of five years or fine or both, if the company commits any offense under the said act.
2) Vicarious Liability:
Unlike section 16 of Environment Protection Act which talks about lifting of corporate veil, vicarious liability makes the company liable for the acts of its employees if made for the benefit of the company and in course of employment.
3) Tortious Liability:
There are two types of tortious liability that can be invoked against the companies. Strict liability which was enunciated in the case of Ryland v. Fletcher, makes the company liable for causing any injury to the consumer or any third person for that matter, if the injury has resulted due to the company. But principle of strict liability has few exceptions like act of God and act by third party which could afford the corporates to pass off their liability.
Therefore, the second type of liability was introduced, named, Absolute liability. It was enunciated it the case of M.C. Mehta v. Union of India, where CJ Bhagwati said “where an enterprise is engaged in a hazardous or inherently dangerous activity and harm results to anyone on account of an accident in the operation of such hazardous or inherently dangerous activity resulting, for example, in the escape of toxic gas the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident and such liability is not subject to any of the exceptions which operate vis-à-vis the tortious principle of strict liability rule in Ryland vs. Fletcher.”
IV. Major Judicial Precedents for Environmental Protection against companies.
1) In Vellore Citizen’s Welfare Forum V Union of India, it was held that though industries are important for the development of the country, but they cannot be allowed to gain that benefit by degrading the environment and posting a health hazard and therefore, cannot be allowed to continue its operation unless pollution control device is set up. The case expounded the ‘precautionary and polluters pay principle’, according to which a polluter is liable to pay the cost to individual sufferers as well as the costs of reversing the damaged ecology.
2) In Subhash Kumar V State of Bihar, the Supreme Court widened the ambit of article 21 of right to life to include within it right to wholesome environment. The court held that right to life includes right to enjoyment of pollution-free water and air for a fuller enjoyment of life.
V. Conclusion: A Way Out
The article has tried to bring forth the urgent need to pay heed to the environmental concerns for the benefit of society. It has tried to demonstrate how unbalanced pace industrial development can disturb the ecological balance of environment and deplete its resources way ahead of time. Even though the Nations have realized that environmental sustainability is the need of the hour and have incorporated whereas instruments to put restrictions on companies on employing exploiting ways to dig up the environment, very less of those instruments appear to be of any use. While CSR has been deployed for societal benefits, only little is devoted for environment from it.
Therefore, it is an urgent requirement that CSR be separated from CER to make CER become more effective and mandatory for the companies. Also, it is proposed that SEBI should amend its format of Business Responsibility Report and adopt contents similar to Global Reporting Initiative to make the purpose of transparent reporting of corporate governance more comprehensive and worthwhile.
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