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CSR AUDIT The Need Of The Hour

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In the past few years, the language of Corporate Social Responsibility (CSR) has been quite dynamic for some good reasons and people are gaining more awareness about it as well as willing to implement the idea in every aspect of life. Several new ideas of conducting CSR activities have arisen and there is now a high demand in the global village for a strategic implementation of CSR of the corporate entities in the society.

Many successful companies today have become well-known for incorporating social causes as well as social initiatives into their work cultures and their business strategies. CSR, in simple terms, is a company being conscious of the kind of impact it has on all the aspects of the society i.e. environmental, social and economic.

But how do we know if these companies 'walk-the-talk'? Enter, CSR audit. A CSR audit helps to understand and measure a company’s actual social performance against the social objectives it has set for  itself. So, it is “What we are doing” vs “What we had promised to do”.


Every company has a CSR committee which is a governing body that articulates the scope of CSR activities for the company and ensures compliance with the CSR policy. The CSR policy is monitored from time to time and changes when the CSR committee deems fit. The CSR committee plays by the rules set in Section 135 of the Companies Act, 2013. Usually companies that abide by the Companies Act are involved in social activities such as promotion of education, eradicating hunger, poverty, malnutrition, promotion of gender equality, parting vocational skills, empowering women, etc. There are several ways to spend the CSR budget for the society. Apart from the CSR, which in any case is mandatory, some companies have started indulging in Corporate Shared Value (CSV), the new trend in the corporate world.

There is a slight difference between CSV and CSR. CSR is fundamentally about engaging resources from the business in being a thoughtful corporate citizen, while CSV is aimed at changing how the core business is run-the strategy, values, rewards, people and the processes to deliver triple bottomline returns. The basic difference is that CSR is about doing something separate from the business activities and CSV is about integrating the social and environmental impact into the business and, in turn, using that integration to channel economic value.

CSR & CSV

CSR is about taking resources from a business and investing those resources as a good corporate citizen. Shared value is about changing a business’ core operations-structure, strategy, processes and rewards- in order to deliver superior profit growth. CSV is a concept that is very different from CSR as it does not focus on meeting a set, standard, external criteria or on philanthropy. Creating shared value is the idea that contributing to society is not a burden but an inherent principle of companies that their actions must create value for all stakeholders. The idea that the success of a business should not only be measured by profits, but also by the value it creates for the society at large is core to the idea of CSV. Business actions have both positive and negative impacts on society.

Through an amalgamation of CSR and CSV, companies have the opportunity to contribute to society outside their ordinary course of business through social investments that strengthen the context in which they operate. Society allows businesses to use its natural and human resources to create wealth. The businesses also have a responsibility to contribute to the benefit of society. This interdependence between the society and the business is an important starting point to construct a framework for corporate responsibility. A business that fails society is not a business that will survive in the long run. A company must not only produce social benefits, but also work towards eliminating any harmful impacts to the society and environment from its value chain.

Consumers are also a part of the CSV process, as when they purchase a company’s products, they participate in the process of shared value creation which enables the company to help the underprivileged strata of society through actions like providing safe food, better quality of life to rural farmers in developing countries. It is important that consumers feel an emotional connection when they buy a company’s products which is possible when they understand the positive social impact the company is having on society. Several companies in the US and Europe are making efforts to tackle complex global problems.

However, even companies in the frontier markets are increasingly taking the lead on regional and national issues like climate change, poverty, inequality etc. These businesses are adopting ‘Shared Value’ as a strong, sustainable and profitable business model.

Coming back to CSR audit, there are some companies that do an external audit and they have their own specific process of doing so. However, there are not many CSR audit companies under the sun. It is not a very common practice for a company to have an external CSR audit.

Let us run you through some advantages of having a CSR audit company by your side. A CSR audit firm will help its client get valuable information, instruments to fine tune the CSR policies, ways to enhance the social responsibility relevance and keep in line with the companies’ objectives and managerial choices. Usually, an audit firm has an experience of working with multiple firms.

Let us consider the fact that with a financial audit, an outside auditor brings certain credibility to the evaluation. This credibility is vital if the management team is to take the results seriously and if the general public is to believe the company’s public relations, social cause activities and social cause marketing. There is more that comes out from an external audit. It could be used to simply monitor and evaluate a company’s social performance. A company’s audit process can be helpful to understand their vulnerabilities in the external environment and then decide to launch new social initiatives within the company.

CSR AUDIT PROCESS
  

Each audit company will have a different process. But, in general, the audit companies will keep in check the input versus the output being delivered. For example, taking into consideration the CSR activity, the project expenses, the technical and financial resources and the infrastructure will be taken into account as the inputs, while the CSR audit will decide the output in the form of economic, social and environmental value from the project to the beneficiaries.

India and CSR Audit

There are regulatory requirements in India when it comes to CSR spending. Each company that qualifies under the criteria of (a) net worth of the company to be Rs.500 crore or more; (b) turnover of the company to be Rs.1000 crore or more; (c) net profit of the company to be Rs.5 crore or more, have to develop a transparent monitoring mechanism. The CSR committee of the company would be directly responsible for monitoring the implementation of the CSR policy. 

In India, the government is taking a step ahead to overhaul the CSR framework and to conduct audit of the welfare projects being implemented by the corporates. "We want to take a fresh look at the quality and efficacy of CSR expenditure. The basic idea is to add quality dimension to the CSR spends. There should be sort of social impact of the project undertaken by corporates. Secondly, the works done under CSR project shouldn't be duplicated," said a government official, adding that the government wanted to see concrete CSR results. Also, the government is considering on engaging a third party to monitor projects, which will be a kind of random checking.

Here Are Top 5 Reasons Why A Corporate Should Consider A CSR Audit

Reduce the ambiguities between the planning and the implementation of the CSR programme.

Ensure proper and sustainable utilisation of resources available within the company

Utilizing the data to communicate positive impact to the stakeholders, in turn, using the CSR audit as a process of engagement with the stakeholders.

Increase effectiveness of operations by reducing emissions, loopholes, corruption etc.

Reduce overall operational costs in the long term, along with an increase in organizational value in the market

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