**3. Comparative analysis of CSR policies**

In the above part one is familiarized with the 'why' of governmental involvement in CSR policy. This part compares the CSR policy of India with Norway, and USA. As mentioned in the first part, Norway and USA are chosen for comparison with India on the basis of the rankings. Some more elaboration is required which justify the countries selected for the CSR policy comparison. The head of Norway, King Harald mentioned close culture attraction to India [25]. It adds to the fact of increasing in flux of corporate investment in India by Norway which makes her one of the biggest investors to India in Northern Europe [26]. Selection of Norway as a country for comparison may serve two additional purposes. First, since the investments from Norway to India are on an upwards trajectory, the Norwegian companies will need to be appraised of Indian CSR policy and a comparison would only facilitate to deepen and smoothen the compliance with Indian CSR policy. Second, Norway would be a representative of working a CSR policy in civil law system. On a bird's eye view, it enables the reader to appreciate the differences and synergies between CSR policies in a civil law system, here, Norway, and a common law system like India and USA.

USA is selected for comparison on two further grounds. First, USA has maximum FDI in India, reflecting the presence of American corporation in India. It makes it the biggest non-Asian country to invest in India. Otherwise, it is only second to Singapore as of 2021 [27]. Second and a simpler reason for selection of USA as a comparator is for her being a strong representative of a common law system. India is the base country with which USA and Norway are compared. India is opted as the base country again for two key reasons. First, the authors are from India and have a sufficiently better understanding of CSR policy of India. Second, the comparison can provide useful insights to revamp Indian CSR policy.

#### **3.1 Indian CSR policy**

The umbrella Company Law in India is, Companies Act, 2013 (CA, 2013) which statutorily introduced the concept of CSR in India. Its predecessor Companies Act, 1956 did not provide for CSR. However, the Ministry of Corporate Affairs introduced Voluntary CSR Guidelines in 2006 which reproduces core principles of CSR including care for all stakeholders, respect for human rights, worker's rights and welfare, social and inclusive development etc. For implementation under the 2006 guidelines, companies were afforded with a free hand to earmark funds for CSR and activities. The 2013 Act makes a stark shift to a mandatory CSR regime. It makes discharge of CSR by the companies inescapable if it fulfils certain financial soundness criteria as per Section 135 of CA, 2013. Accordingly, CSR is mandatory in India if a corporation fulfils any one of the three enumerated criteria. First, the net worth of the corporation is at least rupees 500 crore or more. Second, its turnover is 1000 crores or more. Third, net profit of the corporation is rupees 5 crore or more. The corporations which

#### *CSR Policies in Different Countries: A Comparative Analysis DOI: http://dx.doi.org/10.5772/intechopen.106612*

cross any of these three mentioned limits incur a mandatory obligation to incur at least 2% of its average net profits for the immediately preceding three financial years. The CSR expenditure has a couple of legal riders. The amount spent on CSR initiatives cannot be taken by the corporation as expenses for the purposes of the business or profession. Moreover, there are no tax exemptions on CSR per se. The direction of spending qua CSR is vested in the corporation. It must constitute a committee of the Board of Directors comprising of three or more directors and this committee will lay down the CSR policy of the corporation. The corporations that spend on CSR as per its CSR policy are required to maintain the record of the same on an annual basis in its annual report. Additionally, the corporations must give preference to the local areas around where it carries it operations. All of this is required to be disclosed on the corporation's website. Failure to comply with the prescribed CSR spending has to be justified by the Board in their CSR report [28].

Section 135 was amended in 2019 to make corporations toe the line of CSR. The amendment is pecuniarily and personally punitive. Pecuniary punitiveness requires transfer of the un-utilized funds to one of the funds mentioned in schedule VII of CA, 2013 within 6 months from the end of the financial year. If the CSR funds are tied to a continuing project, the un-utilized amount is required to be transferred to an unspent CSR account within 30 days from the end of financial year and is required to be spent within 3 years. If still the funds remain unspent after the lapse of mentioned period of 3 years, the amount is required to be transferred to one of the funds mentioned in schedule VII. The schedule enumerates several social-welfare activities, example given, eradication of hunger, poverty or promotion of education or gender equality etc. Violation of this provision may invite a fine ranging from rupees 25,000 to 25 lakhs; or it involve a personal punitive penalty where every defaulting officer may be punished with imprisonment up to 3 years; or both [29].

In addition to the legislation, the government also passed CSR Rules, 2014 which were amended in 2021. The rules minutely chart out the working of CSR mechanism in India. Dealing with all the aspects of all these rules is subject of another research work, some important points deserve a fair announcement. First, the definition of CSR under the rules is an exclusive one. It states CSR to mean activities done by the corporations in pursuance of Section 135 of CA, 2013. Rule 2(d) of CSR Rules, 2021excludes routine business activities; any activity undertaken outside India except for training of Indian sports; direct or indirect contribution to political part under Section 182 of CA, 2013; activities benefitting employees as mentioned in Section 2(k) of Code on Wages, 2017; sponsorship activities by corporations; and activities which the corporates are bound to perform by virtue of law [30].

The rule reveals inherent role that India ascribes to CSR. India contemplates role of corporations as co-partners in deliverance of social-welfare measures. Recall, as discussed in the first part, during early modern times, welfare of employees qualified as a socially responsible behaviour of the corporations. The 2021 CSR rules make it categorically definite that it is not by specifically excluding employee benefits from the definition of CSR. The claim is further buttressed by schedule VII of CA, 2013 which lays down broader agendas that can be traced to socio-economic promises made in nature of DPSP under Part IV of the Indian Constitution. For instance, Article 45 of Constitution of India, 1950 provides a progressive obligation on the state for free and compulsory education for all children till they complete 14 years of age. Schedule VII of CA, 2013 also lists spending on education as one of the CSR activities. The corporations in India cannot divulge CSR spending to activities of the kind which are alien to Schedule VII. This clarification was issued by Ministry of Corporate Affairs

(MCA) in its General Circular No. 21/2014 [31]. It goes on to substantiate the mandatory role of corporations that Indian government ascribes to them in socio-economic development of the country.

The CSR activities through rule making power can be extended to suit the felt needs of the Indian society. For instance, in 2020 MCA notification number 526(E) extended the routine business of companies engaged in research and development activity of COVID-19 related vaccine, drugs and medical devices for three financial years, 2020–2021, 2021–2022, and 2022–2023 with certain conditions relating to separate disclosure of such activities in the companies' annual reports, and mandatory partnership with one of the organizations mentioned in item (ix) to Sch. VII of CA, 2013 [32]. Further a series of amendments were introduced in the Sch. VII during the period 1st April, 2020 to 31st March, 2021 to encourage the flow of funds of companies towards national issues. Contributions made to Prime Minister's Citizen Assistance and Relief in Emergency Situation Fund, Central Armed Police Force, Central Paramilitary veterans and their dependents including windows are also counted in CSR activities now. Moreover, contributions to Public Funded Universities and autonomous bodies under Department of Science and Technology, Department of Biotechnology etc. that conduct research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goas also qualify for CSR [32, 33]. These recent amendments exhibit the India's stance on CSR which is sensitive to the prevailing currents of the society. The Indian CSR's official website acknowledges the public-private partnership through CSR in transforming India [34].

#### **3.2 Norwegian CSR policy**

Gro Harlem Brundtlan, three times Norway's Prime Minister (1974–1979) and before it, once was the Environment Affairs Minister hard pressed for Norway to be a leading role model in CSR. This ethical approach of Norway has deeper historical roots than Brundtlan's leadership. The Hague movement of Norway influenced the businesses in early 19th century. The movement mooted for carrying business with an appeal to the higher purpose- God. For instance, one of the important tenets of the movement was fair treatment to the employees [35]. The movement can still find reverberations in Norway's approach to CSR.

The Norwegian state is immensely involved in CSR since it is engrossed in business through direct or indirect ownership of big corporations. It entails that the corporations voluntarily assist the local communities in which they operate. This may be so without pasting the label of CSR [35]. Such a system coupled with Norway's welfare and egalitarian values culminates to strong sentiment for society [36]. In 2007, Norway organized an international conference on CSR and sustainable development. The outcome was a report on CSR in a global economy where Norway affirmed that its corporations in home and foreign should maintain strong CSR process [37].

The dominant driver of CSR ecosystem in Norway is its culture. This culture has marked its presence in several legislations that ensure socially responsible behaviour by the corporations. For instance, Gender Equality Act, 1978 intends to achieve the salutary of aim of promoting gender equality and improving the position of women in education, employment and cultural and professional advancement. Likewise, The Pollution Control Act, 1981 provides for participation of corporations in EU Eco-Management and Audit Scheme to assess corporations' environmental performance. There are several other legislations handling important issues of CSR in piece-meal yet poignant manner. Human Rights Act, 1991; Greenhouse Gas Emission Trading

Act, 2004; Labor Market Act, 2004; The Social Welfare Act, 2009 and examples of legislation galore [37].

The principal enactment that prescribes CSR disclosures is Accounting Act, 1998 (AA, 1998). It provides for mandatory disclosures of CSR activities undertaken by the corporations. AA, 1998 was amended in 2013 by the Norwegian Parliament to strengthen the disclosures. It requires big business corporations to supply information regarding the steps undertaken by them to integrate considerations qua human and labour rights, social issues, environmentally friendly practices, and anti-corruption business strategies. The quality of disclosure must be such that it enables one to understand the corporation's development, results, position and consequences of its activities [38]. Big corporations are businesses that satisfy at least two of the three conditionalities. First, the corporations have a sales revenue of 70 million NOK or more. Second, the balance sheet total is 35 million NOK or more. Third, there are 50 or more full-time employees in the financial year [39].

This is not to dispel the role of Small and Medium Enterprises (SMEs) in Norway. As brought up at the beginning of this segment, Norway has a strong culture of CSR. Despite absence of legal obligation, the SMEs in Norway find out practical ways to integrate CSR element in their business strategies. SMEs either pay close attention to the environmental impact of their products or focus on human rights obligations in consultation with the stakeholders. This becomes more so important when the number of legally defined big corporations in Norway is just around 2%. Role of SMEs then becomes central to Norway's performance in CSR [37]. It can be inferred that Norway's business culture rather than legal framework plays an important role in its CSR engagement.

However, the data available reflects a need for concrete CSR policy in Norway. There are weak CSR monitoring and enforcement mechanisms in the country. As per a 2009 study, only 10% companies are in compliance with environmental reporting law, and only half of the companies abide by the legal provisions on working conditions and gender equality. The key reason as the study suggests is lack of monitoring on compliance by the Norwegian authority. The law is equally facilitating by vagueness of the words. For instance, the AA, 1988 requires 'information 'that could cause a not insignificant impact on the external environment' [40]. The companies may use the loophole present and categorize their practices as causing insignificant harm on environment and thereby evading the reporting requirements.

### **3.3 American CSR policy**

The US economy has been fairly unregulated. The labour and capital operate relatively on free market forces. It implies there are lesser state provisions for the US. There is no hard law that insists the corporations to spend a specific amount on CSR activities. The main legitimating factor for US corporations to do CSR is the legitimate expectation of people. This expectation in fact is popularly proclaimed as the propeller of CSR in the US. In 1971, the Committee for Economic Development expressed the concept of social contract between businesses and the society. The businesses are able to operate because of public consent, therefore they owe a duty to constructively serve the society. There are three duties appended to the corporations as per the social contract. First, to supply jobs and promote economic growth through businesses. Second, the business should be run fairly and honestly to the employees. Third and most important, businesses should involve themselves in bettering the community and environment in the vicinity of their operations [41].

Charactering feature of US CSR policy is its voluntariness in societal engagement notwithstanding absence of legislation mandating it. The stated voluntariness in CSR activities has compelled scholars to view corporations as citizens which are to help other citizens [42]. However, there are soft pressures which are created by the government for corporations to be socially responsible. There are in place policies and voluntary checks that include soft laws where the large corporations have to report their CSR related activities. There are government agencies which use CSR initiatives to guide the corporations in human rights, labour and other social and environmental issues. A good exemplar of the same is US Bureau of Economic and Business Affairs which has a CSR team. The main function of it is to promote responsible business practices and inculcate sustainable development and simultaneously ensuring economic security. It provides corporations necessary support to engage in human rights, women's rights, local economy affairs, industrial relations etc. [43].

The aforementioned facilities are available to facilitate corporates as good citizens. In addition, like Norway, there is fragmentary legal framework to ensure good and socially responsible behaviour by the corporations. For instance, Patient Protection and Affordable Care Act, 2010 and the Health Care and Education Reconciliation Act, 2010 were introduced to combat bad practices of insurance companies like policy revocations on mere technicalities, premium loadings etc. This made insurance companies more socially responsible. Bureaucratic set up is also used to ensure socially responsible behaviour. A case on point is of US Bureau of Energy Resources which promotes use of clean energy sources [43]. The US CSR work is mainly driven by people's expectations and further assisted and buttressed by the government and to a lesser extent by legislation.

The US has marked an upward trajectory in reporting the CSR activities done by it. Still and all, those reports may not disclose an accurate scene since only a few reports are audited [44]. Despite CSR activities, the US is adversely affected on climate change count. Environmental Lobbyists are pressing for a stringent environmental policy change and compliance by the companies [45].

#### **3.4 Comparison of India with Norway and US**

CSR policies across the three studied jurisdictions stemmed from different concerns and accordingly took shape. The role of government in respective jurisdictions can be assessed from the historical roots that CSR policies have. The Indian policy can benefit from the learnings of US and Norway. It is not to suggest that the US or Norway CSR policies are unblemished but slightly better than what India has.

#### *3.4.1 Sentiment of CSR policy*

Sentiment underlying a CSR policy framework is of utmost relevance since it directs the future of the policy along those sentiments. India's sentiment that ignited the mandatory CSR in 2013 was to co-partner businesses in the national development agenda [46]. When one views Section 135 of CA, 2013 and CSR Rules, 2014 as amended in 2021, it can be safely inferred that the government intends that CSR should be performed by big companies as a partner in socio-economic development. This is oriented towards calculated policy direction of the government after due deliberations. The intrinsic motivation to give back to society is less.

Norway situates its policy within the business culture, it is a part and parcel of the way of business conduction in Norway. This is due to a range of reasons beginning

#### *CSR Policies in Different Countries: A Comparative Analysis DOI: http://dx.doi.org/10.5772/intechopen.106612*

from presence of government in direct or indirect ownership of businesses, believing in service of higher purpose and so on. This cultural ecosystem encourages SMEs to undertake CSR activities even though it is not mandatory.

USA's is at the far end of the CSR policy laxity. CSR activities are based on a social contract between the corporations and the society. Interestingly, the contract does not mention government as a party. Likewise, is the policy. Corporations actively pursue CSR activities because of societal expectations. This is mediated by few legal interventions as discussed above where the government is mainly a facilitator to corporations for doing CSR. Norway and USA are operating more on involuntary institutional forces rather than the deliberate policing by the state. It is further suggested that US and Norway needs to tighten the monitoring mechanisms of CSR compliance to ensure genuine deliverance.

#### *3.4.2 Regulatory framework*

One of the common features in USA and Norway is their fragmentary CSR policy framework. Instead of having a dedicated law towards CSR, it is fragmented across multiple statutory requirements for corporations. Norway's AA, 1998 still makes space for some disclosure and mandatory requirements of CSR but US has no mandatory CSR provisions.

Since Norway treats CSR as an integral part of running a business, the government is heavily involved in action of CSR. In USA, having regards to the general public pressure, the corporations generally perform CSR activities even though the law does not mandate it.

India stands in stark contrast. In India CSR is mandated through CA, 2013 and CSR Rules, 2014. In case of non-performance of CSR, depending on the situation the funds would either be earmarked for CSR activities in the following year or would have to transfer to one of the activities enumerated in Schedule VII of CA, 2013. This clips away not only the regulatory arbitrage that the corporations may otherwise would have found, but also reduced the space with the government to encourage CSR as a culture. Section 135 of CA, 2013 only mandates bigger businesses to perform CSR and the government cannot increase the role of SMEs in CSR, for any such step may fall foul of law, that is, Section 135 and be struck down.
