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Legislating for doing good

Michael Jarvis's picture

While the financial and economic crisis has prompted much soul searching on the appropriate government and business boundaries and the right balance of regulation, it will be interesting to see how this filters down to emerging markets such as India and China -even at the local level there are now efforts to legislate for corporate responsibility.

In China the focus to date has mostly targeted clarifying and increasing standards in production – see CSR Asia’s report on labor standards being tested in Yiwu City. This makes sense when companies are reliant on export markets sensitive to such issues, but as exports decline and consumers focus even more on price savings, the momentum may be sucked from such efforts.

In India, the states of Gujarat and Karnataka exemplify an alternative approach. They are considering legislation to make CSR mandatory via required funding of social projects. As reported in Indian Express, Gujarat already requires public enterprises to use 30% of profits before tax for social initiatives. It is now set for extension to private firms.

Such legislation risks that corporates become proxies to deliver services that are the responsibility of government, and/or face a hidden tax on doing business. As Mallen Baker notes in Ethical Corporation, such requirements are likely to prove a further deterrent to private investment. Local companies seem genuinely open to exploring their role within society, but during such economic uncertainty, the knock-on effects of the draft legislation may make unwelcome reading.

Comments

Submitted by Kartik Subramaniam on
As the effects of the financial crisis percolate across industries in emerging markets such as India & China, one wonders if corporates would be left with enough resources at all to carry on with CSR initiatives that they had already committed to, let alone any new CSR initiatives being announced in the near term. Any attempt to legislate or to force corporates to follow CSR initiatives involuntarily should be expected to fail. Such measures would in addition create additional pressure on the companies in the current economic situation & also may act as a deterrent for setting up new business activity by creating addition startup costs.

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