Corporate Social Responsibility (CSR) is an issue rarely addressed in Nepal. Although businesses all around the world have embraced CSR to sustain their businesses by contributing to society and the environment, Nepal is still lagging far behind. Businesses in Nepal still follow neoliberal concept of business. As Milton Friedman said that the only social responsibility of business is to generate profit staying within the rules, majority of the Nepali businesses follow such concept. This does not mean CSR is not practiced in Nepal but the practice is lesser. Businesses in Nepal are involved in activities like construction of schools and hospitals. In many instances they are doing the job that is normally done by government. Religious beliefs of companies have also played a role in CSR. Most of Nepali people follow Hindu religion. Our religion encourages us to donate food, money, and land to the poor. The religious belief of the companies to some extent helps for the growth of CSR.
Issues and Challenges in Nepal
Nepal is one of the poorest countries in the world. Over 30 percent of the population lives on less than $14 per person per month and about 80 percent of the population depend on subsistence farming. Almost three-fourth of the population depends on household chores and 34.1 percent of the population is still uneducated. With the unstable and weak government, the industry might have been discouraged but they have a responsibility towards the society and the country’s economy. If industries become active in CSR they will have an enhanced company image which will be beneficial for them.
The other issue of CSR is misconception. CSR is understood as a charity work done by the businesses. It is true but partially. Charity is a type but not the only way to attain CSR. The common perception of CSR is companies spending huge sum of cash in helping communities. Companies helping build a temple, building a school in a rural area are some of the examples of perception of CSR. These are also a type of CSR but not the only type. A company does not have to spend a huge amount of cash to contribute to the community. Companies do not have to build schools, temples, and roads to be virtuous. They can contribute to the society just by addressing social issues such as gender equality and eco-friendly product. CSR can be done just by helping the consumers have a quality, healthy product. CSR does not need to come from externalities of the company. Companies can help society with its internal production process or any other departmental activities. There is no need to splash money and make a big grant or make a huge investment.
Gender equality and eco-friendly values are a type of CSR that companies can perform without spending huge investment. Companies can also produce environment-friendly products. Companies can use safe materials to produce the products. They can create jobs for marginalized people. These are some examples that clear the understanding of CSR and also clarifies that CSR does not mean spending huge sum of money. CSR is a powerful branding tool.
Companies might be willing to be involved in CSR but there are factors that might serve as hindrances. There are not enough non-organizations that can contribute to the CSR activities initiated by companies. Due to this reason, CSR activities are not that efficient. There is also lack of participation from local community. Even if CSR activities are initiated by companies, it won’t be effective if participation is not there. Proper communication and awareness should be there in locals. When the communities understand the importance of it, then only CSR can help produce the beneficial result. There is also a high chance that companies invest in the sector where there is no need. There should be availability of well-informed non-governmental organizations that provides suggestion to the companies where to invest. Companies might end up investing in a sector that the community does not require. There is also lack of consensus among companies on CSR. Companies end up investing in same sector leaving other sectors untouched. Companies must invest in different sectors for balanced investment for more efficient investment in CSR. Media must cover the CSR initiatives so that other companies realize the importance of CSR and might get involved. Government and non-governmental organization have a narrow perception towards CSR. There is a perception that CSR is more of a donor thing. This misconception must be resolved.
CSR activities by companies in Nepal
Although CSR is not practiced widely, out of every 15 companies only one company was unfamiliar with the term CSR. This shows the firm does have the knowledge, they are just reluctant. Firms like Kathmandu Guest House, Standard Chartered Bank, Dwarika Hotel, Buddha Air constantly give back to the society. Kathmandu Guest House believes in twofold process. It includes internal and external activities. Internal activities include environment friendly activities like using LED light bulbs, recycled paper, dual flush European style toilets. External activities include women empowerment and volunteer days. Kathmandu Guest House’s customers are tourists. Tourists like to know if the hotel is responsible citizen. Tourists have a tendency to spend if their money is helping the society. From this point of view, firms will generate more revenue if they are involved in CSR more frequently. Firms can give back to the society in various ways. Dwarika Hotel’s primary method is restoration and conservation of culture and architectural heritage. Yeti Airlines have allocated four rupees per ticket for planting trees. Buddha Air contributes to the agricultural sector and women empowerment. Fishtail lodge places portions of profits to support health facilities for patients suffering from heart disease.
Buddha Air has been contributing significantly in the field of CSR. They focused their CSR on agriculture. In the meantime, they helped women through training on agricultural machineries. They channeled their CSR activities through Nepal Krishi Company(NKC) and 31 cooperatives in four districts. Those four districts are Morang, Sunsari, Jhapa and Saptari. Buddha Air chose agricultural sector because it is vital to the Nepal’s economy and vital to uplift Nepali people from poverty. Two-third of the Nepal’s population depends on agriculture for livelihood. World Bank Report 2014 stated that agriculture is the second greatest source of value addition in the economy, and is the largest source of employment and poverty reduction. It also makes up onethird of the GDP employing three-quarters of the population. This shows the vitality of agriculture to the economy, employment and poverty reduction.
Our society is male dominated and believe women should be limited to household chores. To uplift and empower women Buddha Air initiated Women Empowerment Programme with 15 women. NKC trained them to operate machineries. The women planted seeds and grew them on trays, plucked weeds using weedier and drove planter to plant seeds. Although they were 15 women, they were the initiation of the change. Buddha Air did not treat CSR as a rhetorical facade. They aimed to uplift farmers and women with the help of agriculture.
CSR should be a part of the business model. Businesses gain from the society. Giving a small portion of the gain back to the society not only helps in development it also helps in making the business sustainable. CSR activities increase if customers spend in product or services of the company that are more responsible to the society. Educated employees, affiliations with international institutions also increase involvement in CSR.
Role of Government
CSR involves three parties: business, society and government. Government has a significant role in promoting CSR. CSR has been introduced in legal system. Ministry of Industry(MoI) has set up Children Welfare Fund to work for the good of children from marginalised communities in rural areas. All industries and companies would have to contribute to the fund as required by the Industrial Enterprises Act, 2016. This act binds all the medium and large scale industries and small and cottage industries making annual business transaction of above Rs 150 million to contribute at least one percent of the profit to the Children Welfare Fund. This fund would help increase access of education, health and skill development to the poor children. MoI had contributed 10 million to the fund. Similarly, Hetauda and Udaypur Cement Industry contributed Rs 1.5 per sack should without increasing the price.
Although the Industrial Enterprises Act binds the companies to get involved in CSR activities, there is a chance that this way of making CSR mandatory might backfire. Legislation that is not well thought have a potential to cause more harm than the intended good. Any type of mandatory expenditure can be assumed as a tax. Companies might see this mandatory CSR involvement as increase in tax making our market as less attractive investment destination. This legislation also adds up the cost of businesses resulting in increase in the price. This legislation will also discourage entrepreneurs to expand beyond 150 million and operate within the bracket to avoid mandatory CSR activities. Businesses will try to look for loopholes. There are many businesses that were voluntarily engaged in philanthropic activities. The mandatory legislation directs the fund to one sector whereas those businesses were contributing in diversified sectors. This legislation might not be creating new CSR activities but shifting from diversified CSR activities to a narrowed CSR activity. There might also be issue with the possible inefficiency with the government’s handling of the fund. Our government does not have a good reputation of managing resources. There is a high chance that CSR funds will be mismanaged and possibly involved in corruption.
Government should look to formulate policy that encourages firms to get involved in CSR. This kind of mandatory and coercive policy can backfire and cause less CSR activities. This policy causes higher cost for shareholders, consumers. The government should come up with the policy that provides recognition, acknowledgement and rewards to the companies. This type of incentive oriented policy is likely to increase CSR activities.
There are also other legal provisions for internal CSR that addresses the health and safety issue of the employees. Industries should also conduct environmental impact assessment to minimize harm to the environment. There are also policies that protect consumers from adulteration, unfair price and bad quality products. NRB regulations states 5% of total lending must be to the deprived sector. Companies have to take care of their employees, produce products in a environment friendly manner and provide products and services according to the standards to the consumer.
Corporate governance and ethics
Good corporate governance and ethical practices are also a part of CSR. Businesses must comply with corporate governance and should practice ethical activities. Weak corporate governance reduces investor’s confidence whereas compliance of good corporate governance can help reduce vulnerability to financial crisis, transaction costs and leads to capital market development. World famous examples are Enron and Worldcom. These companys’ failure highlights the importance of corporate governance. Central bank has raised the standards of corporate governance for banks and financial companies. The corporate governance in Nepal is not so strong. Securities Exchange Board of Nepal (SEBON) and Company Registrar Office has few resources and authority to monitor the corporate governance of the companies. Transparency has become a big issue in corporate governance. Information on listed companies is difficult to get. The information provided to NEPSE are not shared with the public. Accounting and auditing standards are not standardized. Even though shareholders have the power, they attend shareholder’s meeting just to receive food, money or gifts.
Tax evasion, corruption, adulteration, cartels and syndicates have become common topic in the news. Businesses are focused on earning a quick buck; everyone is willing to make gains not considering the laws and the ethics. Although there are rules and regulations related to consumer protection, anti-corruption, market protection, labor, tax and financial accountability and environment, they are of little use. FNCCI also initiated an Anti-corruption project.
CSR also includes a good corporate governance and ethical practice. For the benefit of country, community, shareholders and business, corporate governance and ethical practice is must. Businesses might choose the wrong path for quick buck but it would be temporary. If the businesses want sustainability they should comply with the rules or else they will lose the confidence of their customers. There should be transparency, accountability, corruption free, nepotism free and they should comply with the law.
CSR should not just be limited to rhetorical facade. Companies should embrace CSR and contribute to the society. Both society and company benefit thorough CSR because companies are also a part of the society. CSR helps in improving the brand image of the company. With the practice of CSR comes good corporate governance, ethical practices that win the trust of investors, customers, shareholders. Eventually society and the businesses benefit. Companies in Nepal are not proactive in CSR. Companies including the smaller ones should be informed about the positive effects of the CSR to the business. With CSR being global trend, Nepali companies needs to understand its effectiveness and implement it.