Would having CSR reporting regulations increase the accountability of companies?
Not a year has passed since Bangladesh Securities and Exchange Commission passed a new binding Code of Corporate Governance with more than 60 new provisions and various reformations, but already, there has been significant criticism and recommendations made on its shortcomings.
Similarly, another noteworthy shortcoming of the code is the non-inclusion of corporate social responsibility (CSR) policies, which is equally, if not more important for the regulatory authorities to ensure, given the mushrooming number of corporations in Bangladesh and the never-ending accounts of corporate imprudence.
CSR, from a legal perspective, is a form of corporate regulation for embracing the “triple bottom line” approach towards profit, people, and planet by acknowledging the impact of their corporate activities and taking responsibility for them under respective laws, international norms, and business ethics standards.
CSR today is metamorphosed from the conventional idea of paying the employees better or engaging in corporate philanthropy. The span of work now extends to not only contribution to economic welfare and social integration practices, but as per the ISO 26000 and EU’s Green Paper on CSR, it also covers sustainable development and environmental goals. As we see in the US, public companies are obligated to disclose climate-related risks in their annual reports as a part of CSR reporting.
It has been more than a decade now that countries are incorporating provisions on mandatory CSR reporting in their corporate governance instruments. Among others, Denmark, the UK, China, and most recently, Italy in 2016, has mandated CSR reporting regulations. Spain’s National Security Market Commission in 2014 introduced CSR principles in its new Good Governance Code of Listed Companies. Likewise, the trend surfaced in South and Southeast Asia, with countries like Malaysia, Indonesia, and particularly India taking one step further and mandate a minimum spend initiative, requiring large enterprises to spend 2% of their profits on CSR projects.
This upsurge in CSR reporting around the world brings the limelight upon the CSR culture of the recently declared developing Bangladesh. As proponents of CSR policy aver, a reporting system inclines a shift in a company’s behaviour towards the overall stakeholder engagement resulting in gaining some obvious advantages like building a social connect, consumer loyalty, and positive reputation.
In fact, CSR is no longer peripheral to a system of good governance, but rather, goes hand in hand in building a competitive edge in the market. While corporate governance clamours for internal democracy of a company along with external accountabilities, CSR warrants that corporations do not ignore their external responsibilities as corporate citizens. Therefore, having included CSR reporting regulations in the revised Corporate Governance Code would have increased the overall accountability of a company to an extent beyond mere financial disclosure and encouraged corporate contribution for the economic welfare of the nation at large.
Till date, there has been no specific regulation in Bangladesh engendering CSR policies as a part of corporate governance. The Companies Act 1994, one of the major instruments governing companies in Bangladesh, outlines certain disclosure requirements and provides a degree of liability upon the directors for supplying incorrect or misleading information in the company’s prospectus or in the statutory report.
Additionally, the act bars a company from indemnifying a director, manager, or officer liable for negligence or breach of duty. However, the disclosures are limited to the financial performance only, thereby not reaching CSR activities in any form whatsoever. Further, the act imposes no specific duty or social responsibility upon the corporations, neither provides any liability upon any director for irresponsible business activities detrimental to the stakeholders.
Although some of the CSR concerns are partially covered by The Bangladesh Labour Act 2006 with regard to responsibility toward the employees and The Bangladesh Environment Conservation Act 1995 for environment-friendly corporate actions, a grand portion of the scope of CSR is nevertheless left unheeded.
Institutes like CSR Centre and Bangladesh Enterprise Institute (BEI) are working for promoting CSR developmental policies consistent with international principles developed by the United Nations Global Compact (UNGC) and the regional standards by the South Asian Network on Sustainability and Responsibility (SANSAR) of which Bangladesh is a member. But unless the government establishes a mechanism and gives it mandatory effectiveness, a substantial amount of CSR activity as a progeny of sheer altruism is left to chance.
It is obvious that for a country like Bangladesh, a mandatory minimum spend initiative would be burdensome for many, but a mere mandatory reporting regulation requiring companies to disclose their CSR initiatives would not be so. Hence, it is about time Bangladesh Securities and Exchange Commission includes CSR regulatory regimes within the framework of the Corporate Governance Code 2018 and ensures that companies recognize their sense of duty over the stakeholders at large.
Rozina Ripa is a student of law.