Mobilizing CSR Funding to Tackle Covid Fallout

    LightCastle Analytics Wing
    LightCastle Analytics Wing

    The Covid-19 pandemic has brought about multi-faceted impacts on the economy, encompassing disruptions across the value chain in almost all the sectors. As an economy with large scale contributions from semi-formal and informal sectors, the impact of the pandemic has disproportionately reverberated across the economy in terms of income and job losses for the informal sector workers. The resulting economic and humanitarian crises are hard to tackle solely through government fundings. Contributions from private sector enterprises are imperative for fulfilling the unmet needs of the economically vulnerable population. 

    CSR: The concept

    The concept of Corporate Social Responsibility (CSR) was introduced in the 1950s and defined CSR as the obligations of businesses to pursue their policies, make their decisions or follow their lines of action in accordance with the terms of objectives and values of society. The rationale was not to limit a businesses’ responsibility and their actions within the firm’s direct economic or technical interest, but to make them contribute towards broader social ends. 

    In 2008, Bangladesh Bank formalized CSR guidelines which allows companies in the financial sector to allocate a percentage of post-tax profit for CSR activities. However, companies can spend a maximum of 30% on education, 20% on health care and 10% on climate and disaster management of their total CSR outlay.

     In situations like the Covid-19 pandemic, where a global recession is imminent, countries like Bangladesh need to redirect the private CSR funds towards containing the crisis, developing health care infrastructure and cushioning the economic blow that will follow once the crisis is managed. However, lack of monitoring of CSR fund disbursement and lack of institutional policy support will work as a major bottleneck when considering this approach and its effectiveness. Practices like ad-hoc one time donations and greenwashing needs to be redirected towards supporting the economy in order to mitigate losses and minimize casualties.

    CSR in Bangladesh: The Status Quo 

    Companies carrying out CSR activities in Bangladesh can benefit in the following ways:

    • Corporate Tax exemptions for fulfilling CSR commitments in terms of budgetary allocations. Bangladesh Bank offers a conditional 10% income tax exemption. 
    • Improved brand image and possible higher added-value to products on the basis of ethical considerations. An example may be BAT Bangladesh being awarded Asia Responsible Entrepreneurship Award in 2014 under Green Leadership by Enterprise Asia for their Aforestation activities.
    • Less stringent regulation on core activities by monitoring bodies or the Government. An example may be the heavy compliance standards of bodies such as Alliance & Accord on RMG.
    • Improved likelihood of receiving investments, especially from foreign investors. Improved worker motivation and productivity.

     The financial sector in Bangladesh spent BDT 627.13 Cr on CSR activities between Jan-Jun 2018. A total of 51 scheduled banks contributed to different causes in accordance with their company’s mission and vision. Islami Bank Bangladesh Limited was the highest contributor in this regard with a total expenditure of BDT 281.32 Cr on CSR. (Source: IDLC)

    British American Tobacco (BAT) focuses on green sustainability through afforestation, the flagship programme of BAT which led them to receive several corporate social awards. The organization also focuses on safe water and solar home system developments under its livelihood improvement thematic category.BAT global has also recently pledged on working for the vaccination of Covid-19. (Source: BATB Website)

    As part of its CSR activities, Unilever Bangladesh focuses on four thematic areas in order to fulfill its social obligations as an organization: Employees, Community, Climate & Environment, Organization. (Source: Mapping the Current Status of Corporate Social Responsibility Activities and the Scope of Workers Participation)

    PRAN, one of the biggest local conglomerates in Bangladesh, contributes to government expenditure in education, infrastructural development, public employment generation and cash transfer under safety net. PRAN also promotes long term individual sustainability through provision of tools and knowledge required to ensure the self-sufficiency of its value chain actors. (Source: PRAN Website)

    Most private organizations like the aforementioned contribute towards CSR significantly. However, the efforts are dispersed and impacts aren’t evaluated. Therefore, concentrating the cumulative CSR funds towards a single point/cause would definitely help recover from the aftermath of the Covid-19 crisis and provide clarity on the impact of such initiatives.

    Private Sector tackling Public Crisis 

    The coronavirus pandemic has mobilized funding from governments and corporations across the globe. Bangladesh, too, has seen some tremendous response from both private sector and NGOs alike. Private sector contributions to tackle the Covid-19 fallout have generally been across a combination of three streams: (a) cash donations or in-kind contributions directly addressing the Covid-19 health crisis; (b) temporary restructuring of operations to mitigate the Covid-19 health crisis; and (c) contributions to tackle the financial fallout arising from the Covid-19 pandemic.

    In cases of the first, companies and individuals have been making direct contributions to tackling this health crisis. To cite some examples from fashion houses, Dolce & Gabbana has been financing research into the coronavirus, while Giorgio Armani has been directly funding hospitals to help their response in this crisis. In Bangladesh, companies such as Summit Group and multiple banks, among others, have donated to the Prime Minister’s relief fund. In kind contributions have been offered by companies such as Navana Group, Akij Group, Bashundhara Group and Green University who have offered their facilities to set up temporary hospitals or isolation zones in order to help deal with the crisis. Beximco Pharmaceuticals has donated PPE, test kits and medications to help tackle this crisis. Perhaps, most prominently, Alibaba Foundation (the non-profit arm of Alibaba Group) has sent PPE and test kits to at least 10 Asian countries and more than 40 African countries to help them prepare for the Covid-19 crisis.

    Some companies have also agreed to temporarily re-structure their operations and production lines in order to tackle the virulent pandemic. Internationally, General Motors, an automotive company has been re-organizing its production lines to manufacture ventilators, while Dyson, a British home appliance manufacturer have invented a new type of ventilator altogether. Ventilators are artificial respiratory equipment that are essential to save lives in this pandemic. In an inspiring turn of events, Walton Electronics has received the patent and source code for ventilators from Medtronics, an international medical device company and plans to be the first in Bangladesh to commercially produce ventilators, PAPRs, and oxygen concentrators despite most of its other production lines being closed due to the government shutdown. The BGMEA and Marks & Spencer have begun to produce large volumes of PPE locally that are needed to arm the frontline health workers. Other ways companies have been adjusted during this crisis include Karew & Co., a local distillery, which has shifted its resources to producing hand sanitizers for sale at fair prices during this time of acute shortage. Online meal delivery services such as Pathao Food and Foodpanda have also reformed their operations to encompass retail shops in the hopes of minimizing customers’ external contact and help enforce social distancing This has also been a time for technology companies to step up their game. Internationally, several remote communication and file sharing companies have offered free products/ products at reduced prices to support people who are working from home and students in remote learning. In a similar manner, the Bangladeshi streaming service Bongo has opened up its premium content free of cost for the duration of the coronavirus pandemic. In America, major MNOs such as Comcast, Verizon, T-Mobile and Sprint have signed a pledge to keep Americans internet-connected for the next 60 days, even if people cannot afford to pay. But such an initiative has not been replicated by the MNOs in Bangladesh.

    Finally, companies have also looked at ways to mitigate the very real and tangible financial fallout arising from the Covid-19 pandemic. Internationally, Apple and Amazon have announced unlimited paid sick leave for their employees who had contracted coronavirus, and continued payment to staff whose hours have been disrupted by store closures. The self-employed gig economy is especially vulnerable to the coronavirus crisis, and in these times, Microsoft and Google have announced that they will keep paying their temporary (hourly) workers. Uber has also pledged to support their drivers during this period. Some companies online retailers such as Amazon and supermarkets such as Aldi have offered their staff bonuses in recognition of the risk they are taking in continually serving customers and because of the increased demand for groceries during this period. In Bangladesh, the focus has been primarily on the manufacturing industries, where working from home is not a pragmatic option and idle production lines can translate into layoffs and unpaid salaries. Bangladesh government itself has unleashed a stimulus package of BDT 5,000 crore for export-oriented industries, and it is assumed that proceeds from the PM’s relief fund will also go towards keeping the vulnerable populations afloat. Migrant workers have also suffered massively due to this crisis and at least 

    40 small and medium-sized local foundations and NGOs have been engaged in activities related to financial assistance and delivering food, hygiene products and protective equipment to vulnerable communities in Bangladesh.

    Way Forward

    In Bangladesh, there is no clear guidance for CSR spending and disclosure. Bangladesh would have been more prepared to mobilize CSR funding more effectively had the government created a coherent CSR policy articulating its expectations and providing guidance on the kinds of CSR activities possible. At the moment, the government’s largest CSR initiative is the PM’s relief fund where companies can contribute, but donation is not mandated by law and the fund’s disclosure and transparency mechanisms could be improved further. Outside of this fund, most CSR practicing companies which practice CSR do so independently, and often without dedicated departments or external expert recommendations. It also does not help that one of the biggest motivators for companies to contribute is to reduce their tax burden (as contributions are tax-free) and increase their profile among government stakeholders. In fact, a local study had found that many companies, whilst providing CSR, did not comply with the law in providing basic labor standards to their employees. [1]

    To find examples of other countries where CSR Policies have been implemented more coherently, one needs look no further than India. In India, CSR has been legally enshrined through amendments to the Companies Act. Companies with a net worth of INR 5 billion (US$70 million) or more, or an annual turnover of INR 10 billion (US$140 million) or more, or net profit of INR 50 million (US$699,125) or more are mandated to spend at least 2 percent of their profits on CSR, and the Government of India has also specified the list of initiatives in which companies can allocate their CSR funds. [2] CSR spending has also been made time-sensitive and companies cannot withhold CSR funds for more than 3 years. The CSR contributions are also disclosed with full transparency through a dedicated government portal. [3] Finally, the list of sectors where companies can contribute CSR funds towards is also dynamic; recently, funding to combat the coronavirus has been introduced into the list. [4]

    Bangladesh, too, should enshrine mandatory CSR through comprehensive legal enactments. The government should also resist the temptation to manage and implement all incoming CSR funds by itself and be cognizant of the benefits of engaging NGOs in certain types of service delivery and in certain regions. CSR proceeds of the PM fund should be shared with NGOs on the basis of their strengths and competencies in achieving desired outcomes, with strict monitoring and control measures.

    After enactment, awareness should be raised amongst businesses about corporate social responsibility and the kinds of CSR activities they could undertake. Public disclosure should be practiced to the fullest with businesses disclosing their CSR engagement to the public through their annual publications. Transparent reporting can improve the companies’ credibility; it can also open up opportunities for coordination of CSR initiatives across businesses, and facilitate better research and inter-stakeholder dialogue resulting in general improvement of CSR.

    Given the likelihood of Covid-19 to become a seasonal disease like the flu, some CSR funding should be directed by the government to engage in curative and preventive (e.g. vaccines) for Covid-19 as well. With the wealth of human resources and technology at the hands of the private sector pharmaceutical companies, they might be taken on board for a PPP initiative, to which the pharmaceutical companies will contribute a significant amount.

    Authors: Saif Nazrul, Senior Business Consultant and Sanjir Ali, Senior Business Consultant, LightCastle Partners

    The LightCastle team has been analyzing the macro and industry level picture and possible impacts wrought about by the Covid-19 crisis. Over the following days, we’ll be covering the major sectors shedding light on the possible short and long term ramifications of the global pandemic. Read all the articles in the series.

    References

    LightCastle Analytics Wing

    LightCastle Analytics Wing is the research division of LightCastle Partners. It is tasked with producing periodic reports on the different sectors of the economy, analyzing trends in markets and making methodical, thorough and intelligent analysis to improve strategy and drive business growth.