Wednesday, July 14, 2010


The world is becoming one. And the sole reason is trade. Trans-national trade has shrunk the world to a 12-hour journey or a nano-second online communication. Deals happen everywhere and all the time. There are millions of people involved in this race to clinch the best deal at the best time. The times are full of competition and struggle to strike a better deal than your challenger. Victor Hugo once said:

“A day will come when markets open to trade, and minds open to ideas, will become the sole battlefield.”

So what is the best option that we have? Create new kinds of businesses: or “Innovate” as the cliché goes. So, new kinds of deals that would create breathing space for business are brought into the market.

A similar step that has been taken is the trade of the CSR – Corporate Social Responsibility credits that a company earns. The Government of India has made CSR a “tradable commodity”. The concept is not very difficult to understand. A company earns CSR credits with all the good things it does and loses with all the things that harm the society and does not conform to the corporate responsibility standards. If your company has overwhelming credits, you can sell them to a company that has been doing all the sins. Yes! You earn profits with more CSR activities that you do and shell out a little money (may not really be little) if you don’t find enough time to indulge in such activities.

Mr. Salman Khursheed at a FICCI event said the companies would need a certification for their CSR actions from a government body and earn credit points. These credits can then be bought and sold in a CSR credit exchange. It is a positive step towards making good society conscientious companies as companies involved in CSR activities will get tax exemptions based on the number of CSR credits they have. This means the companies have to make some effort for the society instead of just giving away money to charitable organizations for tax benefits and thus, some actual good would be going to the humanity.

Though reward for good behaviour is a constructive step, the trade part suggested by Mr. Khursheed is not quite so. You can often find professors in classes and panellists in the discussions praising this kind of trade: though even they oppose it in real life. If you are still slightly confused, consider a sceptical example:

Ram is a very bright student in your class; one of the 9 or 10 pointers. And Ravan is the one who pampers himself with all the sweet things in life but studies. He is one of those 3-4 pointers. So the teacher says that a student requires at least 5 points overall to pass the year. What does Ravan do? He goes to Ram, gives him some money and Ram very happily trades some of his credits with Ravan for some green currency. If Ram is one of the really bright ones, he can sell the remaining to Bakasur, another of the not so bright students. If Ram is an MBA student and really smart, he can probably develop a business out of his good grades and earn easy cash (easy for him only).

Would a teacher, who really cares, encourage this trade? Or for that matter allow such a trade? Probably not. Let us apply a bit of mathematics in this. If Ram was getting a 9, Ravan a 3 and Bakasur just 3 credits in a subject, they all pass with some easy trade. The class average only being 5.

Consider another case when no such trade is possible, Ram still gets a 9, Ravan and Bakasur work hard to get a 5 each and pass. Everyone passes and the class average is about 6.66. What I want to say through this analogy is that a trade of credits allows a student to “take it light” and not necessarily work hard towards passing. He can use his money muscle to pass. Similarly, a company earns a right to be socially irresponsible if it can earn a greater profit by harming the society. It has little care for CSR points in that case. It can just buy out enough credits to reach the minimum threshold required by each company. This results in not enough good going to the community which really needs it.

The system of responsibility trading has some other major flaws as well. The first and foremost reason is the ambiguity and lack of uniformity in the definition of the CSR. It is not a quantifiable product that can be easily measured and traded. Tell me which earns me more credits? Giving food to the poor or planting some trees? May be spreading AIDS awareness or may be building an old age home. The vagueness of the concept would result in lack of legal laws and implications of the same.

Also consider a naturally unwholesome business with negative externality like Tobacco and Cigarettes which is not going to earn any credit points and thus has to buy them off. It is already an over-taxed industry and thus this system is not exactly fair to such companies. Would the government be ready to abolish the Tobacco Tax for such companies?

The concept of CSR can be attributed to 2 main reasons: Either a company or an individual has a natural inclination towards doing “good” or he does it to improve his image or goodwill in the society. The latter being the marketing strategy followed by many companies today to increase their presence through CSR initiatives which everyone follows. They create CSR activities according to the brand and identity they want to make in the global market. Be it Idea’s green strategy or Aircel’s “save our tiger” initiative.

Consider the CSR activity of IPL – The Indian Premier League in which it partners with Sachin Tendulkar and United Nations Environment Programme (UNEP) to give the message of “Go Green”. With all the fire-crackers leaving the audience to amazement after every Six hit or end of the match, is it really an initiative or is it more of building an image, a goodwill and an association with all the people who become the part of it through the “carbon neutraliser” clothing IPL boasts of?

What CSR Credits are you going to award to IPL for this programme? The whole point is let CSR be what it is: a natural instinct to do good or a marketing phenomenon. The notion of holding companies accountable for their actions towards society is a great thought. It would make companies improve their practices and be more responsible. But the “sustainability” channels exist only with regard to a company’s own business practices. So linking the CSR activities with the sustainable development is like making great advertisements but not great products.

If the Government of India can come up with a way to quantify CSR activities, in which the companies improve their own practices rather than preaching to the world about “do’s and don’ts”, only then may CSR credits work. Else the government is only going to allow companies to exploit their own methods and environment while earning profits off unrelated CSR activities.

The whole concept raises ironic visions of “morality” being sold in the market for portion of Rupee per share. It is the goods that we should be trading and not the “good” that we do. We do not want “chequebook philanthropy” but need the provision of basic Human Rights like food, shelter, education and employment; upliftment of women and street children, abolishment of child labour in practice; a corruption free state. If this be ensured through Credit Trading: Go ahead.


  1. nice insights.
    But practically, its true that such idea of selling or buying CSR'credits' may not b viable though it is present in terms of 'carbon' credits. Though quantification of CSR is tough job,What can b done to make it more 'ethically' correct is to provide some tax inversely proportional to CSR credits earned,so that there is no trade of 'morality'.

  2. @ Hitesh

    Providing Tax concessions is a form of trade; where one trades with the government!

    @ the post

    Nice commercial idea! Another medium for government to cut down its current fiscal deficit! But not a noble one. Alas, there is no other way to either make company socially responsible or earn money by our poor govt!



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