TERM PAPER

Topic: CORPORATE SOCIAL RESPONSIBILITY: EVOLUTION

AND FINANCIAL IMPLICATIONS

Name: ACHYUT TODI

Roll No: 71

SEMESTER: V

Course: BACHELORS OF BUSINESS ADMINSTRATION

Mentor: MADAM S LAKSHMY

Date: SEPTEMBER 19, 2015

Acknowledgement

I would like to thank my mentor, Madam S Lakshmy with heartiest respect and

gratitude, for helping me during my term paper. She was always there to solve all my

queries. I would also thank her for her support that she so graciously extended towards

me.

I would also take this opportunity to thank our Director Dr. Jayanta Nath

Mukhopadhyay, for giving me this opportunity to get such a wonderful learning

experience.

I am also thankful to my librarians who assisted me in gathering various references for

my term paper.

I would also like to thank my family and friends for supporting me through this

endeavour.

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Abstract

Corporate Social Responsibility has evolved from a philanthropic obligation to a

strategic business component. Hence, businesses are more active in the CSR space.

However, firms ensure that they do not compromise on their primary aim of profit

maximisation and wealth creation. Thus, it is only logical for CSR activities to have some

level of association with improved financial performance of businesses. In India’s efforts

to become a stronger economic force, sustainability and CSR have been major hurdles

that need to be overcome. The Government has promptly done so through the

Companies Act 2013. A positive association between CSR and financial performance

would encourage firms to take up CSR actively, thus helping both development of

society and profitability of businesses.

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Table of ContentsAcknowledgement......................................................................................................................... 1

Abstract............................................................................................................................................. 2

1. Introduction............................................................................................................................. 4

1.1 Importance of Study........................................................................................................................ 4

1.2 Conceptual Overview............................................................................................................................ 5

1.3 Macro Scenario of India....................................................................................................................... 6

(A) Applicability and constitution of a CSR Committee:.....................................................8

(B) Responsibility of the Board......................................................................................................9

(C) CSR Practices as per Schedule VII...............................................................................................9

2. Literature Review................................................................................................................... 10

CSR & Financial Performance – Applied Financial Project........................................................10

Empirical Study of CSR and Financial performance of Chinese Listed Companies........10

Does corporate social responsibility (CSR) create shareholder value?...............................11

CSR, from Friedman to Porter and Kramer......................................................................................11

Why Every Company Needs a CSR Strategy and How to Build It...........................................12

3. Case Study on Jubilant Life Sciences.................................................................................13

4. Methodology............................................................................................................................. 14

5. Data Analysis............................................................................................................................ 15

5.1 Company Profile................................................................................................................................... 15

5.2 A comparative study between Jubilant Life Sciences and ITC Ltd*...............................17

5.3 Correlation between CSR Expenditure and Profitability for JLS*...................................18

6. Conclusion:................................................................................................................................ 19

7. Bibliography............................................................................................................................. 20

8. Annexure.................................................................................................................................... 22

Annexure 1: CSR and Financial Performance - Review of ITC Ltd.........................................22

Annexure 2: Financial Data regarding comparison between ITC and JLS..........................23

Annexure 3: Data for Correlation between CSR Expenditure and Profitability for JLS

for the years 2009 to 2014......................................................................................................................25

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1. Introduction

1.1 Importance of Study

The field of Corporate Social Responsibility has grown exponentially in the last 2 decades. More than 93 percent of the world’s largest companies issue a Corporate Responsibility report. An increasingly large number of companies, than ever before, are engaged in serious efforts to define and integrate CSR activities into all aspects of the businesses. An increasing number of shareholders, regulators, governmental bodies, analysts, labour unions, community organisations and media are asking companies to be accountable for an every-evolving set of CSR issues. There is an increasing demand for transparency and growing expectations that companies should measure, report and continuously improve their social and environmental performance.

Governments, Activists & Public Interest Organization and the media hold companies accountable for the social consequences for their actions. Further, various organizations rank or grade companies according to their CSR activities. Despite the questionable ranking methodologies and systems, these ranks attract considerable public interest. As a result of these factors, CSR has become an unescapable priority. Firms that perceive CSR as a way to placate pressure groups often find that their approach devolves into a series of short-term defensive reactions—a never-ending public relations that have minimal value to society and no strategic benefit for the business. Companies react to this pressure by resorting to generic CSR actions-charitable deeds and vibrant campaigns that appealed to the public and satisfied the rating agencies, activist groups, governments etc (Tsoutsoura, 2004)12.

The result is frequently, a hodgepodge of uncoordinated CSR and philanthropic activities disconnected from the company’s strategy that neither make any meaningful social impact nor strengthen the firm’s long-term competitiveness. Internally, CSR practices and initiatives are often isolated from operating units—and even separated from corporate philanthropy. Externally, the company’s social impact becomes diffused among numerous unrelated efforts, each responding to a different stakeholder group or corporate pressure point.

Amidst this increasing importance given to sustainability practices and CSR activities by companies, the principal aim of making profits cannot be subsided. The primary aim of this study is to analyse the effect of CSR expenditure on the financial performance of the business. (Porter & Kramer, 2006)8.

Businesses are profit maximising organisations. Following this line of thought, it is evident that any expenditure they make would be, directly or indirectly, aimed at helping increase its earnings. Hence, it is likely that there exists a positive relationship between CSR and the profitability of a businesses.

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The paper is structured as follows. We first establish the importance of CSR and how it has developed to be a strategic component today. We also emphasize on CSR in India and its major challenges. In section 2, we explain the literature review as to further elucidate upon the evolution of CSR and explore potential linkages between CSR and financial performance. In section 3, data sources and procedure followed to arrive at the conclusion of the study is discussed. In section 4, we take a look into Jubilant Life Sciences and its CSR activities. Following this in section 5, we compare JLS with ITC to see if financial performance corresponds to improving CSR efforts. In section 6, we take explore the relation between CSR and financial performance using the quantitative technique of correlation. Finally we summarise the relation, subject to JLS.

1.2 Conceptual Overview

Broadly speaking, CSR can be understood as the ethical behaviour of a company toward society. In particular, this means that companies acting responsibly in its relationships with other stakeholders who have a legitimate interest in the business, not just the shareholders. No universal definition of CSR exists. However, prominent institutions and academicians have defined CSR in their own capacities, some of which are:

UNIDO: “Corporate social responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.”

Archie B. Carroll: “The social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time.”

WBCSD: "Corporate Social Responsibility is the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large (WBCSD)."

Although the roots of CSR were in philanthropy, the WBCSD, UNIDO and other recent definitions of CSR introduce a strategic business component, where the business also benefits financially from exercising its social and environmental responsibilities.

CSR has a very direct relation with the image of companies and affects how it is perceived by various stakeholders. But now, with the focus of CSR moving to long-term sustainable development, which requires commitment of financial resources by companies, a prominent relation between CSR and financial performance could exist. After all, CSR is a more strategic than philanthropic.

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1.3 Macro Scenario of India

CSR has been practiced by companied in the developed world in a comprehensive manner. A lot of multinational companies contribute towards the development of societies in which they operate by addressing pressing social issues that need urgent attention. In India, large scale philanthropic activities were undertaken post independence, which led to the setting up of some of the most prestigious institutions of professional education. Companies also contributed by making donations to nongovernmental organisations (NGOs) and their own trusts, which were deductible under Section 80 G of the Income Tax (IT) Act. However, the donations were not transparent and lacked accountability. Despite the prevailing system, there have been a number of challenges to the implementation of CSR in India. Some of these challenges are explained below (Maan, 2014)6:

1. Lack of Awareness of General Public about CSR Activities: There is a lack of interest of the general public in participating and contributing to CSR activities of companies. This is because of the fact that there exists little or no knowledge about CSR. The situation is further aggravated by a lack of communication between the companies involved in CSR and the general public at the grassroots.

2. Need to Build Local Capacities: There is a need for capacity building of the local nongovernmental organizations as there is serious dearth of trained and efficient organizations that can effectively contribute to the ongoing CSR activities initiated by companies. This seriously compromises scaling up of CSR initiatives and subsequently limits the scope of such activities.

3. Issues of Transparency: Lack of transparency is one of the key challenge for the corporate as there exists lack of transparency on the part of the small companies as they do not make adequate efforts to disclose information on their programmes, audit issues, impact assessment and utilization of funds. This negatively impacts the process of trust building among the companies which is a key to the success of any CSR initiative.

4. Unavailability of Well Organized Non-Governmental Organizations: There is a lack of well organized nongovernmental organizations in remote and rural areas that can assess and identify real needs of the community and work along with companies to ensure successful implementation of CSR activities.

5. Visibility Factor: The role of media in highlighting good cases of successful CSR initiatives is welcomed as it spreads good stories and sensitizes the population about various ongoing CSR initiatives of companies. This apparent influence of gaining visibility and branding exercise often leads many non-governmental organizations to involve themselves in event based programmes; in the process, they often miss out on meaningful grassroots interventions.

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6. Narrow Perception towards CSR Initiatives: Non-governmental organizations and Government agencies usually possess a narrow outlook towards the CSR initiatives of companies, often defining CSR initiatives more as donor-driven. As a result, corporates find it hard to decide whether they should participate in such activities at all in medium and long run.

7. Unavailability of Clear CSR Guidelines: There are no clear cut statutory guidelines or policy directives to give a definitive direction to CSR initiatives of companies. The scale of CSR initiatives of companies should depend upon their business size and profile. In other words, the bigger the company, the larger its CSR programme.

8. Lack of Consensus on Implementing CSR Issues: There is a lack of consensus amongst implementing agencies regarding CSR projects. This lack of consensus often results in duplication of activities by corporate houses in areas of their intervention. This results in a competitive spirit between implementing agencies rather than building collaborative approaches on issues. This factor limits company’s abilities to undertake impact assessment of their initiatives from time to time.

The factors point out why it is difficult to implement CSR activities in India. These issues often stem from problems in devising successful CSR strategies on the strategic/corporate level. The problems are:

1. Integrating CSR Practices with Organizational Values & Culture: Organizations find it difficult to align these activities and hence, struggle to find the right balance between them. This leads to a compromise in the CSR measures taken by the companies.

2. Lack of Organizational buy-in and Assurances: Many companies pledge their support and cooperation to various social issues but when it comes to implementation and actually taking ownership of these issues and tackling the problems directly, they hesitate and step back. The support and commitment towards CSR is often superficial.

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3. Lack of Time and Financial Resources: When problems surface, requiring immediate attention, companies cite reasons like lack of financial resources of unavailability of time to attend to these. While these resources are of critical importance and limited, the fundamental issue is that CSR has not been given enough importance or considered to be of priority.

Fundamental problems at the strategic level of corporations lead to severe challenges in implementation of CSR activities. This results in the whole system becoming averse to CSR-and it is seen as an obligatory burden. Thus, CSR is viewed more so as a means to manage regulatory impacts, reduce risk and respond to stakeholder concerns, and to a lesser extent as a strategic source of competitive advantage.

The Companies Act was revised in 2013, addressing various concerns and helping pave the way for a more entrepreneurial corporate environment in the country. Amidst the changes, the provisions regarding CSR is a radical development.

CSR, which has largely been voluntary contribution, by corporates has now been included in law. Basis the CSR provisions, as laid down under the 2013 Act and the draft CSR rules made available for public comments, some key provisions and analysis relating to the compliance of these provisions for companies to consider are elucidated upon below (Grant Thornton)4.

(A)Applicability and constitution of a CSR Committee:

1. Section 135 of the 2013 Act states that every company having:

Net worth of `500 crore or more. Turnover of `1000 crore or more. Net profit of `5 crore or more during any financial year. Shall constitute a Corporate Social Responsibility Committee of the Board.

2. The committee would comprise of three or more directors, out of which at least one director shall be an independent director.

3. The mandate of the said CSR committee shall be:

to formulate and recommend to the Board, a Corporate Social Responsibility Policy, which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

to recommend the amount of expenditure to be incurred on the activities referred to above;

to monitor the Corporate Social Responsibility Policy of the company from time to time

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(B)Responsibility of the Board

1. The board of every company referred to above shall, after taking into account the recommendations made by the CSR committee:

Approve the CSR Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website.

Ensure that the activities as are included in CSR Policy of the company are undertaken by the company.

Ensure that the company spends, in every financial year, at least two per cent of the average net profits.

2. If the Company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount.

3. “Average net profit” shall be calculated in accordance with the provisions of section 198 of the 2013 Act.

(C) CSR Practices as per Schedule VII

1. CSR activities to include: Eradicating extreme hunger and poverty Promotion of education Promoting gender equality and empowering women Reducing child mortality and improving maternal health Combating human immunodeficiency virus, acquired immune deficiency

syndrome, malaria and other diseases Ensuring environmental sustainability Employment enhancing vocational skills Social business projects Contribution to the prime minister's national relief fund or any other fund

set up by the central government or the state governments for socio-economic development and relief and funds for the welfare of the scheduled castes, the scheduled tribes, other backward classes, minorities and women

Other such matters as may be prescribed2. The 2013 Act provides that the company shall give preference to the local area

and areas around it where it operates.

The CSR requirements according to the Companies Act, 2013 may be strict and require time adjusting to. However, this is a step in the right direction as businesses in India move towards fulfilling a more comprehensive and responsible role in society.

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2. Literature Review

CSR & Financial Performance – Applied Financial Project

CSR and financial performance ought to be related. But the nature of this relation, i.e. the sign of the relationship, positive or negative was tested using empirical methods. This study uses KLD rating scores as the measure for CSR. Results were indicative that the sign of the relationship is positive. This result supports previous studies that found positive linkages (Waddock and Graves, 1997; McGuire, et al., 1988, 1990; Auperle, et. Al., 1985). The relationship and its explanation depends on the direction of the causality between CSR and profitability. Financially strong companies can afford to invest in long term strategic impacts which directly improve the conditions of stakeholders. This eventually leads to better financial performance. But companies with financial problems usually allocate their resources to projects within shorter horizons. However, the fact that there is a positive relationship supports the view that socially responsible corporate performance can be associated with a series of bottom-line benefits(Tsoutsoura, 2004)12. 

Empirical Study between CSR and Financial performance of Chinese Listed Companies

CSR has grown to become on of the most promising areas of corporate research theory. Given the high level of investment or expenditure required to implement CSR plans, its financial feasibility is appropriately questioned. While the exact relation between CSR and financial performance is ambiguous, this study reviewed the development of CSR using the stakeholder theory. Accounting indicators and regression analysis was used to measure the relationship between the social responsibilities of Chinese companies and their financial performance.

According to the research results, except implementing the social responsibilities to shareholders has outstanding positive impact on Chinese listed companies’ financial performance and implementing social responsibilities to employees has relatively positive impact; the implementations of social responsibilities to other stakeholders have no signally impact on Chinese listed companies’ financial performance. These results show that the CSR situation in China is still not optimistic.

The most significant relation between CSR and financial performance was pre-determined. CSR to shareholders has had an outstanding impact whereas the CSR to employees had a relatively small positive impact. Overall, the results of empirical analysis are consistent with the status of Chinese corporate social responsibility, that is: although CSR in China had a certain degree of development, the overall situation is still not optimistic. Currently, China's corporate social responsibility remains focus on the responsibilities to shareholders, the responsibilities to other stakeholder need to

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develop. This, when leveraged by trying to add a competitive advantage to a company, can promote the use of CSR as a strategic tool for companies (Qiu, 2012)9.

Does corporate social responsibility (CSR) create shareholder value?

In 2013, a new law required Indian companies, which were of a specified profitability threshold and scale, to spend at least 2% of their net average income of the past 3 years on CSR. This study explores the impact of this mandatory expenditure on shareholder value based on two theories: The Stakeholder Value Maximisation Theory and The Shareholder Expense Theory.

In his Shareholder Expense theory, Milton Friedman asserts that asserts that “the social responsibility of business is to increase its profits” and hence argues that CSR results in decreased shareholder value. This is because: (a) It constitutes moral hazard in that managers’ self-interest drives CSR spending at the expense of shareholders capital; or (b) CSR is a sacrifice of the firm’s profits in the social interest (Reinhardt, Stevins and Vietor 2008).

The opposing Stakeholder Maximisation theory follows the principle of doing well by doing good, which is widely lauded in management literature. This argues that strategic CSR spending can increase the firm’s value. This stems from the intuition that a firm’s focus on its stakeholders increases the stakeholders’ willingness to support the firms’ operations in several ways. This results in benefits like increased demand, effective marketing, enabled access to valuable resources, generation of capital etc.

On the whole, the evidence was suggestive that compulsory CSR activities could impose a social burden, at the cost of the shareholders. However, when left to on their own, firms choose the optimal level of CSR expenditure aimed at maximising value(Manchiraju & Rajgopal, 2015)7.

CSR, from Friedman to Porter and Kramer

CSR is a vital issue for modern day businesses and of course, society. As aforementioned, its practice and supporting theories have substantially changed. This includes courses of action undertaken by businesses to become environmentally and socially sustainable and responsible beyond their legal obligations. From a financial perspective, in the short run, CSR essentially means a decrease in profits for social and environmental causes. But eventually, by following the shared value strategies (Porter and Kramer, 2011)8, businesses can turn this expenditure into an environmentally, socially and financially sustainable economic system: shared value leads to to a stronger and more sustainable value chain.

The evolution of CSR can be divided into 3 three fundamental stages: philanthropy, value creation and shared value. The latter can be seen as complete integration of CSR

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into corporate strategy. The challenge that now lies with the management to turn this CSR expenditure from an expense into an investment. Thus, even if CSR does not maximise earnings directly, it contributes to the end that profit maximisation had assigned i.e. value creation (Bosch-Badia, Montllor-Serrats, & Tarrazon, 2013)1.

Why Every Company Needs a CSR Strategy and How to Build It

This paper advocates for a pragmatic and strategic approach to CSR, rather than the traditional ideological approach. The paper categorises current CSR practices into three theatres. Theatre 1 deals with management of philanthropic initiatives, Theatre 2 deals with value chain and cause marketing initiatives and Theatre 3 deal with transformative ecosystem initiatives. Traditionally, these varied activities are managed at various levels of the organisational hierarchy. This results in lack of integration and cohesion. With the broadening of CSR from just a legal obligation to a strategic component of business, gaining a unified vision has become fundamental. Consequently, coordinating CSR efforts in all three theatres is essential.

There is no one-size-fits-all model for companies to follow in their CSR efforts. Individual companies engage in various programs, encouraged by various factors, both internal and external. Through the three theatre framework, the paper demonstrates why the primary question for companies is not whether to engage in CSR or not, but why is it essential to develop CSR strategies that enhances practices of each theatre and helps coordinate these independent efforts across the theatres (Rangan, Chase, & Karim,2012)11.

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3. Case Study on Jubilant Life Sciences

A case study on Jubilant Life Sciences is done to explore the relation between CSR and

financial performance.

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4. Methodology

This paper attempts to explore the existence of a potential effect on or between CSR Expenditure and Profitability for Jubilant Life Sciences.

First, I have compared the financial performance of JLS with that of ITC. ITC is rated among the World’s Best beig companies and the world’s most reputable companies by the Forbes magazine. Along with this, ITC has also been conferred with the Best Overall CSR Performance Award by the Institute of Public Enterprise and the CSR Award from TERI, owing to its exemplary contributin to the Triple Bottom Line. ITC has also received the top rating in Asia for the CSR initiatives by CLSA. Based on these reasons of exemplary financial performance and work in field of CSR, ITC is used as a benchmark to compare against.

To supplement this investigation and explore the possibility of any association between financial performance anc CSR efforts/expenditure and the nature of this relation, I have used the correlation coefficient between CSR Expenditure and Profit after Tax (PAT) figures (Correlation and Regression, 2009)3.

The equation for the correlation coefficient is:

where X is the values pertaining to CSR Expenditure and Y is the values pertaining to PAT.

Secondary data were the chief source of information for the study. This study used information from the annual report of JLS and figures from moneycontrol.com. Data used include CSR Expenditure and PAT for the period of 2009 to 2014.

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5. Data Analysis

5.1 Company Profile

Jubilant Life Sciences Limited (JLS), an integrated pharmaceutical and life sciences company, is the largest Custom Research and Manufacturing Services (CRAMS) player and a leading Drug Discovery and Development Solution (DDDS) provider out of India. Recently it has been ranked No. 6 amongst the Top 10 global contract manufacturing & services outsourcing players of the pharmaceutical industry (Source: UNCTAD).

Jubilant’s sustainability efforts have been reported through a Corporate Sustainability Report since 2003 and this report has been receiving GRI G3.1 A+ level & GRI Check, since 2007 from Global Reporting Initiative (GRI).

Community Development projects are designed to fulfil the potential gap areas and are monitored by the Senior Management. JLS’ community initiatives are aligned to focus on the Millennium Development Goals (MDGs).

Corporate Social Responsibility is an integral part of how JLS conducts business and how the efforts are directed towards community development through focus on primary education, basic healthcare service, and livelihood generation programs focused on improving the employability of women and local youth (Corporate SocialResponsibility, n.d.)2. 

JLS carries out its CSR activities through the Jubilant Bhartia Foundation (JBF). JBF focuses on different areas of social development including primary education, basic healthcare, skill development for employability and self-sustenance. Some of its projects are:

1. Muskan - An initiative to support quality primary education in rural areas. JBF works closely with the government and schools. It also monitors the impact of Muskaan against indicators of infrastructure, community involvement, retention and quality of education.

2. Swastha Prahari – an initiative to reduce infant & maternal mortality ratio; Integrated Counselling & Testing Centre (ICTC) for HIV/AIDS & DOTS centre for Tuberculosis treatment.

3. Nayee Disha is a vocational training programme to provide training to underprivileged children so as to prepare them for better livelihood opportunities. It conducts skill development programme at JBF’s Vocational Training Centres at different locations aimed at helping the trainees find ‘skills for life’ on successful completion.

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4. India Social Entrepreneur – “The India Social Entrepreneur of the Year Award” is a joint initiative that has been introduced through a collaboration between Jubilant Bhartia Foundation and Schwab Foundation for Social Entrepreneurship. It aims to encourage innovation and encourage growth solutions to address challenges in numerous areas including health, education, environment, access to technology and job creation.

For its efforts in trying to be sustainable in its operations and the commendable work done in the CSR space, various awards have been conferred upon JLS. Some of these awards are:

Amongst the companies with a Level 4 rating by The Karmayog Corporate Social Responsibility (CSR) Study on CSR Ratings of India’s Largest 500 companies: 2009-10

Responsible Organization Excellence Award conferred by ASSOCHAM (2015)

NDTV Profit Business Leadership Award 2012’ in the category of CSR

CPhI India Pharma Awards in Excellence in Corporate Social Responsibility

Amity Global Business School - CSR Award 2013, in appreciation of outstanding work in the CSR domain

Golden Peacock Global award for Excellence in CSR (2008, 2013, 2014)

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5.2 A comparative study between Jubilant Life Sciences and ITC Ltd*.

*Information about ITC Ltd. has been obtained from (Kumawat, 2015)5. The data source has been displayed in Annexure 1. The tables and charts referred to below are displayed in Annexure 2.

On the basis of the contributions of the CSR activities undertaken by ITC and JLS, their financial performance can be analysed. The impact of CSR on the financial performance of the companies which is subsequently reflected in the market price of the shares of the companies listed on a recognised stock exchange as investor confidence and demand increases.

In the case of ITC, we see a progressive trend as the share price increases from 44.79 (2005) to 360.60 (2014). The linear trend lines reflect this consistent increase for ITC wheareas for JLS, the trend of share prices is decreasing (Refer to Annexure 2, Figure 1). This reflects the increased investor confidence in ITC, which it has lived up to and delivered in terms of Corporate Financial Performance. This increase is also indicated in the PAT figures of the company (Refer to Annexure 2, Table 2).

Further exploring the effect of CSR on Financial Performance, the impact of CSR on the net profits of the company should also be considered. This which can be adjudged from the PAT of ITC and JLS. Independent of the scale of their figures, we can see an increasing trend in the profits for both companies. These are suggestive of better profitability, and sustainability and CSR measures might have helped achieve these results.

To further explore any relation between CSR and financial performance, we can also consider the impact on the total assets of a company. Total Assets stems from value creation efforts of the company. With increased importance given to CSR as a strategic component and a proponent of innovation and resource creation, CSR might play an important role in helping increase the value of the total assets of companies (Refer to Annexure 2, Table 3).

Thus, from the analysis of the performance of JLS, along the lines of ITC, over the past ten years, it is evident that the company has grown in the right direction, albeit, not consistently. By expanding its product offerings and markets, JLS has challenged world leaders in pharmaceuticals and has definitely earned the top notch amongst the Indian competition. Companies that are actively involved in CSR practise definitely have an advantage over other companies from a financial perspective. Ratings, rankings, reputations translate into determinants of company’s image which affects customer loyalty and stakeholder trust.

From this comparative study, it is clear that CSR and Financial performance are associated. However, this does mean that CSR expenditure translate into corresponding

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financial results. While the results clearly favour association of the two when considering ITC, the results are skewed when considering the performance of JLS.

5.3 Correlation between CSR Expenditure and Profitability for JLS*

*This section refers to data tables and calculations of the correlation coefficient which has been displayed in Annexure 3.

Table 4 in Annexure 3 represents the total amount of CSR expenditure spent by JLS through the years 2009-2014, it shows that the increasing value of CSR expenditure shows change similar to the profitability of the company.

The co-efficient of correlation is independent of the scale used if we divide the term (X-Xm)(Y-Ym) by the sample standard deviation. It is also made independent of theΣ

sample size, and bounded by the values +1.00 and -1.00 if we divide by (n-1).

Correlation Coefficient r = 22692.889

(6−1)(44.481)(3225.16)

= 0.570267862

Coefficient of Determination, r2= 0.325205435

The calculated value of r suggests that there is a direct relationship between CSR Expenditure and profitability for the JLS. However, the r2 value indicates that the association is not very strong. CSR Expenditure can only explain 32.52% of the variation in profitability.

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6. Conclusion:

Jubilant Life Sciences has been a pioneer in CSR activities in the pharmaceutical sector in India. Testimonial to its commitment to helping society overcome problems and its achievements in the space of CSR, JLS has been awarded by various national and international institutes and authorities in the recent past.

Despite this, the financial figures over the years have been inconsistent. When considering investor confidence as reflected on the share prices and profitability of the company, we can see that it has been fluctuating through the years (Figure 1). This trend is suggestive of a decrease, if the recent business performance does not improve.

To further evaluate impact of CSR Expenditure on the financial performance of JLS, we try compare the two factors (Amount of CSR Expenditure and Profit after Tax Figures) by testing for any correlation between the two. The correlation coefficient value of 0.57 and the coefficient of determination value of 0.32 suggests that there might be an association between the two. However, any such association is not very strong and definite.

Hence, it cannot be concluded that the extensive CSR efforts by JLS has materialised into profits for the company. Nonetheless, CSR has evolved into a strategic component for companies and can help companies garner a competitive advantage against its rivals. This can be seen in JLS’s performance and sustainability initiatives. Innovation, pioneering quality efforts and energy conservation has contributed to development of JLS into a global leader.

Focusing on the concept of CSR and how it has developed into a core requirement for businesses, companies need to focus ensuring efficiency in their CSR efforts too. As a consequence, JLS should review its CSR efforts from a financial perspective and try to leverage its benefits such that it can translate into better profitability for the firm as well.

Future research in this filed could proceed into various directions. Firstly, extensive research needs to explore the causalities between CSR efforts/expenditure to profitability and check whether it stands the test of time and various economic conditions. Secondly, it is also essential to determine the time period required for CSR efforts to translate into benefits that can be measured financially.

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10. Rahman, M. M. (2014). Corporate Social Responsibility and Financial

Performance: A Case Study of Jamuna Bank Limited, Bangladesh. Asian Journal of

Finance and Accounting, 6(2). Retrieved from

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2604007

~ Page 20 ~

11. Rangan, K., Chase, L., & Karim, S. (2012, April). Why Every Company Needs a CSR

Strategy and How to Build It. Retrieved from http://hbswk.hbs.edu/item/why-

every-company-needs-a-csr-strategy-and-how-to-build-it

12. Tsoutsoura, M. (2004, March). Corporate Social Responsibility and Financial

Performance. Berkeley, California.

13. WBCSD. (2008). Corporate Social Responsibility - A Report

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8. Annexure

Annexure 1: CSR and Financial Performance - Review of ITC Ltd.

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Annexure 2: Financial Data regarding comparison between ITC and JLS

Year ITC (in rupees) JLS (in rupees)

2005 44.79 172.51

2006 97.48 243.75

2007 75.2 260.2

2008 103.18 327.85

2009 92.4 95.55

2010 131.58 339.35

2011 181.45 164.95

2012 226.85 199.7

2013 309.1 171.95

2014 360.6 158.95

Table 1: Share Prices of ITC and JLS

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

50100150200250300350400

Share Prices Comparison: ITC vs JLS

ITC Linear (ITC)JLS Linear (JLS)

Year

Shar

e Pr

ice (i

n Rs

)

Figure 1: Comparative Chart of Share Prices and Trend Lines of ITC and JLS

~ Page 23 ~

Year ITC (in crores) JLS (in crores)

2005 2191 113.3

2006 2235 138.8

2007 2700 231.5

2008 3120 392.3

2009 3264 260.7

2010 4061 363.1

2011 4988 279.6

2012 6162 363.3

2013 7418 344.9

2014 8785 323.5

Table 2: PAT Figures of ITC and JLS

Year ITC (In crores) JLS (In crores)

2005 11550 859.01

2006 13084 1448.44

2007 14968 2556.91

2008 17249 3055.15

2009 19484 3865.05

2010 23005 4185.12

2011 25434 5120.87

2012 28988 4896.79

2013 34017 4502.78

2014 39229 3970.94

Table 3: Total Assets of ITC and JLS

~ Page 24 ~

Annexure 3: Data for Correlation between CSR Expenditure and

Profitability for JLS for the years 2009 to 2014.

Sl No: Year CSR Expenditure PAT (in millions of Rs)

1 2009 23.76 2607

2 2010 59.56 3631

3 2011 30.13 2796

4 2012 39.53 3633

5 2013 41.58 3449

6 2014 72.33 3235

Table 4: CSR Expenditure and Profitability of JLS from 2009-2014

Year CSR (X) PAT (Y) (X-Xm) (Y-Ym) (X-Xm)(Y-Ym)

2009 23.76 2607 20.72166667 618.1666667 12809.44361

2010 59.56 3631 -15.07833333 -405.8333333 6119.290278

2011 30.13 2796 14.35166667 429.1666667 6159.256944

2012 39.53 3633 4.951666667 -407.8333333 -2019.454722

2013 41.58 3449 2.901666667 -223.8333333 -649.4897222

2014 72.33 3235 -27.84833333 -9.833333333 273.8419444

Mean 44.48166667

3225.166667

22692.88833

Table 5: Mean value calculation of CSR Expenditure and PAT

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