Legislating Corporate Philanthropy

In 2009, Mauritius became the second country in the world to mandate CSR (although in 2007, Indonesia was the first country to enact a CSR legislation, the latter has never actually been implemented) or as I like to put it, the first country in the world, to ‘legislate corporate philanthropy’ (see below). Hence, all profitable companies, with the exception of certain offshore and foreign companies, have to commit 2% of their chargeable income to CSR projects, or more commonly known as, community development initiatives (chargeable income here refers to income after dividends have been paid out; prior to January 2012, the 2% was on book profits but following criticism and lobbying from the corporate sector, it was amended to chargeable income, thereby decreasing, for the majority of companies, the pool of money available for these projects). Out of this 2%, 1% of the funds need to go to projects in 4 priority areas decreed by the Mauritian government. These are alleviation of absolute poverty, social housing, welfare of children from vulnerable groups and the prevention of non-communicable diseases.

In the event that the companies do not engage in any projects, they need to remit the money to the Mauritius Revenue Authority. In that respect, the legislation works as a tax; corporation tax in Mauritius is at 15% and, from anecdotal evidence, a number of Small and Medium Enterprises have simply added on the 2% to this, seemingly preferring to avoid CSR projects due to the bureaucracy involved (more on this in a later post). To further lend credence to the fact that the legislation is meant to work as a tax, the relevant sections (50K and 50L) are found in the Income Tax Act 1995, which was amended  by virtue of the Finance (Miscellaneous Provisions) Act 2009 (I’ll deal with this issue in another post).

One of the main questions that the legislation raises and this is what’s been on my mind today is in relation to the nature of CSR itself. I have written about this elsewhere (see my paper in the Contemporary Issues in Law Journal in 2012): at the outset, it is to be anticipated that many commentators will argue that the CSR legislation being discussed here does not actually even ‘fit’ within CSR since the latter is commonly defined as being voluntary in nature. However, although many commentators continually refer to CSR as being voluntary and businesses tend to prefer to engage with CSR on a voluntary basis, the notion itself is in flux: for instance, whilst in 2002, the EU Commission had defined CSR as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”, the more recent definition (2011) is that CSR is simply “the responsibility of enterprises for their impacts on society.” According to the Commission, this wider remit requires businesses to respect applicable legislation, which is, arguably, where the Mauritian legislation would ‘fit in’.

In any case, my argument is that the Mauritian legislation points to a particular conception of CSR. In effect, it is equating CSR with corporate philanthropy. The crucial point to be made here is that corporate philanthropy arises only after profits have been made. It does not go to the question of how profits are made; of whether profits have been made in a socially responsible manner or whether the core business activities of corporations are contributing to sustainable development – which highlights some of the limitations of a conception of CSR related to corporate philanthropy. Yet, it has been widely reported that CSR has a strong corporate philanthropy bent in many developing countries (see Wayne Visser on this), and hence, what the Mauritian government appears to have done is to tell corporations to ‘put their money where their mouths are’ by, in effect, legislating corporate philanthropy.

What is noteworthy about the Mauritian legislation, however, is that it purports to make use of corporate philanthropy in a strategic way that is defined by the state. In other words, arguably, the money to be ‘given away’ needs to fulfil specific developmental outcomes. As such, one could even conjecture that the impact of this legislation for the intended beneficiaries would be measurable in real terms after a few years of implementation; and since, as noted by a number of commentators, impact is notoriously hard to measure in the context of CSR and development, this legislation would potentially enable all the relevant actors in the community to work towards and achieve measurable developmental goals.

In that context, my recent fieldwork has unearthed that we are very far from impact assessment in Mauritius in respect of the legislation – this is something which needs to be worked upon… And will have to be the subject of another ‘musing’.

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3 Replies to “Legislating Corporate Philanthropy”

  1. Congratulations on starting what is sure to be a thought-provoking, ground-breaking site, which not only looks to the future, but is the future. The nuances within CSR are fascinating and I, no doubt like many others of my generation, will look to lawyers and researchers like you to highlight and chart this new movement, which I hope very much will change and develop over time to become philanthropic in its truest sense. Good luck with this wonderful project and I will look forward immensely to following your journey.

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