Corporate Social Responsibility In the UAE

In late 1800 Andrews Carnegie, a businessman and philanthropist, pursued wealthy people to donate money towards social causes, in the book written by him, Gospel of Wealth. Although the businessmen of that era rarely practiced the concept of donating towards social welfare, it was only in 1940 that the idea of Corporate Social Responsibility (CSR) gained momentum. Howard Bowen, an American economist, is often cited as the “father of CSR” as he established that it is the responsibility of corporations to donate, aid, and help in society’s growth and welfare. Some of the early adopters of CSR were major companies like Johnson & Johnson, whose founder, Robert Wood Johnson, believed that the needs of those they serve are to be put first. The Hershey Company, its founder, Milton Hershey, didn’t only build a company but also built a town with facilities like civic centers and cultural institutions that exist till today. Today, CSR has grown to become an essential part of every corporate organization, multi-million companies like Pfizer, Coca-Cola, Walt Disney have also incorporated these policies in their business processes in order to positively influence the world. Corporate Social Responsibility is a broad phenomenon that has a self-regulating business model that can be customized according to the business or industry. By practicing CSR, also called corporate citizenship by some companies, companies can understand its impact on society as a whole.

To engage in CSR means that, while carrying out its business processes, a company is undertaking its operations in ways that enhance society and the environment. Strategies of CSR are designed to ensure greater prosperity for their people, protect the planet and preserve nature. It is known that charity begins at home; similarly, for a company to be socially responsible, it has to start with its shareholders and employees; after that, only the society can be catered to. It is generally seen that the companies who are adopting CSR programs have grown their business and reached a point where they can contribute towards a social cause and give back to society. Thus, CSR is more often seen to be practiced and incorporated in the strategies of large corporations. However, even small and mid-sized corporations are creating social responsibility programs to return to society in whatever capacity they can. For example, donating to charities or sponsoring small events. Another important aspect of practicing CSR is for the purpose of marketing as it increases the visibility of a corporation and helps promote public relations as consumers are more likely to engage with brands and businesses whose outlook is ethical. Sometimes, the company founders form CSR strategies due to personal conviction. It helps the corporation set ethical behavior standards for its peers, competition, and industry. 

 

General Objectives of Corporates for following CSR:

The corporations, while incorporating CSR, have a few clear objectives:

• Pursue prosocial activities
• Maximizing profits
• Minimizing effect on the environment
• Promoting volunteerism amongst the employees of the corporation.
• Doing charity work
• Building brand image
• Marketing strategy
• Nurture the relationship with stakeholders

 

International Organization for Standards(ISO):

ISO is an international standard-setting organization that is composed of members representing different countries. Interestingly, UAE became an ISO member after being recognized for its remarkable status and national leadership qualities. In 2010, ISO launched a set of voluntary standards in order to help countries enforce CSR, along with that ISO 26000 was released, which stated the guidelines for performing CSR activities and translating CSR principles into practical actions. The standards that are indicated in ISO aim at all kinds of organizations regardless of their business activity, size, or location as the very nature of CSR is qualitative in nature rather than quantitative, and its standards cannot be generalized or certified. A corporation can refer to Carroll’s CSR Pyramid while forming its CSR policies.

 

Responsibilities while enacting CSR initiative:

The pyramid describes four types of responsibilities that are to be fulfilled while forming a CSR initiative:

1. Economic Responsibility: This responsibility indicates that a corporation or company should build products or provide goods and services needed by the consumers and society as a whole to make living easier and convenient and that too at a reasonable and affordable price.
2. Legal Responsibility: This responsibility ensures that the company or a corporation is aware of the laws and regulations of a marketplace or its state. A company needs to obey the state’s laws to carry on the business processes smoothly and grow.
3. Ethical Responsibility: Apart from obeying the law, a company or a corporation should also keep in mind the ethics of the business and that the practices of the company should be morally clean. By doing so, they not only show their stakeholders that they are just and moral, but consumers will feel more comfortable engaging in business or purchasing goods or services from them. Treating consumers and their grievances well, taking feedback sportingly, dealing with suppliers nicely, and being environmentally friendly are a few examples of being ethically responsible.
4. Philanthropic Responsibility: This is the responsibility according to which a company is required to give back to society and build policies towards the welfare of the community. For example, donating to charities, giving volunteering work to the employees, hosting blood donation camps and events to raise awareness about certain diseases, etc.

The United Arab Emirates (UAE) has recently adapted to the concept of CSR. In UAE, a smart platform was launched on 26th November 2019 to enable the private sector to contribute effectively towards the community’s sustainable development. The vision was to establish a platform that encourages the business sector to actively engage in CSR practice that leads to a positive economic, social, and environmental influence consistent with UAE’s priorities and sustainable development goals. Currently, the government aims to fundamentally transform the concept of CSR by moving ahead from charitable activities to the conceptualization of well-organized initiatives at the national level. 

In short, UAE focuses on developing innovative programs that are sustainable and in compliance with UAE Strategy for Overall Development at human, social, economic, and environmental levels. Consequently, the UAE Council of Ministers has published a new resolution called the CSR Law, aiming to establish an organizational framework and guidelines for the management of the budget as per their CSR activities. The above mentioned CSR Law outlines the necessities of contributions by different corporations towards CSR activities. It also mentions the quantum of the offering towards CSR, where it applies to certain UAE businesses on a compulsory basis or to those on a voluntary basis.

 

Objectives of CSR Law in the UAE:

The following are reasons for the launch of CSR Law in the UAE.

1. Establish a structure governing the rules for CSR contributions in the UAE
2. Record and direct CSR contributions in line with CSR initiatives
3. Offer incentives to UAE businesses that help in furthering the CSR practices in the UAE
4. Establish the Federal Social Responsibility Fund, a new body to be managed under the authority of the Ministry of Economy
5. Sanction a fund to encourage and motivate a culture of social responsibility by UAE businesses to CSR within the UAE

At present, CSR Law mentions that social responsibility is on a voluntary basis for established as well as new corporations in UAE. But soon, reporting and listing social responsibility on CSR Smart Platform will become compulsory for all UAE businesses that come under the scope of CSR Law. According to the above mentioned law, registration on the CSR platform will be applicable to the below entities:

• Commercial Companies that are legally registered, including companies exempted from the provisions of Federal Law 02/2015 on Commercial Companies
• Foreign Companies whose branches are carrying out activities in the UAE
• Directly or indirectly owned companies either owned in full or part by Federal or local government

However, registration will be optional for:

• Professional and civil companies, individual firms, free zone companies, as well as a cooperative society.

 

CSR UAE Fund:

A federal authority called CSR UAE Fund has been formed under the UAE Ministerial Cabinet Decision number 2 for 2018 in order to set the framework that will govern the CSR practices and manage appropriate contributions from the business sector towards national priority initiatives. It has formulated metrics in order to rank and reward active businesses in CSR on a country level. It also motivates relevant authorities to enhance and regulate socially responsible practices within corporations and business entities. There is a compulsory annual contribution into the Fund, currently quantified at UAE dirhams fifteen hundred (AED1,500), as part of a UAE business’s contribution to CSR. Suppose the Organizations want to acquire the Social Responsibility Mark. In that case, they are required to contribute UAE dirhams ten thousand (AED10,000) plus an additional UAE dirham fifteen thousand (AED15,000) is to be deposited in order to obtain the Social Responsibility Permission.

 

Impact of CSR:

The CSR movement has impacted several aspects of businesses and corporations and how they carry out their business processes. For example, many companies have ensured that they evaluate and promote environmental sustainability while carrying out their operations, through installing renewable energy sources or purchasing carbon offsets. Many corporations are making sure that while managing supply chains, unethical labor practices, such as child labor and slavery, are eliminated. Even though the concept of CSR is relatively new in UAE, it is gaining momentum very fast. In the not too distant future, the practice of CSR will become mandatory by the UAE authorities. Hence, it’s time for the corporations established in UAE to review their CSR policies and develop more innovative strategies.