Posted: March 24th, 2023
Nestlé faces political risk emanating from policies passed by foreign governments. The amendments to the Companies Act passed by the Indian government affect Nestle’s CSR approach (Rana & Majmudar, 2018). Notably, if the firm conforms to those amendments to implement CSR projects that have no direct correlations with its operations, it is likely to end its incomplete projects, which will affect the company’s image. Accordingly, completing old projects and implementing new CSR projects per the regulation carry significant financial risks and could lead to losses.
Stakeholders are parties that interact with a business to gain either directly or indirectly from its operations. Nestlé’s stakeholders are consumers, communities within its operations area, and its partners, such as suppliers (Rana & Majmudar, 2018). According to the Companies Act, Nestlé must spend 2 percent on CSR projects that are over and above its primary business activities (Rana & Majmudar, 2018). It is significant that Nestlé analyzes the severity of the risks to implement strategies that translate to profit.
Organizations implement CSR strategies to gain a competitive advantage. Su, Peng, Tan, and Cheung (2016) describe CSR as deliberate steps beyond firms’ legal and financial expectations. Businesses can employ CSR models to enhance their reputation and image, financial performance, brand visibility, and customer relationship (Yin & Jamali, 2016). Companies can position themselves in emerging markets when they adopt CSR since such practices are positive signals to investors (Su et al., 2016). Initiating CSR can improve the financial performance of firms and enhance environmental focus, which delivers value and quality (Su et al., 2016). Saeidi, Sofian, Saeidi, Saeidi, and Saaeidi (2015) add that CSR links three interrelated parameters, including customer satisfaction, reputation, and sustainable comparative advantages, which benefit the implementing organizations (p. 342). Therefore, companies can engage CSR as a business strategy to benefit their operations, stakeholders, and the overall environment for sustainability.
The concept of creating shared value (CSV) interconnects a company’s activities and societal preferences. Nestlé implements CSV focused on environmental sustainability, nutrition, and rural development (Rana & Majmudar, 2018). The model integrates community interests and development needs as critical aspects of the company’s success. Hence, to meet this objective, Nestlé enhances its products and operations, reinforces the attainment of healthy economies, improves business performance, and contributes to rural development. The three-tier approach ensures that the company’s operations address environmental concerns, consumers’ health, and the livelihoods of suppliers through economic empowerment programs (Rana & Majmudar, 2018). Therefore, the CSV model provides an integrated approach to support the business and its direct and indirect stakeholders.
Operating a business guided by ethical principles is important in the modern world. Sustainability is a significant approach to managing depleting resources and addressing environmental degradation (Barbier & Burgess, 2017). Sustainability in business refers to the management of commercial entities using models that benefit the environment (Dyllick & Muff, 2016). Organizations that implement sustainability programs reduce their operational costs and minimize risks. Such companies improve their brand reputation, enjoy competitiveness in the industry, and attract professional employees (Dyllick & Muff, 2016). Schaltegger, Hansen, and Lüdeke-Freund (2016) define sustainable approaches as developments that meet people’s needs without straining the needs of future generations. Therefore, sustainability builds the logic for ethical business management practices in response to environmental expectations and the interests of future generations.
CSR and sustainability have correlations in business. According to ISO 2O11, “The essential characteristic of social responsibility is the willingness of an organization to incorporate social and environmental considerations in its decision-making and be accountable for the impacts of its decisions and activities on society and the environment” (qtd. in Dyllick & Muff, 2016, p. 5). Additionally, compliance with applicable laws and international standards to manage stakeholder interest should be a significant aspect of a CSR program (Dyllick & Muff, 2016). According to El-Baz, Laguir, Marais, and Staglianò (2016), the CSR method depends upon an organization’s corporate strategy. Hence, the approaches center either on financial performance, which relies on models of profit maximization and brings societal strain or on value for stakeholders (El Baz et al., 2016; Yin & Jamali, 2016). Accordingly, the notable difference between CSR and sustainability is based on the model of CSR applied.
Forecasting CSR activities help an organization manage its operations Nestlé should plan its CSR initiatives through programs that will minimize its exposure to risk. CSR is a critical aspect of the attainment of a firm’s economic goals and wealth generation (Saeidi et al., 2015). Given that the government’s approach to CSR requires a predefined setup, it is significant for a business to comply. Risks such as government sanctions for failure to observe regulations and industry-specific policies can lead to fines, product confiscation, and company closure.
The current activities of Nestlé provide some opportunities to balance CVS and CSR. The CVS programs are divided into three broader water and environmental sustainability objectives, rural development and nutrition (Rana & Majmudar, 2018). Nestlé should not stop its CVS projects from implementing the new regulatory requirement in CSR. In its place, the company should define the scope of the three CVR frameworks to ascertain whether they fall over and above its primary business objectives (Rana & Majmudar, 2018). Such redefinition enables the company to negotiate with the regulator and provide proof that specific CVS programs, such as eradicating hunger, malnutrition, and poverty and providing safe drinking water, may not fall directly into Nestlé’s core business goals and thus can be applied under the new CSR categorization.
CSR and CSV programs will provide a comparative advantage for Nestlé. They will help the company to maintain quality within its programs (Rana & Majmudar, 2018). For example, by implementing CSV, the firm is confident of a high-quality supply of coffee, milk, and agricultural products for its production (Rana & Majmudar, 2018). Thus, discontinuing CSV activities would mean a direct onslaught on quality and value, which would lead to a possible drop in sales. Accordingly, the company should undertake CSR and CSV activities since they directly affect people’s livelihoods and deliver overall sustainability in the Indian economy.
The amendment to the Companies Act relating to CSR provides clear instructions to entities. The changes require new CSR programs delinked from having a direct correlation with the core business activities of an organization. According to Rana and Majmudar (2018), “under the new rules, CSR expenditure companies need to clearly distinguish activities that are undertaken specifically in the normal course of business and those that are done incrementally as part of CSR initiatives” (p. 11). Due to this requirement, Nestlé should make a presentation to the government to restate the extent of its CSV activities and state how they escalate beyond the firm’s primary objective. For instance, the health and sanitation program that supports female students in schools through the provision of health facilities is a core area that directly supports societal needs (Rana & Majmudar, 2018). However, although the organization has supported 45 sanitation projects with over 58,000 women through capacity-building interventions, the activities are not directly associated with its primary objectives (Rana & Majmudar, 2018). Thus, making a presentation to the government will enhance their partnership through understanding CSR activities and observing the law.
Nestlé can inform the government of its activities that are outside its core operations. The strength of such an arrangement is that it will enable the business and the government to agree on the integration of CSV activities as part of the company’s CSR initiative. Accordingly, the presentation will also act as disclosure forum. Operational CSR activities will enhance the company’s image in the market, improve customer trust, and increase sales prospects (Yin & Jamali, 2016). Therefore, when the government understands the firm’s activities, Nestlé will enjoy goodwill, which leads to positive publicity that is necessary for business.
| i. Continuation of nutrition classes to boost sales
ii. Increased access to clean and safe water to stakeholders and communities
iii. Conservation effects on water use by farmers, which lead to sustainability
iv. Better sanitation systems for communities through health programs
v. Improved quality and sales due to better company image.
| i. Likelihood of increased expenditure
ii. Possibility of a bad relationship in case of disagreement, which leads to volatility in business
iii. Possibility of fines due to non-compliance of laws.
An effective corporate strategy illustrates the strength of an organization to manage its activities abroad. The model assists a firm in responding to the needs of local stakeholders as it advances its business interests. Nestlé’s long-term CSR strategy will be anchored on nutrition, water, and rural development principles. Thus, those areas of CSV will illustrate the perspective of the new CSR activities.
The company provides nutritional support for children to manage health risks such as malnutrition. The CSR initiative will develop nutrition education programs to support students in various schools (Mohajan, 2015). Companies advocate for safe and healthy practices that reduce the susceptibility to lifestyle challenges such as poor social behaviors through CSR programs (Lee, O’Donnell, & Hust, 2018). Hence, to implement a nutritional wellness strategy, the company will develop CSR teams for effective operations and package relevant content that suits its target populations.
The CSV focus on water and the environment will ensure that the organization concentrates on supporting disadvantaged populations to access water. Accordingly, it will incorporate environmental conservation measures for sustainability (Dyllick & Muff, 2016). Mohajan (2015) states that the construction of water tanks in schools and education support can lead to healthy and sustainable livelihoods. Therefore, the model is critical for improving communities’ well-being and protecting the environment.
Rural development will support stakeholders in managing dignified lives. Economic empowerment programs will help people to alleviate poverty (Mohajan, 2015). In addition, the company will construct community toilets and support development projects (Mohajan, 2015). These initiatives will boost Nestlé’s overall rating in the market and lead to a competitive advantage.
Barbier, E. B., & Burgess, J. C. (2017). Natural resource economics, planetary boundaries and strong sustainability. Sustainability, 9(10), 1-12. doi:10.3390/su9101858
Dyllick, T., & Muff, K. (2016). Clarifying the meaning of sustainable business: Introducing a typology from business-as-usual to true business sustainability. Organization & Environment, 29(2), 1-19. doi:10.1177/1086026615575176
El Baz, J., Laguir, I., Marais, M., & Staglianò, R. (2016). Influence of national institutions on the corporate social responsibility practices of small-and medium-sized enterprises in the food-processing industry: Differences between France and Morocco. Journal of Business Ethics, 134(1), 1-51. doi:10.1007/s10551-014-2417-z#
Lee, Y.-J., O’Donnell, N. H., & Hust, S. J. (2018). Interaction effects of system-generated information and consumer skepticism: An evaluation of issue support behavior in CSR twitter campaigns. Journal of Interactive Advertising, 1-14. doi:10.1080/15252019.2018.1507853
Mohajan, H. (2015). Present and future of Nestlé Bangladesh Limited. American Journal of Food and Nutrition, 3(2), 1-15.
Rana, N., & Majmudar, U. (2018). Nestlé India: Creating a new CSR strategy. Ivey Business School Foundation.
Saeidi, S. P., Sofian, S., Saeidi, P., Saeidi, S. P., & Saaeidi, S. A. (2015). How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction. Journal of Business Research, 68(2), 341-350.
Schaltegger, S., Hansen, E. G., & Lüdeke-Freund, F. (2016). Business models for sustainability: Origins, present research, and future avenues. Organization & Environment, 29(1), 3-10. doi:10.1177/1086026615599806
Su, W., Peng, M. W., Tan, W., & Cheung, Y.-L. (2016). The signaling effect of corporate social responsibility in emerging economies. Journal of business Ethics, 134(3), 479-491. doi:10.1007/s10551-014-2404-4
Yin, J., & Jamali, D. (2016). Strategic corporate social responsibility of multinational companies subsidiaries in emerging markets: Evidence from China. Long Range Planning, 49(5), 1-18. doi.org/10.1016/j.lrp.2015.12.024
Place an order in 3 easy steps. Takes less than 5 mins.