Why comply with an unenforced policy? The case of mandated corporate social responsibility in India

Abstract

Can public policies achieve high compliance without resorting to high enforcement? The case of India’s mandated corporate social responsibility law shows that they may be able to do so by leveraging the underlying motivations of policy targets. The law, introduced in 2013, requires large companies to spend at least 2% of their net profits on CSR. Despite no monitoring, enforcement, or penalties for noncompliance, it has resulted in significant increases in CSR spending by creating a social norm around the 2% target, and relying on social pressure and reputational effects, rather than government enforcement, for compliance. However, the case also shows that such an approach has attendant risks: relying on the social motivation of policy targets may alienate those with normative motivations, and weaknesses in the surrounding legal and institutional environment may enable some firms to disguise their noncompliance.