CSR in India: An unfinished portrait? Ananda Das Gupta

CSR in India: An unfinished portrait?

Ananda Das Gupta

The Case

Despite the life-size examples from well established houses, CSR in India remains to be at a burgeoning stage. It is followed only by a meager number of public companies and by a few private companies, with international shareholding as this is the practice followed by them in their native foreign country. Thus the scenario is far from being faultless. A shocking revelation of the failure of the proper implementation of the laws of CSR in India has been witnessed in the state of Orissa. The Indian Ministry of Environment and Forests has allowed two major companies of India – Oil and Natural Gas Cooperation of India (ONGC) and Reliance Industries (RIL) to carry out the off shore drilling off the coast of Orissa.

This has led to the deaths of tens of thousands of the Olive Ridley turtles that nest on these sandy beaches. With the number of these turtles already plummeting, they are well on their way towards extinction. The Bhopal Gas tragedy cites another and perhaps the most shameful consequence of the failure of CSR in India. The accidental leakage of the fatal methyl isocyanate gas caused immediate death of thousands of people and caused premature deaths of thousands more, the effects of which are being witnessed till date. The company involved paid some billion dollars to the government as a compensation for the massacre the accident had caused.

But before the ruthless killings of men and children and the long term health risks the tragedy exposed the people to, the amount accounted for but a meager reimbursement. The catastrophe unveiled the eternally known but un-adhered-to principle of the industries’ responsibility towards the society, of the need for measures to avert any such further disasters.

The Scenario

There are many big entities who have been actively engaged in the CSR activities but unfortunately the number is relatively less. In order to encourage more entities to participate in the process of development of the society via- CSR, the Government of India has actually implemented the concept of CSR in the new Companies Act 2013, On 27th February, 2014, the Government of India has notified the rules for CSR spending u/s 135 of the New Companies Act 2013 along with Companies (Corporate Social Responsibility Policy) Rules, 2014 effective from 1st April 2014. Turning the CSR from voluntary activities to the mandated responsibilities, also governed by the bundle of regulations as follows:

Eligibility Criteria:

Company (includes foreign company with branches or project in India) having:

• Minimum net worth of rupees 500 Crore.
• Turnover up to “1000 Crore”
• having a net profit of at least ‘5crore’.

during any financial year, are covered by this provision
.
Composition of CSR Committee

The Company should constitute a Corporate Social Responsibility Committee as follows:

1. The Committee shall consist of minimum 3 (three) including 1 (one) Independent Director, however in case of Private Company or the Company, which is not required to appoint Independent Director on board, or Foreign Company the committee can be formulated with (2) two directors.

2. The CSR Policy shall be formulated in accordance with Schedule VII and the CSR Committee will be responsible for framing the policy, finalizing the amount to be spent on CSR, monitoring & implementation of the Scheme.

3. If Company ceases to fulfill the eligibility criteria for three consecutive years, then the company is not required to comply until the company will meet the eligibility criteria once again.

The CSR Rules provides the manner in which CSR committee shall formulate, monitor the policy and manner of understanding for CSR activities.
Under the rules, the Government has also fixed a threshold limit of 2% of the “Average’ Net Profits of the block of previous three years on CSR activities and if Company fails to spend such amount, disclosures are to be made for the same. But an exemption has been given to the Companies that do not satisfy the above threshold for three consecutive years.

Brief on CSR Activities as prescribed under Schedule VII of CA, 2013

1. Objective to efface the daily life segments including poverty, malnutrition and hunger while enhancing the standard of living and promoting the facets of better health care and sanitation.

2. Initiative to promote the different segments of education including special education and programs to enhance the vocation skills for all ages like children, women, elderly and conducting other livelihood enhancement projects.

3. Aim to bring the uniformity in respect of different sections of the society to promote gender equality and other facilities for senior citizens and developing hostels for women and orphans and taking initiative for empowering women and lowering inequalities faced by socially and economically backward groups.

4. Elevate the segment of flora and fauna to bring the ecological balance and environmental sustainability in respect of animal welfare, conservation of natural resources and ago forestry while maintaining the quality of air, water and soil.

5. Enhancement of Craftsmanship while protecting art and culture and measures to restore sites of historical importance and national heritage and promoting the works of art and setting up of public libraries.

6. Steps to bring worthy to the part of war windows, armed force veterans and their departments.

7. Sports programs and training sessions to enhance the level of rural sports, nationally recognized sports, Paralympic sports and Olympics sports.

8. Favoring to Prime Minister’s National Relief Fund and contribution to other fund set up by the central government to promote socio-economic development and welfare of the schedule castes and Schedule Tribes and for supporting backward classes, minorities and women.

9. To uplift the technology of incubator that’s comes under academic institutions and which are approved by the Central Government.

10. Introducing varied projects for Rural Development.

The below activities doesn’t include under the CSR activities of the Company.

1. Business run in the normal course.
2. Outside the territory of the India or abroad.
3. For the welfare of the employees and their families.
4. Political party contribution of any amount directly and indirectly as defined u/s 182 of the Act.

The above CSR activities shall be undertaken by the Company, as per its stated CSR policy, in consonance with the new or ongoing projects excluding activities undertaken in pursuance of its normal course of business. The Board of Directors may decide to undertake its CSR activities approved by the CSR Committee, through a registered trust or a registered society.

Yearly Compliances:

1. The Annual Report of the Company shall include a comprehensive Report on CSR in the format as prescribed in the Companies (Corporate Social Responsibility Policy) Rules, 2014, containing particulars on Overview of CSR Policy, Composition of the Committee, Avg. Net Profit, prescribed expenditure and details of its spending, reason in case of failure etc.

2. The disclosure on CSR in Board Report should also be available on the Company’s Website.

3. The activities included in the CSR Policy and the prescribed expenditure being undertaken/ spent shall be ensured by the Board, in the respective manner.

This means all the Companies falling in the aforesaid criteria needs to ensure CSR compliance but it is debatable to say that the same is for welfare of the society or the companies are doing it just to avoid penalties. CSR stands to support the Company’s Vision as well as directions to what Organization stands for and will sustain its clients. An ISO 26000 is the accepted worldwide standard for Corporate Social Responsibility (CSR).CSR term has been revaluated with an aim to embrace responsibility for the Company's actions and encourage a positive impact through its activities on the environment, consumers, conscience, corporate citizenship, social performance, employees, communities and all stakeholders. Even as the government tries to coax private companies to spend more money in fulfilling their corporate social responsibilities, public sector undertakings remain laggards. Ten large PSUs, which were together mandated to spend 1,313 crore in FY12, managed to disburse less than half that amount

Source: http://www.csrtimes.com/community-articles/psus-fail-to-meet-csr-targets/203

The Observation

Companies are required to find ways to reduce the negative impact of their operations rather than finding ways to cure that impact. Companies cannot help in lowering the price of vegetables for the indigent community, but they can certainly develop skills in the youth for gainful employment and for a better future.The thrust on local area development is natural, since industries are located in India on the basis of research of raw market availability, transportation costs and, crucially, the co-operative attitude of the local government. Intimate knowledge of the needs of the locality would even be beneficial. Hence, localization of CSR is a workable idea.Rather than attracting more investment to an already developed district, this provision would encourage the government to allot spaces in diverse locations, taking development concerns into account. These would be long term projects, spanning decades.

Companies are unlikely to respond quickly to the threat of having to disclose their planned and actual expenditure, and widespread underspending will look like failure. On the other hand, if spent, the money involved (which is equivalent to about 12 percent of this year’s Ministry of Rural Development’s budget) would flood the existing collection of NGOs, social businesses, and others working outside of the state on social causes with new cash, attracting inexperienced and diversely motivated new entrants. Existing NGOs often struggle to build the human capital and operational capacity to handle the current private social budget from philanthropy, and few have systems in place to track, much less report social impact. An exclusive list of approved social activities would become a focal point for lobbying and newer, more creative approaches could easily be left out.

At the same time, however, the companies that fall under the CSR provision display some of the key ingredients for social innovation and an ability to convert cash into development: decentralised decision-making, institutionalised attention to at least some forms of need, demonstrated capacity for adaptability, and the clear ability to move from idea to implementation. With the right oversight, this potential could flourish into some much-needed caulking around the cracks of an imperfect state. Seizing this opportunity will require an uncharacteristic degree of government restraint, as well as more strategic policy investment in strengthening systems for disclosure.

The current perfunctory disclosure clause handicaps even this nascent potential for public oversight to motivate social effort. Spending obligations are highly concentrated among companies that face limited risk that customers will shun them for absent or inept CSR. More than half of the profits after tax available from companies on the 2012 Economic Times 500 list of India’s largest listed companies are in industries that face limited competition to meet critical needs (such as shipping or refining), don’t depend on everyday goodwill for their brand (such as steel or cement), or simply have a reputation that dwarfs attention to CSR (such as mining).

What is more, three-quarters of India’s companies are family-owned or promoted, according to Chandrajit Banerjee, Director-General of the Confederation of Indian Industry, and it’s hard to see how disclosing failure to meet CSR spend at the Annual General Meeting of this audience would be a threat. This context will evolve—the Companies Bill has new protections for minority shareholders which may encourage more diverse investors to jump in, and India Inc. increasingly attracts institutional investors known to cry foul—but today it’s a small, friendly club.

Media and public watchdogs may reach into this world once in a while to check on CSR progress, but the current disclosure mandate does not make their lives easy. Extracting annual reports from unenthusiastic corporate officers is investigative journalism at its most tedious. Downloading, decoding, and aggregating insights from online annual reports in PDF formats to make some sense of the trends will also be a labour of love. Prominent, publicly listed companies may see more pressure, but they also have larger public-relations cells.

But the CSR provision could still be just the nudge that India Inc. needs to think clearly about how it might contribute to social development. Total disregard of the mandate is a more active opt-out than just casual procrastination: it requires more intentional consideration and rejection of the possibility of organisational philanthropy. Some business leaders may treat the mandate as just so much paperwork for consultants, but many may actually take the time to think about how they can apply their skills, and the organisations they lead, to achieve more than simply profit. It is easy to stereotype the “captains of industry” as a bunch of hard-hearted capitalists, but equally easy to draw up a long list of counter-examples.

The result could be lots of minds at work, many of which have an understanding of process, project management, and scale that complements the passion often seen as the highest virtue in the social sector, leveraging flexible organisational structures, processes, and hiring possibilities towards new ends—in short, the kind of capacities we wish the public sector had, but which it is still, well, acquiring. The logic of a market in which development becomes like another product is certainly not a replacement for higher forms of social contract, but it does offer some prospects for loose coordination among particular projects as companies seek to create a better version of social impact than what’s already being produced by someone else. Large scale CSR could, for example, complement public efforts by offering innovative proofs of concept for local and other governments to replicate and scale. It could address interlinked problems that cut across the fragmented public sector response. It’s worth giving the approach a chance.

The trick is to offer that chance without relaxing expectations. The governance of CSR needs to balance accountability (for the incentives) with freedom (for the creativity). Dispersed social oversight does just that. Just as many minds are more likely to innovate than one, many judges are more likely than one to see the good and accept diverse versions of it. Public sentiment matters more and more in the age of social media; and stronger disclosure can leverage this trend. India could also adopt a clear taxonomy for social outputs, for example, so that a “job” or “energy savings” mean the same thing whenever they are claimed. International standards such as the Impact Reporting and Investment Standards (IRIS) allow global comparisons and benchmarking and are regularly updated as well as open to public comments and addition. The ministry could mandate the format for disclosure to ensure that it is available in electronic, machine-readable, manageable and analysable formats, making it easy for watchdogs to find and report patterns for the general public.

Tightening the definition of “social” and then blindly enforcing the mandate could undermine all this. The journalist R Jagannathan pointed out in MoneyControl that, as is, “the law has no problems whether a company uses profits to help commercial sex workers in Mumbai or build places of worship as part of CSR”; it was meant as a critique, but it should actually be the aspiration—as long as those who care about each cause can track and reward effective work.  

Source:: http://caravanmagazine.in/perspectives/social-net-worth#sthash.W4jqoIH0.dpuf