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Filtering by Category: CSR

CSR NEWS: DECEMBER 2014 ROUND-UP

Anubhav Gupta

It's been a crazy January so apologies for a rather belated round-up of the top CSR stories from December. Happy new year!

Indian corporates show serious CSR attitude

This Mercer survey shows the positive outlook of Indian companies towards CSR with more and more of them aligning CSR with their core business strategy. It's clear that the law on mandatory CSR has already made its impact and it's heartening to see that a large percentage of companies are leveraging their internal expertise in trying to make a positive social impact and some are even transforming their product and services to account for social and environmental factors. However, as with any research, it's hard to know whether what companies claim and what they action are necessarily the same thing. 

Taking toilets seriously 

Since our Prime Minister launched the Swacch Bharat Abhiyaan (Clean India Initiative) on Oct 2, 2014, corporates have already pledged a few thousand crore rupees to the cause. We agree that this is a wonderful initiative and a much needed one right now. Apart from the obvious benefits it brings to people, environment, the general image of our country, it also holds an interesting significance for corporates as highlighted by this article. We feel that even though everyone may have their own reasons to take up this initiative, in the end, it is leading towards a cleaner India which is a good thing!

The hard data: are companies spending their CSR dollars, and on what?

We came across an Economic and Political Weekly report on how corporate houses in India are spending their CSR money. It compares CSR spending between public and private companies and Indian and Foreign firms, it also shows the gap that exists between the amount companies are required to spend as per the mandate and the actual current spend. But perhaps the best part of the report is on the industry wise spend areas. It gives a great idea of where the priorities on CSR spend are across different sectors.

India's CSR journey is only just beginning

It's been almost a year since the Companies Act with the mandatory CSR provision was passed, and this report shows who the leading stars are in the Indian CSR space. The study by responsiblefuture.in took into account the governance structure for CSR, stakeholder integration, pervasiveness of CSR efforts etc. to come up with the overall leaders and those in the public and private space. The positive take away from the report is that companies are strong on governance. But companies still have a long way to go in terms of disclosure, stakeholder engagement and sustainability. We hope that in the coming years, corporate India will mature in these aspects and deliver better results across all areas in the CSR space.

2014's top CSR stories

As the year ends, we thought of sharing this round-up of the top 5 CSR stories of 2014. One of the major things to happen was the enhanced focus on sustainability reporting with bodies like the United States advocacy group Ceres, Singapore Stock Exchange taking up the agenda. The renewed interest in sustainability couldn't have come at a better time as 2015 onwards, companies will have to follow the G4 reporting guidelines published by the Global Reporting Initiative to showcase their sustainability efforts. The review also talks about some studies that have shown that responsible business is proving to be profitable business and makes the case for incorporating sustainability into core business strategy - something most firms have already realized but it's still good to have it backed by solid data.

The CSR Bill is not dead (wake up DNA!) 

DNA goofed up big time by saying that the government has dropped provisions in Companies Bill to make it mandatory for companies to spend and report its CSR initiatives. Though this is absolutely incorrect and we pointed out the mistake to them, sadly, they still haven't removed it. In spite of there being some talks that the government might retract the policy, our point of view is that this looks increasingly impossible for this FY – however, the financial reports that will be published in September 2015 will no doubt give fuel to the debate of whether the policy is working or not in its current form.

CSR Rules: Guide to the Companies Act 2013

Anubhav Gupta

NOTE: THIS PAGE HAS BEEN REVISED TO REFLECT THE FINAL RULES AS PUBLISHED ON 27 FEBRUARY 2014, AND INCLUDED AMENDMENTS MADE TO THE RULES ON 31 MARCH 2014, 6 AUGUST 2014, 24 OCTOBER 2014.

On 8th August 2013 the proposed new Companies Bill, 2012 was passed by Rajya Sabha. This became the new Companies Act, 2013 - it replaces the Companies Act, 1956, which has governed Indian business for over 50 years.

The new Act contains an important clause (Clause 135) that mandates CSR regulations for Indian companies. After a conultation of the draft rules, the final rules were notified on 27th Feburuary 2014, coming into force on 1st April 2014.

Below is our one-stop guide to the clause, the rules surrounding it, and how these rules affect your business.

If your company would like a consultation session on the new rules please contact us: consultation@doonething.in


HOW IT AFFECTS YOU:

1 / which companies are included

Only companies of a certain size are included in Clause 135... 

The rules define the companies affected as those having net worth of Rs 500 crore or more; or annual turnover of Rs 1000 crore or more; or annual net profit of Rs 5 crore or more (net profit before tax, not include profits arising from branches outside India).

2 / what you have to do

There are four major directives your company will have to comply with:

1. Create a “CSR Committee”, made up of three or more Directors, one of whom must be an independent director.

2. Allocate at least two percent of net profits* to implementing CSR activities.

3. Create a “Corporate Social Responsibility Policy” that details which activities will be undertaken by the company, and what budget will be spent on them. This should be published on the company’s website.

4. At the end of each year, the details of all CSR initiatives undertaken by the company must be reported in the Directors’ Report and on the company website.

*(The two percent CSR spending needs to be computed as two percent of the average net profits made by the company during every block of three years. For the purpose of the first CSR reporting, the net profit should be calculated as average of the annual net profit of the preceding three financial years ending on or before 31 March 2014.)

3 / what the money can be spent on

Below are the ten areas exactly as worded in Schedule VII:

i) Eradicating hunger, poverty and malnutrition, promoting preventative health care and sanitation(including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation) and making available safe drinking water;

ii) promoting education including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects.

iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and other such facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

iv) ensuring environmental sustainability, ecological balance, protections of flora and fauna, animal welfare, agroforestry, conversation of natural resources and maintaining quality of soil, air and water (including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga).

v) protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts’

vi) measures for the benefit of armed forces veterans, war widows and their dependents

vii) training to promote rural sports, regionally recognised sports, Paralympics sports

viii) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorites and women;

ix) contributions or funds provided by technology incubators located within academic institutions which are approved by the Central Government;

x) rural development projects;

xi) [added 06/08/14] slum area development - where the term ‘slum area’ shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force.”

4 / creating your CSR policy

The rules of the new Act have some guidance on what the policy should and shouldn’t include:

  * The policy should specify the projects and programmes that are to be undertaken.

  * It should include a list of CSR projects/programmes which the company plans to undertake during the implementation year, specifying modalities of execution and an implementation schedule for each.

  * In specifying the CSR projects/programems, the policy should “give preference” to the local areas around it and where it operates.

  * The CSR projects/programmes may focus on integrating business models with social and environmental priorities and processes in order to create shared value.

  * It should be clear that any financial surplus arising out of CSR activity will not be part of business profits of a company.

  * The Committee should prepare a transparent monitoring mechanism for ensuring implementation of the projects/programmes proposed in its policy.

5 / foundations, trusts, and collaborations

If a company has already set up a Trust or Section 8 Company, or Society or Foundation, to implement its CSR activities, the company would have to specify the exact projects and programmes to be implemented by the organisation as per the company’s CSR policy. In addition the company would have to set up a monitoring system to ensure that its two percent contribution (under Clause 135) was spent for this purpose only.

A company may also funnel its CSR spending through a Foundation, Trust or Section 8 company that is not set up by the company itself. However, this is acceptable only if the organisation has a track record of more than three years in implementing activities in the specified areas, and if the company has a monitoring system in place to ensure the funds were spent as per the activities set out in its CSR policy.

Companies may collaborate or pool resources with other companies to undertake CSR activities, within the areas specified in their CSR policy. Any expenditure incurred on such collaborative efforts would qualify for computing CSR spending for the year.

6 / capacity building

CSR funds can also be spent on capacity building for both the CSR team inside your company, and for management at beneficiary organisation. This means you can use your spend to train your own staff to think strtegically about how and where the money is being spent, as well as how to effectively manage NGOs and other organisations, to communicate stories, and write useful reports.

You can also spend it on training the NGO or organisation you are supporting. Our recommendation is that a small investment training them in manageing money effectively, measuring impact, reporting effectively, and doing all this in a professional manner, will save your company a considerable amount of time, money and probably frustration in the long term.

There are two provisions to this rule:

a// the amount spent on this cannot make up more than 5% of the overall CSR spend for the year

b// the organisation providing the capacity-building training must have a track record of more than three years in implementing such training

7 / employee benefits 

The Rules specify that CSR initiatives exclude any activities undertaken in pursuance of the normal course of business of a company. So even though point (vii) above references “employment enhancing vocational skills”, this does not extend to vocational training undertaken in your company as part of your normal HR operations.

The rules state further that activities or programmes that are solely for the benefit of your employees and their families will not be considered part of the CSR spending. Our interpretation of this is that it's acceptable for your employees and their families to benefit from any projects/programmes set up for the broader community, assuming they are in the target social demographic of the programme.

8 / important links

The full Companies Act 2013 can be found here, skip to page 80 to find Clause 135 on CSR: http://egazette.nic.in/WriteReadData/2013/E_27_2013_425.pdf

And don't forget you can contact us for advice or a consultation session any time. 


GENERAL CIRCULAR: CLARIFICATION ON CSR CLAUSE 135 FROM MCA

Anubhav Gupta

The Ministry of Corporate Affairs has issued a new circular on the CSR mandate in Clause 135 of the Companies Act 2013. There are some interesting clarifications around Schedule VII, the areas in which CSR monies can be spent. The key points to note are:

  • It recommends that Schedule VII (the ten spending areas) are “interpreted liberally”, covering the broad essence of the area, instead of being taken literally or exhaustively.
  • Spending should be on ongoing “projects/programmes” and not on one-off events (although obviously events can be part of an ongoing programme). For example, sponsoring a marathon would not count, but if it was part of a long-term preventative health campaign to get the nation exercising then it could be included potentially. 
  • Included in the reportable CSR spend are “Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies”. That means any staff specifically engaged in managing CSR, plus a financial equivalent for any employee volunteering time for CSR activities, calculated against their company salary.
  • Contribution to the corpus of a trust or society is also included, providing it gets spent on activity that fits within schedule VII. That means companies can give a cheque to charity for their ongoing work in a specific area, rather than having to establish specific CSR programmes from scratch.

This is broadly good news as it means companies have more freedom to implement projects that create shared value without be restricted by the wording of Schedule VII.

But the more "liberal" the interpretation is allowed to be, the more open it becomes to misuse - so let's see how this pans out by next April.

CLAUSE 135 IS GO: COMMENTS ON THE FINAL CSR RULES

Anubhav Gupta

Notifications were issued for Section 135 and Schedule VII of the Companies Act today following a consultation on the draft rule issues last year. The rules will come into effect from 1st April 2014.

You can see a simple guide to all the rules hereBut below we've outlined a few key changes to the draft version of the rules. 

Putting capacity-building on the agenda

One noticeable addition is the provision for CSR funds to be spent on capacity building for both CSR teams, and beneficiary organisations. With the provisions that a) this cannot make up more than 5% of the spend, and b) that the organisation providing the capacity-building training has a track record of more than three years.

This is a great addition, and a much needed one. One the corporate side, the world of responsible business is still fairly new, and the concept of a dedicated CSR manager is very rare. Being able to invest in training these managers to behave strategically with funds, and think about creating advantage for the business is a long-term win for companies.

On the beneficiary’s side it’s even more critical – training NGOs to understand the language and priorities of the corporate world, as well as being able to manage “donor services” effectively will remove major stumbling blocks in the corporate-NGO relationship. 

Schedule VII: additions

The full list of areas that CSR funds can be spent on is detailed in our one-stop guide, but there are some noticeable additions to the draft rules. The general theme is a broadening of the categories to include much more detail.

Healthcare: Preventative healthcare, sanitation and access to clean water all make an appearance - where previously only combating HIV and other “diseases” was mentioned. A great addition that broadens the scope to almost all healthcare – as well as sanitation which is set to be one of the most pressing issues of the 21st century.

Culture and sport: Both come out well, having been given their own categories. For culture the focus is on heritage and traditional craft, but there’s scope for other arts based projects too. For sport pretty much anything seems to go, all great news for our struggling non-cricketers.

Environment: The previous “ensuring environmental sustainability” has been extensive broadened to include protecting fauna, natural resources and soil quality.

The elderly: A new appearance for the elderly – old-age homes, day care centres and other facilities for senior citizens are all explicitly mentioned.

War veterans: Another completely new inclusion for any measures that “benefit” war veterans and their dependents.

Tech incubators: A strange inclusion (especially since the explicit link to “social business projects” has been removed) – this provision allows for funds to be donated to technology incubators within academic institutions that are approved by the government. It would be interesting to know the thought process behind this – yes, some of the most important technical innovations may come of out of these incubators (just as many won’t) but the vast majority won’t be contributors to social good in spirit or reality.

DOT DISCUSSES CSR APPROACHES IN MINT

Anubhav Gupta

With the new Companies Act coming into effect from April 1st, Mint's double-page feature today discussed approaches to CSR in light of the new Act.

DOT’s founder Laura was happy to contribute to the conversation on deriving strategic advantage through intelligent CSR strategies.

For more information on what the new rules mean for businesses, check out our one-stop guide to Clause 135.

 Click for larger image. 

Click for larger image. 

Q&A: DOES EMPLOYEE ENGAGEMENT COUNT TOWARDS CSR SPEND AS PART OF THE NEW COMPANIES ACT?

Anubhav Gupta

 

This is a question we are being asked a lot at the moment. And it’s a good one.

There are numerous reasons why you would want to target your own employees with responsible initiatives – not least of which because more engaged employees have repeatedly proven to be more productive, loyal and innovative in their roles. And of course if you are an employer with low-wage or contract workers, the need for targeted social interventions is all the more pressing.

However the rules of the new Act state that any programmes that are “solely for the benefit of your employees and their families” do not count towards your reportable CSR spend.

  Punj Lloyd carries out health and HIV awareness with its hired site workers

Punj Lloyd carries out health and HIV awareness with its hired site workers

Reaching the other 90 percent

We can’t speak for the government on why they chose to include this particular rule, but it does make sense in a broader perspective. Encouraging corporate spend on responsible initiatives is an attempt to direct not only corporate finances but also private sector expertise and efficiencies towards addressing some of the country’s most critical social issues.

And with only ten percent of India’s population engaged in formal employment, allowing companies to restrict programmes to their own employees would potentially exclude the 90 percent of the population who rely on informal labour, agriculture, or have no regular employment – and it doesn’t bode well for the implementation of holistic, long-term, societal interventions.

Employees are not entirely excluded

Having spoken to a senior government advisor, it’s clear that there’s no rule saying your employees can’t benefit from programmes if they are in the target groups that your CSR policy is aimed at – for example, female employees can benefit from any women’s empowerment programmes you initiate, and your employees’ children can benefit from local education projects.

  A worker being surveyed as part of CSR strategy development

A worker being surveyed as part of CSR strategy development

Balancing priorities

Our recommendation in order to create strategic advantage internally, whilst benefitting society, is to think of your employees as representative members of the communities in which they live. The Act encourages businesses to “give preference” to the local areas around it and where it operates, so having a sample of that community in your own building is a great tool for you to understand the communities’ needs and create relevant programmes around them.

We recently trailled this concept with one of our major clients. Having a workforce exceeding 70,000 across the country, we worked with them to define an accurate sample group of 1,200 and implemented an in-depth quantitative survey to assess their priorities, needs, and interests, both in the workplace and outside. The findings and trends uncovered through this exercise have become the building blocks of a CSR strategy that will target other low-income households in the local area and, of course, will additionally benefit the employees and their families where possible.

Three point guide

- Engage your workforce in the CSR process, even those (like corporate staff) who may not be the final beneficiaries.

- If you employ low-wage workers, utilise their knowledge and experience to define what programmes would be useful to the local community.  

- Think about programmes you can implement both internally and externally – identify the crossover areas and deploy your corporate expertise to address them.

THE NEW CSR MANDATE: WHAT’S THE DEAL?

Anubhav Gupta

 

Everywhere we go these days people talk to us about “something to do with CSR being compulsory”, with a bit of confusion and a bit of fear.

Well it’s not quite yet - but, as soon as the government can get itself together again, Rajya Sabha is scheduled to pass a new Companies Bill, replacing the current bill that has been in effect since 1956.

Amongst the many new regulations in this new Companies Bill (2012) is Clause 135, a short but important clause focussed on Corporate Social Responsibility.

Uh oh, so what does clause 135 say?

Under clause 135, companies of a certain size will be mandated to do a number of things:

1. Create a “CSR Committee”, made up of three or more Directors, one of whom must be an independent director.

2. Create and publish a “Corporate Social Responsibility Policy” that details what activities will be undertaken by the company.

3. Contribute a mandated two percent of net profits to implementing its CSR policy.

Did you say two percent of profits?

Yes. The mandatory spend is calculated as two percent of the average net profits that the company made during the three immediately preceding financial years.

So that’s what companies will need to invest in CSR once the new Bill passes.

All companies?

Well no, only big ones, based on this criteria:

- having net worth of Rs 500 crore or more, or

- turnover of Rs 1000 crore or more, or

- a net profit of Rs 5 crore or more

And of course, you can’t spend a percentage of profits if you’re not showing any profit. So, in this financial climate, that knocks out a fair few companies.

What counts as CSR then?

All the usual suspects - in fact here’s the exact list from Schedule VII of the bill:

Activities relating to:—

(i) eradicating extreme hunger and poverty;

(ii) promotion of education;

(iii) promoting gender equality and empowering women;

(iv) reducing child mortlity and improving maternal health;

(v) combating human immunodeficiency virus, acquired immune deficiency

syndrome, malaria and other diseases;

(vi) ensuring environmental sustainability;

(vii) employment enhancing vocational skills;

(viii) social business projects;

(ix) contribution to the Prime Minister's National Relief Fund or any other

fund set up by the Central Government or the State Governments for

socio-economic development and relief and funds for the welfare of the Scheduled

Castes, the Scheduled Tribes, other backward classes, minorities and women; and

(x) such other matters as may be prescribed.

So can companies give money to charity?

 

They can if they wish - it’s easy but frankly it’s not very smart.

Although this mandate seems prescriptive there’s actually a lot of room for manoeuvre and our recommendation would be to use this opportunity to get your house in order. “CSR” isn’t a tick box exercise. Behaving “responsibly” - in business as in life - is a long-term way of operating and new process of decision-making.

So the smart thing to do is use this opportunity to start changing the way your business operates – and make it stronger, more efficient, and more well respected at the same time.

Well what do you suggest then?

We thought you’d never ask! Well as it happens we’re full of good ideas for a win-win CSR strategy. Here are some of the things we’d look into…

1. Improved worker welfare and satisfaction

What: Social capacity building initiatives; health camps and health awareness; nutrition education; vocational training; computer skills; soft skills training; family counselling and support… etc.

Why: Improved staff retention rates, higher productivity, healthier workforce, fewer unauthorised absences, more worker responsibility, increased loyalty. And to be able to communicate high levels of compliance to buyers, clients and customers.

2. Local community outreach

What: Vocational training for vulnerable groups, improving relations with local community influencers, support for local social development initiatives, local area clean-up drives… etc.

Why: To develop a strong local reputation, attract higher quality employees, build a strong local workforce, respond proactively to risks, generate a positive reputation amongst local groups.

3. Environmental Sustainability

What: Supply chain assessment, waste treatment, closed loop recycling, energy efficiency, new forms of energy, support for social enterprises within the environmental sector… the list here is endless.

Why: To contribute actively towards environmental preservation, to create energy efficiencies that lead to cost savings, to support newer and safer forms of energy, to be able to comply with international standards and expand market reach… again, the benefits are huge too.

If we spend all that money, do we get to tell people about it?

 

Yes, you can and you should.

Not just to make you look good to consumers, clients and buyers (although that’s a massive benefit which we’ll get into another time). But to be a part of the ecosystem of responsible business; to shift it from a legal mandate to being the only acceptable way to operate.

Ultimately we all want to do the right thing. And this is our chance.