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THE NEW CSR MANDATE: WHAT’S THE DEAL?

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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.