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Filtering by Tag: Companies Act

CSR NEWS: APRIL / MAY 2016

Gauri Sharma

By Anant Shrivastava

Image Source: LiveMint

Image Source: LiveMint

In our latest bi-monthly roundup we cover recent CSR circulars and amendments, and interesting reports on employee engagement and Swachh Bharat. Exciting times for India Inc! New financial year, better CSR?

No CSR for tobacco companies?

A circular released by the Ministry of Corporate Affairs (MCA) on 16 May, 2016 states that CSR activities undertaken by companies cannot prohibit or conflict with any other prevailing laws of the land including Cigarette and Other Tobacco Products Act (COTPA), 2003. This could mean that tobacco companies are prohibited from undertaking CSR activities as they can be viewed as marketing or promotion of the brand, which is prohibited under COTPA. This essentially allows tobacco companies to escape from any kind of social responsibility. We question whether this circular is a smart move on the Government’s part. While it’s important that tobacco companies are not allowed to promote their brands through CSR, there can be smarter ways to ensure they still undertake CSR activities as mandated by the Companies Act, 2013. Companies can implement CSR activities without promoting individual brands. We hope that the Government issues clear guidelines on the matter and ensures that all companies that fall within the purview of the Act participate in CSR.

 

 Integrating CSR into leadership boosts employee engagement across companies

We’ve always held the view that CSR should be strategically integrated from the top down within organisations. A new study by the Hay Group division at Korn Ferry has found out that including CSR into leadership development results in a higher employee engagement throughout the company and boosts overall performance. While the study provides evidence that leadership programmes with components of social responsibility have delivered high impact, it also points to a huge current gap – only 36% of employees are “highly engaged”. Further, only 59% of the participants felt that their organisation actually included CSR in leadership development. This presents a huge opportunity for companies to get their act right and leverage CSR for business benefits. Such studies serve a useful purpose by providing data-backed proof of the business value of social responsibility! 

 

The Government’s unrealistic expectations on CSR?

Is the Government expecting too much from companies in the form of CSR and deviating from the core purpose of mandatory social responsibility? This Livemint article suggests so. The Government regularly urges private companies to contribute to its own social welfare schemes to “fill in the gap” that it is failing to adequately address. But as the article highlights, the total spending on CSR by companies is miniscule compared with the amount spent by the Government. Further, some Government requests are in clear violation of the Companies Act itself. We think the companies should be allowed freedom to choose and implement their own CSR initiatives that leverage their expertise to deliver maximum impact. The Government should realise that companies are not responsible for supporting its own schemes. The nation stands to benefit more if there is spending in diverse areas than if all the funds are pooled into few Government initiated schemes. We can only hope they are listening. 

 

Proposed FCRA amendment – a boon for companies, NGOs, and controversially, even political parties!

A proposed amendment to the FCRA aims to makes it easier for companies that have more than 50 percent foreign shareholding to spend on CSR activities without the non-profit partners requiring FCRA clearance. If the amendment goes through, it will reduce the burden of additional due diligence warranted in case of FCRA contributions. Many NGOs, especially smaller ones that do not opt for FCRA clearance and therefore miss out on corporate funding, also stand to benefit from this. However, as this article states, the amendment may also help certain political parties get away with FCRA violations. We certainly welcome the proposed amendment if it simplifies giving and receiving of corporate funding for social good but at the same time, it should not be leveraged for political gains.

 

Treat CSR expenses as non-cost items – Institute of Chartered Accountants of India

ICAI, the apex body of chartered accountants in India, has issued an exposure draft of the guidance note on treatment of CSR costs. The note specifies that companies should not treat CSR expenses, including expenses above the 2% obligation, as business expenses (product or service costs) and should only include them in the profit reconciliation statement, commonly known as the profit loss account. The note also specifies that any income or surplus through CSR activities cannot form part of the business profit and should be adjusted against the CSR expenses to give the actual amount. This note does not have a significant implication for companies. Donations by companies have always been accounted in the profit reconciliation statement and CSR expenses should continue to be treated that way. But it serves a useful purpose of providing clarity on accounting of CSR expenses and ensuring full compliance with the Companies Act, 2013.

The complete exposure draft can be found here.

 

Has CSR funding helped the Swachh Bharat Mission?

Samhita, in association with the Indian Sanitation Coalition, has released a report that states the contribution of CSR funding in the Swachh Bharat Mission. 90 out of the top 100 BSE companies were involved in the initiative in some way, including public sector companies. It is evident that Swacch Bharat is getting corporate funding. But are companies making efforts with the aim to deliver maximum benefit and actually changing the state of sanitation in India? Consider this: according to the report, 75% of the amount spent was on infrastructure projects i.e. building toilets and only 25% on the other aspects such as community behaviour change programmes, maintenance etc. The majority of the amount was spent in states with heavy industry presence, while states like J&K, Assam, Arunachal Pradesh missed out, despite dire need for sanitation facilities. With just 17 percent of the amount spent on urban areas, companies also largely ignored the requirement of sanitation facilities in poor urban slums.

We feel there is a learning for all the three parties involved in ensuring the mission is a success. The Government needs to shift focus from developing infrastructure to addressing community behaviour around toilet use, something that has been repeatedly asserted by experts in the field. The NGOs working in this sector need to ensure that programmes around behaviour change have robust impact measurement and can show tangible outcomes to corporate donors. Intangible outcomes are a big factor for companies to be disinterested in such initiatives. Finally, companies ought to resist tokenistic participation in the mission and start thinking about the entire lifecycle of a sanitation project. Building toilets is just the start. Equally important is ensuring the community uses them and that they are maintained in the long-run. Corporate India should think about the enduring benefits from this programme rather than the one-time activity it has become! 

CSR NEWS: FEBRUARY / MARCH 2016

Gauri Sharma

By Anant Shrivastava

It’s been an exciting couple of months with significant buzz in the world of CSR and sustainability. DOT brings you news from India and beyond with articles ranging from recommended changes to the Companies Act, benefits of impact investing and creating shared value to how luxury brands stepping up their CSR game. It’s becoming increasingly evident that strategic and well-integrated CSR is the way forward and is no longer a nice-to-have!

 CLC recommends changes in Section 135 of the Companies Act

The Companies Law Committee (CLC) setup in 2015 to make recommendations to the govt. on issues arising from implementation of the Companies Act, 2013, has recommended several changes to the Act, including Section 135 of the Act pertaining to CSR. Recommendations on CSR have been made after considering the suggestions contained in the High Level Committee on CSR report that came out in October 2015. The complete CLC report can be found here. Recommendations have been made around the following points:

  • Information on annual disclosure of companies around CSR should be compiled by MCA and made available in public domain
  • The govt. should play no role in monitoring CSR implemented by companies and it will be the companies’ responsibility to systematically monitor their CSR activities
  • Composition of CSR committee for companies not required to have independent directors should be prescribed as ‘having two or more directors’
  • Clarity on computing net profits for determining whether a company qualifies for mandatory CSR spend
  • Specific inclusion of requirement of foreign companies to comply with the CSR obligation
  • Areas for CSR listed under Schedule VII to be interpreted as ‘subjects’ rather than specific activities – allowing companies to interpret them liberally
  • No carry forward of unspent CSR fund to the next year
  • Companies, including PSUs, to be given flexibility for some years to experience the implementation of mandatory CSR before any steps on unspent funds are taken
  • Section 8 ‘not for profit’ companies should also implement CSR activities if they cross the financial threshold specified in the Act

The next steps will likely involve these recommendations being presented in the parliament in the form of a bill which could either be passed or rejected.

While some of the above recommendations are indeed helpful for companies in terms of ease of understanding the Act and implementation of CSR activities, this report missed any suggestion on a crucial issue – tax treatment of CSR activities. It’s high time the govt. provided clarity on the same as companies seem to be struggling to understand tax implications of CSR spends in various areas. A uniform tax treatment can prove to be really useful and prohibit a bias for activities that allow more tax benefits than others.

 

Leveraging social media for effective CSR communication

Social media is ubiquitous. People, companies, even governments use it in some way to communicate. Businesses have been using the power of social media to reach out to all their stakeholders but, according to a study, social media is heavily underused for communicating the social good done by companies. This Economic Times blog explores how firms can utilise social media to effectively communicate about their CSR and the numerous benefits it has to offer. Social media is a powerful but fast evolving tool and companies will need to build expertise if they wish to use it as a communications medium for CSR.

 

Going beyond CSR – creating shared value

Even though companies are embracing CSR and ensuring they undertake efforts that benefit society and/or the environment, CSR is still viewed as something that’s extra to the business. We’ve stressed before that CSR is beneficial for both the communities and businesses and plenty of studies exist to support that. Maybe, what’s needed to emphasise the point is looking at social responsibility from a different angle. This article, co-authored by one of the co-founders of the Shared Value Initiative India, attempts to do that. Shared value is an essential concept for businesses where they operate with the aim of creating a more equitable world, maximising shareholders’ wealth in the process. The initiative has seen some success in bringing together companies, government, and civil society organisations to adopt and share practices that allow creation of shared value through business. We hope more business leaders are listening and will work to align their firms in this direction. 

 

A short refresher on what makes a good CSR programme

Every few months, we try to highlight articles that show what constitutes an effective CSR initiative. This article by Paroma Roy Chaudhary succinctly captures the essential components of CSR that benefit both the community and the business – alignment with business, brand impact, local relevance, robust monitoring and evaluation, and professional management. Perhaps the one vital component missing is effective communications around CSR. We’ll continue to provide such refreshers in the hope that more companies take note and do good by doing it well!

 

Impact investing – Need of the hour for India?

Impact investing is often mixed up with philanthropy, CSR, and other similar sounding terms. As a result, its true meaning is often lost. This article defines it from an academic viewpoint and goes on to discuss its benefits especially in the Indian context. Impact investing in microfinance has already benefited millions in India and has provided significant returns to investors. Being a tried and tested model in India’s developing economy, it is high time that companies and individuals focus their attention on it. This could be the answer to the currently limiting CSR legislation because it provides opportunities for innovation in the development space while giving social and financial returns.

 

Good news – More companies view CSR as a strategic process!

Findings from a survey conducted by FICCI show that an increasing number of companies consider CSR to be a strategic decision making process in the business. Around 150 companies participated in the survey which captured responses on management involvement in CSR, implementation and monitoring of CSR activities, clarity of Section 135 etc. It’s heartening to see companies making efforts in understanding and complying with the Act. However, companies also raised some concerns in terms of clarity of the Act (especially tax related regulations), finding credible NGOs, lack of CSR professionals to manage implementation etc. It’s clear that a collaborative effort by the govt. and corporate sector is needed to mitigate these issues and allow ease of planning, executing, and monitoring of CSR.

 

Are luxury brands doing their bit of social good?

Although a number of luxury brands across the world have been involved in social initiatives, they’re not synonymous with CSR to an extent that some other sectors are. The luxury sector has so far taken a very traditional approach to benefiting the community, mostly through charity. Strategic CSR is yet to be largely taken up. This may be changing. This article talks about the work that’s being done by brands such as Louis Vuitton, Gucci, and Chopard and while it may not exactly be “strategic CSR”, these brands are going beyond philanthropy and thinking of long-term social initiatives. A good move considering any business that works with customers who are socially conscious and judge companies on their social footprint stands to only gain through social responsibility initiatives!

 

CSR and sustainability as tools for attracting investment

Indian companies stand to gain in another area through robust CSR and sustainability initiatives – fund raising. This article by Singapore based investment consultancy CSR Works mentions that Indian companies need to step up their CSR disclosures and sustainability reporting if they need to tap in to the $21.4 trillion pool of Socially Responsible Investment (SRI) funds. Sometime back, we’d written about the poor quality of CSR and sustainability reporting by Indian companies and this news highlights how companies are missing out on investments as a result of it. Will firms take up this issue soon? We can only wish as we wait and watch.      

CSR NEWS: OCTOBER/NOVEMBER 2015

Laura Quinn

By Anant Shrivastava

Created by Diego Naïve, from the Noun Project

Created by Diego Naïve, from the Noun Project

BSE CSR platform ‘Samman’ to launch finally?

According to this Hindu article, the platform which has been talked about since April 2015 and aims to connect companies with NGOs to facilitate both parties in undertaking social activities using CSR funding will go live before the end of this year. It will certainly be useful for companies to find credible, transparent organizations and programmes of interest to be funded. However, NGOs that cannot/do not get themselves listed on the platform stand at a risk of not being funded. We hope companies are open-minded while looking for programmes to fund and don’t limit themselves to just the thousand or so organisations that will be listed on Samman.

Companies Act may be amended for clarity on CSR norms

Based on the recommendations submitted by the Government appointed Baijal Committee in September, certain rules as well as the Act could be changed to allow greater transparency around CSR spending. The panel is expected to submit the final report to the MCA in December. Changes are expected to provide greater clarity on many ambiguous areas of the CSR rules including the differential tax treatment of various forms of CSR expenditure as mentioned in this Business-Standard article. In the present scenario where the rules are vague in places and left open to interpretation, such an amendment should prove to be beneficial for all stakeholders in the game.

India ranks no.1 on CSR reporting (but there’s more to it in the fine print..)

India tops the world in CSR reporting with 100% of its top 100 companies reporting on their CSR initiatives. While this is good news, it is hardly surprising given that the government mandates companies above a certain size to report on CSR activities. What is worrying though is the quality of reporting – something where India lags behind many countries. According to this Livemint article, it’s clear that corporate India still has a long way to go before it starts to produce high quality responsibility reporting especially issues such as carbon emissions. Perhaps decisions taken in the ongoing CoP 21 in Paris will distill down to corporate India and make them realize the importance of accurate and high quality sustainability reporting. Only time will tell.

State govt. requests CSR funds for tribal development

Maharashtra CM Devendra Fadnavis requested corporates to utilize CSR funds for the benefit of the tribal population of Maharashtra. This is a good example of government identifying the challenges that can then be addressed by corporate India through CSR funding. However we’ve stressed this before and would like to say this again – participation in such govt. led initiatives should be voluntary and unwillingness on companies’ part to contribute for such initiatives should not come at a cost or penalization in any way.

Transparency for CSR funds should be a two way street

Companies often go to great lengths to ensure that the NGO partners they work with are transparent, ethical, and corruption free organisations. This involves a rigorous due diligence process and rightly so as there are many NGOs that are corrupt and end up utilising CSR funds for vested interests. But shouldn’t the companies be transparent as well when it comes to their expectations from NGOs, processes for grant giving etc. to help NGOs apply for funding? This article written by the development director of a hospital describes the tedious and unnecessary process NGOs often have to go through to just gather information about available corporate funding. We feel that just as NGOs need to step up their game and become professional in order to secure funding, companies also need to structure their grant giving mechanisms efficiently to benefit the NGOs and ultimately the society in the most efficient way. 

Mark Kramer on why a philanthropic model of CSR has limited benefits

Mark Kramer, co-founder and Managing Director of consultancy FSG, stressed in an interview the limitations of a purely philanthropic model and talks about the need for a profit-driven business model for addressing social issues. We agree entirely that, although the traditional CSR model can help to address social problems, there is a critical need to look at social issues from a business perspective. A commercial angle brings greater accountability, professionalism, and often, better resources to tackle challenges than a purely charity-based approach.

Social mission and profit are not mutually exclusive, even for startups

India is on its way to becoming a startup hub (if it’s not there already). But not many startups have a clear social mission or ‘purpose’. The reason is often that they are too busy focusing on other vital aspects of business like, well, starting up! But social consciousness can and should be a part of business strategy for start-ups from day one. Plenty of studies exist to show that a social agenda adds to long term profitability of a company. The same applies to start-ups as well. This article tells the story of how Warby Parker, an online glasses retailer, was able to derive success by being a socially responsible company from the beginning.

Tying CSR with climate change

The climate change conference in Paris in November and December, aimed at helping around 196 nations make decisions on mitigating climate change, is expected to be followed by significant policy changes at national and global levels. Implementation of such policies will come at an added cost that will be borne by multiple stakeholders including governments and the corporate sector. How can the government and companies work together to utilise the mandatory CSR spending to ensure maximum positive environmental impact? A Didar Singh, the secretary general of FICCI, provides insights in this article.

PSUs fare better than private sector in Oxfam’s IRBF 2015 index

Oxfam Foundation released the India Responsible Business Index in October that measures the BSE top 100 companies’ on voluntary disclosures and policy commitments against the National Voluntary Guidelines (NVGs). According to this index, PSUs are doing better than private sector on criteria such as non-discrimination at workplace, community development, respecting human rights and employee dignity, and involving the community as stakeholders in business. The only area where private companies fare better is instituting sustainable policies in their supply chain. We think that initiatives like this that put out such information in the public domain have an effect of motivating companies to do more on sustainability and reporting front. For complete information on IRBF, visit http://www.responsiblebiz.org/