Decoding Section 135, the CSR clause in the Companies Act 2013

Defining Indian CSR Decoding the CSR Law CSR : The Corporate Compliance What are permissible CSR Activities ? CSR activities qualifying norms CSR Market Opportunity Presentation flow …

1987 : Sustainable Development – The Brundtland Report 1995: Corporate Social Responsibility (CSR) – The World Business Council for Sustainable Development (WBCSD) 2008: Social Innovation – Philis Jr., Deiglmeier Miller, Center for Social Innovation, Stanford Graduate School of Business 2011: Shared Value – Michael E. Porter and Mark R. Kramer, The Big Idea : Creating Shared Value, HBR ( DPE guidelines are based more on this ) Definition of CSR has evolved over time – The global context

CSR as defined by the MCA, Govt of India CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth. CSR involves increased efforts to align corporate goals with those of society and environment

The NEW Companies Act, 2013 – the process… CSR Law…Parliament level CSR Rules…Government level CSR Policy…Corporate level Implementation…Corporate & community Impact…community & environment

The NEW Companies Act, 2013 – the process… The Parliament has enacted a law to facilitate corporates to do “Good” – Called - Companies Act 2013; Section 135 on CSR The Government has prepared “CSR Rules” to implement this Act Corporates falling within the ambit to develop a “CSR Policy” based on these Rules’’ CSR Heads/CEO of Foundations to develop & implement CSR Projects based on this CSR Policy; min 2% of net profit to be spent, so Projects must be rupee measurable; Reporting is mandatory but not spending

The NEW Companies Act, 2013 – the process… CSR Programme Managers to find good NGOs etc to implement Projects through grants. Every grant must comply with the CSR Policy of the Company and Projects must be in domains as listed in Schedule VII of the Act, read with Section 135 of the Act. Companies free to do impact assessment of the money spent. Domains for spending – community development & environment conservation as per Schedule VII of the Act.

Decoding the CSR Law.. Section 135: The law is applicable to all companies incorporated in India and having either of the following in any financial year: Net worth of INR 500 Cr or more or; Turnover of INR 1000 Cr or more or; Net profit of INR 5 Cr or more. Annual spending on CSR by companies : Every financial year, at least 2% of the average net profits made during the 3 preceding financial years All CSR Activities to be undertaken Should be stated in the CSR policy Schedule VII : Indicative list of activities that can be planned Preference to be given to the local area of its operations Activities approved by CSR committee will be undertaken through A registered trust or a registered society or Company established under Section 8 of the Act All of above can be set up by a Company. Any of these can be housed in a Foundation of the company If outsourced all of these must be of 3 years working

CSR – the corporate compliance Board level CSR Committee: Comprising of 3 or more directors with at least one independent director, Composition to be disclosed in the annual Board of Directors’ report Section 134: If a company fails to spend CSR amount, the Board shall in its report specify the reasons for not spending the amount. Failure to comply the provisions of Sec 134 is liable to a fine and every officer of the company at fault shall be punishable with imprisonment for a term extended to 3 yrs Responsibilities of Company’s Board: Approve and disclose CSR Policy in the annual Directors’ report and on company website Ensure implementation of CSR activities as per the Policy Report on the actual spending/utilization; Directors’ Report to specify reasons in case the specified amount is not spent

CSR – the corporate compliance Suggested template to be annexed with CSR Policy : Serial No.Names of the projects Activities relating to (one of the ten items of Sch VII in which the project / programme falls or is related to ) Geograph ical Location ( District & State ) Amount proposed to be spent Details of Implementat ion Agency used ( if any) The CSR policy of the company shall specify that the surplus arising out of the CSR projects or programs or activities shall not form a part of the business profit of a company.

CSR Expenditure ( Corporate) CSR expenditure shall include all expenditures in conformity with activities which fall within the purview of Schedule VII of the Act.

CSR – the corporate compliance 1 st April 2014 : Section 135 came into force from 1 st April st March 2015: First mandatory CSR report – last date for submission of CSR report to be within Q1 of FY15-16 (as proposed by IICA) 30 th June 2014 : Last day to set up CSR committee of the board & upload CSR policy in public domain

Eradicating hunger, poverty and malnutrition, promoting preventive health care** and sanitation and making available safe drinking water ; Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects; **, Amended to ‘ promoting healthcare including preventive healthcare’ to encompass entire healthcare Promoting gender equality, empowering women, setting up homes & hostels for women, orphans; old age homes, day care centers & other facilities for senior citizens & measures for reducing inequalities faced by socially and economically backward groups; Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water ; Schedule VII : Permissible CSR activities

Training to promote rural sports, nationally recognized sports, paraolympic sports and Olympic sports; 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, minorities and women ; Rural development projects ; 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; Measures for the benefit of aimed forces veterans, war widows and their dependents; Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government. Schedule VII : Permissible CSR activities

CSR activities qualifying norms What is CSRWhat is not CSR Activities that bring direct benefits to marginalized, disadvantaged, poor or deprived sections of society in INDIA If it does not benefit the poor & backward sections of the community it is not a CSR activity; Activities that are rupee measureableThat which is not rupee measurable is not a CSR activity Activities that are NOT pre-dominantly benefitting the employees of the companies Employee benefits will not count as CSR Programmes/projects must be within India;Programmes/projects undertaken outside India will not count as CSR; It must be a sustained activity over a period of time; One-off or intermittent activities will not count as CSR

CSR activities qualifying norms What is CSRWhat is not CSR Activities must be in the form of project / programme. Thus CSR activities should be projectivised Pure philanthropy or mere donations will not count as CSR Component of a project are as follows: Need Based assessment / baseline survey Clearly identified time frame Specific annual financial allocation Clearly identified milestones Clearly identified & measureable goals & objectives Robust periodic review & monitoring Evaluation & Assessment ( preferably by a third party) Activities complementing government programs / projects Activities shouldn't duplicate Government programmes/initiatives

CSR activities qualifying norms What is CSRWhat is not CSR Activities should be independent of compliance with any regulation or law (except of course Sect 135 itself !!); Activities which are in compliance with any regulation or law will not count as CSR Corporates are expected to fund projects from their own accounts through implementing agencies; Funds/moneys deposited in Central or Government accounts will not count as CSR

Mandatory Reporting on CSR Initiatives Details of CSR activities undertaken during the year to be reported in the following format 1. S. No 2. CSR projects / activities identified 3. Sector in which the project is covered 4. Project / Programm e wise 1)Local areas/othe rs 2)Specify the state/distri ct 5 Amount outlay (budget) project/ program me wise 6. Amount spent on the programme / project subheads 1)Direct expendi ture on projects 2)Over heads 7. Cumula tive spend upto the reportin g period 8. Amount spent Direct or through impleme nting agency Duly signed by the CEO / Managing Director / Director ; Chairman CSR Committee and Person specified under clause (d) of sub-section(1) of section 380 of the Act

16,358 qualifying companies ( 1400 BSE – IICA CSR Index qualifying companies) About 14,000 companies have a CSR budget of upto 1Cr Apporx. INR 20,000 Cr expected as CSR capital annually 13,000 companies out of the above have CSR budget of INR 50 Lakhs annually Approx. INR 1000 Cr ( 5%) available for CSR capacity building CSR Market Opportunity

Thank You from Indian Institute of Corporate Affairs - A Ministry of Corporate Affairs undertaking for capacity building and training on CSR

IICA to take CSR Forward - Orientation Program (OP): Half day session for Directors Management Development Program (MDP): day program for CSR Head, General Managers and Senior Managers Certificate Programmes (CP): 4 months: For mid management keen on lateral entry into senior positions in CSR Certificate Programmes (CP): 3 months - As part of vocational training programmes To be launched from August EEP : Executive Education Programme

IICA to take CSR Forward - To meet the burgeoning demand for certified CSR professionals a 9 months comprehensive CSR programme is being launched from October The registration for the same begins on May 2 nd 2014 – for more details log on to our website : 2 nd round of EoI ( Expression of Interest’) will be invited from Organizations and Institutes of repute to become franchise partner of IICA to launch the ICP certification programme and other CSR courses – This may be a good opportunity for Sri Sri University ICP : IICA Certificate Programme - CSR

The New Horizon of CSR CollaborationResult OrientedImpactful Between the Government, Private Sector & Civil Society Between companies for bigger impact Programs designed with cross linking impacts Designed for Creating Shared Value To the needy and under privileged Impact that is positive and rupee measurable As the paradigms of CSR change; expectation of society change; Regulations change Collaborative Capacity Building is the key to achieving impactful results