Corporate Social Responsibility

What is CSR? “Corporate social responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.”

Early definitions of CSR….. Howard R. Bowen -1950’S ‘the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” Joseph . W . Mcguire “The idea of social responsibilities supposes that the corporation has not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations”

CORPORATE SOCIAL RESPONSIBILTY RULES 2014 UNDER, COMPANIES ACT 2013

Estimated amount of CSR post Companies Act 2013… Introduction Estimated amount of CSR post Companies Act 2013… Upto Rs.18,000 crores may be spent on CSR by Indian Corporates… Deccan Herald 30, Sep 13 16400 companies Around 14000 will contribute less than Rs 1cr. Estimates vary but huge amount going to be spent

Applicability {Sec 135 (1)} Every Company having (in any financial year) Networth of at least Rs.500 crores OR Turnover of at least Rs.1,000 crores OR Net profit of Rs. 5 crores Thus, even private companies are covered, if they are of this size These companies will have to form a CSR Committee (including one independent director at least, subject to exemptions) Applicable from Financial Year 2014-15 (Rule 1( 2) of CSR rules 27 Feb 14) It applies to company , its holding and subsidiary also(rule 3) if they fulfill criteria specified in S 135(1)- Also applies to foreign co having branch, project office in India (rule 3)

Meaning of “net profit” Rule 2 (f) of CSR rules 2014 provides meaning of Net Profit of company as per the financial statement prepare in accordance the applicable provision of the act, but shall not include the following, namely: Any profit arising from any overseas branch and branches of the company, whether operated as a separate company or otherwise; and Any dividend received from other companies in India, which are covered under and complying with the provision of section 135 of the act.

Constitution of csr committee Rule 2(d) of the companies (corporate social responsibility policy) Rules, 2014 draws reference to the corporate Social Responsibility Committee referred to in Section 135, which as per rule 5 of the companies (CSR policy) Rules, 2014 the CSR committee shall be constituted in following manner: 1. Unlisted public company or a private company covered u/s 135(1) which is not required to appoint an independent director pursuant to section 149(4) of the act, shall have its committee without such director; 2. Private company having 2 directors on its board will constitute its CSR committee with 2 such directors; 3. With respect to foreign company, 1 person shall be nominated by the foreign companies and two persons of which 1 person shall be specified under section 380(1)(d).

Functions of CSR Committee {Sec 135 (3)} Formulate and recommend to board CSR policy, which shall indicate the activities to be undertaken by the Company Recommend the amount to be spent on the activities Monitor compliance with the CSR policy from time to time

Meaning of csr policy Rule 2(e) provides that “CSR Policy” relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company.

CSR Policy {Rule 6} The CSR policy of a company shall include: A list of CSR projects or programs that company plans to undertake Within the purview of schedule VII Specify modalities of execution and implementation The monitoring process

Board Responsibilities {Sec 135 (4)} Role of the Board - Governance Board Responsibilities {Sec 135 (4)} Approve the CSR policy Place the CSR policy on the company’s website Ensure that CSR activities as per policy are undertaken Ensure that the company spends at least 2% of the average net profits of the company made during the three immediately preceding financial years Give preference to the local area and areas around it where it operates

Board Report {Sec 135 (2) - (5) and 134 (3) (o)} Role of the Board - Governance Board Report {Sec 135 (2) - (5) and 134 (3) (o)} To contain: Composition of the CSR Committee Disclose the contents of the CSR policy Details of amount spent and the 2% of net profit as computed Reasons for not spending the amount on CSR, if such amounts are not spent Rule 8 and Annexure

Disclosure in company’s website Rule 9 requires disclosure in co website , if any, of contents of: CSR policy

Consequences of not complying with CSR provisions u/s 450 the company and every officer of the company who makes default, such person are punishable with max. fine Rs.10000. & if the default is continued then further max. fine up to Rs.1000 for every day. Sec 451 provides if any company or its officer commits an offence is punishable either with fine or with imprisonment and if the same offence is committed for the subsequent occasions within the period of 3 years then the company's and its officer will be punishable with both

CSR Spends Spends in every year, 2% of The average net profits Made during the three immediately preceding financial years Explanation also states, that average net profits shall be calculated in accordance with section 198 Rule 2 (f) provides that net profit shall not include a) profits arising from branches outside India b) dividend received from companies in India covered under and complying with the provisions of S 135 Surplus shall not form part of business profit of co. (rule 6(2))

What can you spend on? (Notification dated 27 Feb 14) Eradication of hunger, poverty, preventive health care and malnutrition Promotion of education Promotion of gender equality Ensure environment sustainability Protection of natural heritage Measures benefiting armed forces

What can you spend on? Contd. (Notification dated 27 Feb 14) Training to promote rural and nationally recognized sports Contribution to the Prime Minister's National Relief Fund Contributions or funds provided to technology incubators Rural development projects

Recent developments Rural electrification corporation has decided to contribute Rs 2cr to a Literacy project Gail has paid Rs 5cr to same NGO- Padho aur Badho Govt has set up dedicated cell NFCSR (National foundation for CSR) as an arm of IICA Sambhavana Society rolling out portal showcasing work of NGO’s to help corporates select NGO’s in their areas of interest. Ecotimes 19 Apr 14

Recent developments contd. The Andhra Pradesh High Court (APHC) in its recent order has stayed the Andhra Pradesh Pollution Control Board (APPCB)’s directive to all industries including pharma and bulk drugs to allocate at least one per cent of their project cost towards Corporate Social Responsibility (CSR) activity. NEWS ITEM 14 MAR 14

Tata's and CSR “In a free enterprise, the community is not just another stakeholder in business but is in fact the very purpose of its existence." Jamsetji Nusserwanji Tata, Founder, Tata Group. Tata Sons Ltd. is said to utilize on average between 8 to 14 percent of its net profit every year for various social causes. Refer to Corporate Social Responsibility: A Case Study Of TATA Group by Amit Kumar Srivastava1, Gayatri Negi, Vipul Mishra, Shraddha Pandey

CSR in India Banks Banks and insurance companies are targeting migrant labourers and street vendors to help them through micro-credits and related schemes. GlaxoSmithKline CSR programs of corporations like GlaxoSmithKline Pharmaceuticals focus on the health aspect of the community. They set up health camps in tribal villages which offer medical check-ups and treatment and undertake health awareness programs.  BP and Maruthi Udyog In another study undertaken by automotive research company, TNS Automotive, India has been ranked second in global corporate social responsibility. State-owned Bharat Petroleum and Maruti  Udyog were ranked as the best companies in India.

CSR by Corporate Foundations Bill & Melinda Gates Foundation The Bill & Melinda Gates Foundation, a benchmark for a focused socially-relevant enterprise, chose just two areas of effective and measurable action: education and healthcare. The foundation then made worldwide eradication of polio akin to a business goal and is confident of achieving it in the next six years. Azim Premji Foundation In India, the Azim Premji Foundation chose to focus on improving the quality of primary education, and has maintained this effort for over 12 years Piramal Foundation The Piramal Foundation operates its healthcare initiatives internally SAP SAP India in partnership with HOPE in Bangalore has done a lot of work to rebuild the lives of the tsunami affected victims

CSR Internationally CISCO Cisco’s CSR strategy is to use their expertise, technology, and partnerships for social, environmental, and business impact. Microsoft Microsoft has concentrated on the following areas for their CSR Education and digital inclusion Internet safety and policy leadership Responsible Business practices Economic Opportunities