1. Evolution of Corporate Social Responsibility in India -Amit Mohaan Meharia

2. Introduction  Vary from continent to continent, country to country and from Company to company.  Depends on the social fabric of the Society in which a company is operating.  Consumers are becoming more aware of environment and social implications of their day to day consumption decisions and in some cases make purchasing decisions related to their environment and ethical concerns.

3.  It is for the well being of the Company’s stakeholders in all operations and activities.  Crisis always force a company to engage into CSR.  A 2000 Study done by European Commission showed that CSR having a neutral impact on financial outcomes of a company  CSR - traditionally been seen as philanthropic activity e.g. donation, charity etc.

4. Alternate names are:  Corporate sustainability  Social responsibility  Corporate citizenship  Corporate conscience  Stewardship  Social audit

5.  World Business Council: CSR 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.  European Commission: A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environment concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.

6.  CSR is about how companies manage the business processes to produce an overall positive impact on the Society.  Quality of their management – both in terms of people and processes (Internal).  The nature of and quality of their impact on the society in the various areas.  Outer – what good or bad has been done?  Impact on outer  Focus is on the impact of how you manage your core business and contribution to the achievement of broader societal goals. It has to be a self regulatory approach.

7. World of CSR  USA:CSR is in terms of philanthropic model. Not mandatory.  Europe:European Union actively engaged in CSR regulation and public policy. Voluntary and not mandatory.  UK:Through the Companies Act, 2006 but not mandatory.  Canada:Adopted CSR in 2007 but not mandatory.  Denmark:Adopted CSR in 2008 but not mandatory. Information to be part of Annual reports. If no CSR policy then it should state. Hence voluntary.

8. CSR in India  2014 – India first country in the world to enact a mandatory minimum CSR spending law.  CSR - evolving with the development of India. It has moved from mere charity & philanthropy to women empowerment & rural development, institutional building to community development.  India is one of the fastest growing economy, population and poverty and gap between have and have - nots.  1859 during industrialisation, CSR was charity and donations  During Independence – women empowerment and rural development

9.  Tata:  First to establish labour welfare practices, even before these were made statutory laws across the world.  Eight-hour workday in 1912  Free medical aid in 1915  Welfare Department in 1917  Leave with pay, Workers Provident Fund and Workmen’s Compensation in 1920  Maternity Benefit for ladies in 1928.

10.  2008 Amendment Act to the Companies Act, 1956 – section 217 stated that the Directors’ Report should contain information on conservation of Energy.  2009 Ministry of Corporate Affairs issues Voluntary Guidelines for CSR.  Act ethically, transparent and accountable for acts.  Goods and services should be safe and contribute to sustainability  Should promote well being of workforce  Respect interest of stakeholders  Human rights  Protect and restore environment  Responsibly influence public and regulatory polices  Promote equitable development

11.  2011, SEBI mandated the Listed Companies to report on Environment, Social and Governance initiatives taken.  Companies Act, 2013 was enacted.  Section 135 (1) of the Act 2013 makes it mandatory:  A net worth of at least 500 Cr, or  A turnover of at least 1000 Cr, or  A net profit of at least 5 Cr  Section 135 (1):  CSR Committee consists 3 directors, one of which to be independent.

12.  Section 135 (3):  CSR Committee – formulate CSR Policy and recommend to Board.  Recommend the CSR expenditure.  Monitor CSR Policy  Section 135 (3) (a): Schedule the list of CSR activities Schedule VII:  Ending hunger & poverty  Promoting public health  Supporting education  Addressing gender inequality and empowering women  Funding cultural activities and arts  Combating HIV, AIDS, malaria and other diseases  Contributing to prime minister relief fund or any other welfare fund  Social business projects  Backward classes, minorities and women.  Such other matters as may be prescribed.

13.  Section 135 (5):  2% of the average net profit of preceding three years.  Average net profit shall be calculated as per Section 198.  Section 135 (5) Proviso:  Report under section 134 (3) (o) requires the reason for not spending CSR  Whether penalty under 134 (8) will flow to non compliance of 135 is debatable.  Failure there is no penalty

14.  CSR Rules 2014 effective from 01.04.2014  Rule 2 (c): Definition of CSR not limited to Schedule VII.  Rule 8: CSR Report shall contain particulars as per Annexure.  Rule 4 (2): CSR through Registered Society or Trust or a section 8 company is allowed.  There is no specific definition of CSR in 2013. Schedule is reference and Company may decide as applicable as per advice of the CSR Committee. Flexibility is there.  GOI issued Notification dated 12.04.2013 issued ‘Guidelines on CSR and sustainability Central Public Centre Enterprises’, with effect from 01.04.2014.  General Circular No. 21/2014 on CSR dated 18.06.2014, giving clarification on interpretation of section 135 read with Schedule VII:

15. Reporting of CSR  Section 135 (5) Proviso:  Report under section 134 (3) (o) requires the reason for not spending CSR  Rule 2 (c): Definition of CSR not limited to Schedule VII.  Rule 8: CSR Report shall contain particulars as per Annexure.  Global Reporting Initiative (GRI):  Introduced the Sustainability Reporting Guidelines in 2006  New dimension of reporting dynamics  A separate report from the Annual reporting  No doubt attracts cost and time

16. Convention Financial Reporting – provide only one part of overall picture of financial performance. CSR reporting – discloses to investors and stakeholders on company’s future sustainability CSR is an alternative form of reporting – now required by investors Enlightens long term corporate approach and future directions. Will show light on the issue of sustainable development to meet the needs and aspirations of the present, without compromising the ability to meet those of the future. CSR is the ‘subset’ of sustainability and as such proper reporting is must. Should give information on economic, social and environmental performance.

17.  Reporting of social and environment outcomes along with financial aspects of a company – holistic view of the state of affairs of Company and – risk involved and analysis – investors.  Report amongst others, should have:  Protection of human rights  Safety at workplace  Relationship with employees  Relationship with business partners  Relationship with customers  Relationship with local communities  Capture the long terms value potential of the Company  Long term goals and value  Sustainability initiatives  Forward looking statements  Strategic reporting of business prospects  There must be a linkage between overall business strategy adopted by the reporting Company and sustainability strategy.

18. Positives of CSR  People feel that companies who do charity is better than others.  Gain loyalty  Creating Shared Value – idea that corporate success and social welfare are interdependent.  Fair labour practices  Fair practice with community  Fair environment practice  Human resource benefit – retention easy.  Helps building reputation – Risk Management  Brand Building  Brand differentiation

19.  Reduced scrutiny – goodwill created to be transparent.  Will improve the company’s long term reputation.  Improves competitiveness  Enhances stakeholder relationships  Enhances investor relationships  Better communication with third parties  Sustainability – non – financial factors are increasingly understood to be essential indicators of long term corporate performance.  Risk management improves as the management is more aware of and understanding of non financial risks.  Credibility

20. Negatives of CSR  Critics always ask ‘motive behind engagement in CSR’  Distract attention from harmful business activities – McDonald’s case of associating with Ronald McDonald House as CSR when it was being accused to promoting poor eating habits.  Controversial industries e.g. tobacco and liquor. (However consider Case Study on ITC shifting from tobacco to being a consumer goods enterprise).

21. Conclusion  Focus more on operating the core business in a socially responsible way, complemented by investment in communities for solid business case reasons.  Should have a concrete object/purpose for CSR.  Should ensure that what is spent, is used by the intended target.  Be careful of not over-marketing the CSR as that may backfire.  PSUs have limitations in taking decisions e.g. CVC etc.

22.  Sustainable:  Social responsibility becomes integral part of the wealth creation process  Will enhance competitiveness of business and maximise wealth creation in long term  Difficult times, to practice CSR more rigorously  Company’s obligation to maximise its positive impact and minimize its negative impact.

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