For the use of Me mbe rs of Parli a men t Not f or Pub li cation

Corporate Social Responsibility

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Corporate Social Responsibility
The 21st century is characterized by unprecedented challenges and opportunities,
arising from globalization, the desire for inclusive development and the imperatives of
climate change. Indian business, which is today viewed globally as a responsible
component of the ascendancy of India, is poised now to take on a leadership role in the
challenges of our times. It is recognized the world over that integrating social,
environmental and ethical responsibilities into the governance of businesses ensures their
long term success, competitiveness and sustainability. This approach also reaffirms the
view that businesses are an integral part of society, and have a critical and active role to
play in the sustenance and improvement of healthy ecosystems, in fostering social
inclusiveness and equity, and in upholding the essentials of ethical practices and good
governance. This also makes business sense as companies with effective !", have
image of socially responsible companies, achieve sustainable growth in their operations
in the long run and their products and services are preferred by the customers.
Indian entrepreneurs and business enterprises have a long tradition of working
within the values that have defined our nation#s character for millennia. India#s ancient
wisdom, which is still relevant today, inspires people to work for the larger ob$ective of the
well%being of all stakeholders. These sound and all%encompassing values are even more
relevant in current times, as organizations grapple with the challenges of modern%day
enterprise, the aspirations of stakeholders and of citizens eager to be active participants
in
economic growth and development
1
.
The idea of !" first came up in 1&'( when it became an academic topic in
)" *owen s +!ocial "esponsibilities of the *usiness . ! ince then, there has
been continuous debate on the concept and its implementation. ,lthough the idea has
been around for more than half a century, there is still no clear consensus over its
definition.
-ne of the most contemporary definitions is from the .orld *ank /roup, stating,
0orporate social responsibility is the commitment of businesses to contribute to
sustainable economic development by working with employees, their families, the local
1
India, 1inistry of orporate ,ffairs, orporate !ocial "esponsibility 2oluntary /uidelines 233&
%2%
community and society at large, to improve their lives in ways that are good for business
and for development.4
2
Corporate Social Responsibility Voluntary Guidelines 2009
In order to assist the businesses to adopt responsible governance practices, the
1inistry of orporate ,ffairs has prepared a set of voluntary guidelines which indicate
some of the core elements that businesses need to focus on while conducting their affairs.
These guidelines have been prepared after taking into account the governance challenges
faced in our country as well as the e5pectations of the society. The valuable suggestions
received from trade and industry chambers, e5perts and other stakeholders along with the
internationally prevalent and practiced guidelines, norms and standards in the area of
orporate !ocial "esponsibility have also been taken into account while drafting these
guidelines
(
.
Fundamental Principle: 6ach business entity should formulate a !" policy to guide its
strategic planning and provide a roadmap for its !" initiatives, which should be an
integral part of overall business policy and aligned with its business goals. The policy
should be framed with the participation of various level e5ecutives and should be
approved by the *oard.
Core Elements:
The !" 7olicy should normally cover following core elements8
1. Care or all Sta!e"olders:
The companies should respect the interests of, and be responsive towards all
stakeholders, including shareholders, employees, customers, suppliers, pro$ect affected
people, society at large etc. and create value for all of them. They should develop
mechanism to actively engage with all stakeholders, inform them of inherent risks and
mitigate them where they occur.
2
The hallenges of !ocial orporate !ocial "esponsibility8 9acts for :ou, 1ay 231(, pp. (;%(&
(
India, 1inistry of orporate ,ffairs, orporate !ocial "esponsibility 2oluntary /uidelines 233&
%(%
2. Et"ical unctionin#:
Their governance systems should be underpinned by 6thics, Transparency and
,ccountability. They should not engage in business practices that are abusive, unfair,
corrupt or anti%competitive.
$. Respect or %or!ers& Ri#"ts and %elare:
ompanies should provide a workplace environment that is safe, hygienic and humane
and which upholds the dignity of employees. They should provide all employees with
access to training and development of necessary skills for career advancement, on an
equal and non%discriminatory basis. They should uphold the freedom of association
and the effective recognition of the right to collective bargaining of labour, have an
effective grievance redressal system, should not employ child or forced labour and provide
and maintain equality of opportunities without any discrimination on any grounds in
recruitment and during employment.
'. Respect or (uman Ri#"ts:
ompanies should respect human rights for all and avoid complicity with human rights
abuses by them or by third party
<
.
). Respect or En*ironment:
ompanies should take measures to check and prevent pollution= recycle, manage and
reduce waste, should manage natural resources in a sustainable manner and ensure
optimal use of resources like land and water, should proactively respond to the challenges
of climate change by adopting cleaner production methods, promoting efficient use of
energy and environment friendly technologies.
+. ,cti*ities or Social and -nclusi*e .e*elopment:
>epending upon their core competency and business interest, companies should
undertake activities for economic and social development of communities and
geographical areas, particularly in the vicinity of their operations. These could
include8
<
Ibid
%<%
education, skill building for livelihood of people, health, cultural and social welfare
etc., particularly targeting at disadvantaged sections of society.
-mplementation Guidance:
1. The !" policy of the business entity should provide for an implementation strategy
which should include identification of pro$ects?activities, setting measurable physical
targets with timeframe, organizational mechanism and responsibilities, time schedules
and monitoring. ompanies may partner with local authorities, business associations
and civil society?non%government organizations. They may influence the supply chain
for !" initiative and motivate employees for voluntary effort for social development.
They may evolve a system of need assessment and impact assessment while
undertaking !" activities in a particular area. Independent evaluation may also be
undertaken for selected pro$ects?activities from time to time.
2. ompanies should allocate specific amount in their budgets for !" activities. This
amount may be related to profits after ta5, cost of planned !" activities or any other
suitable parameter.
(. To share e5periences and network with other organizations the company should
engage with well established and recognized programmes?platforms which encourage
responsible business practices and !" activities. This would help companies to
improve on their !" strategies and effectively pro$ect the image of being socially
responsible.
<. The companies should disseminate information on !" policy, activities and
progress in a structured manner to all their stakeholders and the public at large through
their website, annual reports, and other communication media
'
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Pro*ision or CSR in Companies /ill 2012
Till date it is very difficult e5ercise to analyze the spending of !" by various
firms and private companies and such information is not maintained at government level,
even
'
Ibid
%'%
among the top 133 firms by revenue, there are many who don t report their !" spends
or even declare the social causes they support, that is because they are not required to do
so by law and no provisions for !" e5ists in the ompanies ,ct, 1&'@ so currently the
1inistry does not maintain such details. *ut all that will change when the new ompanies
*ill, 2312 Awhich has already been passed by the Bok !abhaC becomes a law
@
.
The ompanies *ill, 2312 incorporates a provision of !" under lause 1(' which
states that every company having net worth "s. '33 crore or more, or a turnover of
"s.
1333 crore or more or a net profit of rupees five crore or more during any financial year,
shall constitute a !" ommittee of the *oard consisting of three or more >irectors,
including at least one Independent >irector, to recommend activities for discharging
corporate social responsibilities in such a manner that the company would spend at least 2
per cent of its average net profits of the previous three years on specified !" activities. It
is proposed to have detailed rules after passing of ompanies *ill 2312 by "a$ya !abha
to
give effect to this provision
D
.
,ccording to !chedule%2II of ompanies *ill, 2312 the following activities can be
included by companies in their !" 7olicies8%
AiC eradicating e5treme hunger and poverty=
AiiC promotion of education=
AiiiC promoting gender equality and empowering women=
AivC reducing child mortality and improving maternal health=
AvC combating human immunodeficiency virus, acquired immune deficiency
syndrome, malaria and other diseases=
AviC ensuring environmental sustainability=
AviiC employment enhancing vocational skills=
AviiiC social business pro$ects=
Ai5C contribution to the 7rime 1inisters Eational "elief 9und or any other fund set by
the
entral /overnment or the !tate /overnments for socio%economic development
@
!" "eport ard8 .here ompanies !tand % 9orbes India 1agazine dated 1;.(.231(
%@%
D
"a$ya !abha Fnstarred Guestion Eo. 2&;@ dated 22.<.231(
%D%
and relief and funds for the welfare of the !cheduled aste, the !cheduled
Tribes, other backward classes, minorities and women= and
A5C such other matters as may be prescribed
;
.
The ompanies *ill, 2312, lause 1(' also provides for constitution of a !"
ommittee of the *oard. The !" ommittee is required to=
AaC formulate and recommend to the *oard, a !" 7olicy which shall indicate the
activities to be undertaken by the company as specified in !chedule 2II=
AbC recommend the amount of e5penditure to be incurred on the activities referred to
in clause AaC= and
AcC monitor the orporate !ocial "esponsibility 7olicy of the company from time to
time.
AdC The format for disclosure of !" policy and the activities therein as part of *oard s
report will be prescribed in the rules once the *ill is enacted
&
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The data pack compiled by !" identity.com together with 9orbes India is revealing
to some e5tent how much each company will have to fork out on !" when they will
bound by law and their actual spending for the financial year 2312. The data is given in
,nne5ure HI
13
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Guidelines on CSR or Public Enterprises
The >epartment of 7ublic 6nterprises had issued /uidelines on orporate !ocial
"esponsibility A!"C for 7!6s in ,pril, 2313 which have been issued formally to the
1inistries?>epartments for compliance in the entral 7ublic !ector 6nterprises A7!6sC
under their administrative control. 9ollowing are the salient features of guidelines on !"
I !ustainability8
AiC orporate !ocial "esponsibility and !ustainability is a company s commitment to its
stakeholders to conduct business in an economically, socially and environmentally
sustainable manner that is transparent and ethical.
;
Bok !abha Fnstarred Guestion Eo. <11( dated 21.(.231(
&
Bok !abha !tarred Guestion Eo. 1'( dated D.(.231(
13
!" "eport ard8 .here ompanies !tand % 9orbes India 1agazine dated 1;.(.231(
%;%
AiiC In the revised guidelines, !" and !ustainability agenda is perceived to be equally
applicable to e5ternal and internal stakeholders, including the employees of a
company, and a company s corporate social responsibility is e5pected to cover
even its routine business operations and activities. 7!6s are e5pected to
formulate their policies with a balanced emphasis on all aspects of !" and
!ustainability H equally with regard to their internal operations, activities and
processes, as well as
in their response to e5ternalities
11
.
AiiiC In the revised guidelines !" and !ustainable >evelopment have been clubbed
together in one set of guidelines for !" and !ustainability because of close
linkage between the two concepts.
AivC 7ublic !ector enterprises are required to have a !" and !ustainability policy
approved by their respective *oards of >irectors. The !" and !ustainability
activities undertaken by them under such a policy should also have the
approval?ratification of their *oards. .ithin the ambit of these guidelines, it is the
discretion of the *oard of >irectors of 7!6s to decide on the !" and
!ustainability activities to be undertaken.
AvC The financial component?budgetary spend on !" and !ustainability will be based
on the profitability of the company and shall be determined by the 7rofit ,fter
Ta5
A7,TC on the company in the previous year.
P,0 o CPSES in t"e Pre*ious year Ran#e o t"e /ud#etary allocation
or CSR and Sustainability acti*ities
1as 2 o P,0 in pre*ious year3
AiC Bess than "s. 133 crore
AiiC "s. 133 crore to "s. '33 crore
AiiiC "s. '33 crore and above
(J%'J
2J%(J
1J%2J
,ll 7!6s shall strive to ma5imize their spending on !" and !ustainability
activities and move towards the higher end of their slabs of budget allocation.
11
"a$ya !abha !tarred Guestion Eo. 232 dated 12.(.231(
%;%
AviC Boss making companies are not mandated to earmark specific funding for !" and
!ustainability activities. )owever, they must pursue !" and !ustainability policies
by integrating them with their business plans, strategies and processes, which do
not involve any financial e5penditure. They may also collaborate with the profit
making 7!6s and assist them in ingenious ways without financial support in !"
and !ustainability activities
12
.
AviiC 1andatory compliance with legal requirement?rules?regulations?laws in letter and in
spirit will be covered under !" and !ustainability activity. )owever,
e5penditure on such activities would not be covered by !"s financial
component and would be considered as mainstream business spend.
AviiiC The unutilized budget for !" activities planned for a year will not lapse and will,
instead, be carried forward to the ne5t year. )owever, the 7!6s will have to
disclose the reasons for not fully utilising the budget allocated for !" and
!ustainability activities planned for each year. The unspent amount will have to be
spend within the ne5t two financial years, failing which, it would be transferred to
a
+!ustainability 9und to be created separately for !" and !ustainability activities.
Ai5C 9rom amongst these beneficiaries of !" and !ustainability spend Afinancial
componentC of a company, the stakeholders directly impacted by its operations and
activities can rightfully stake a claim for attention before others. !uch stakeholders
are generally located in the periphery of commercial operations of a company. The
corporate social responsibility of a company towards these stakeholders e5tends
beyond its legal obligation to compensate for, and ameliorate the impact of its
commercial activities. 9or this reason, 7!6s must accord priority to these
stakeholders and undertake !" and !ustainability pro$ects in the periphery of its
commercial operations on priority.
A5C 7!6s are e5pected to take initiative to promote welfare of employees and
labour by addressing their concerns of safety, security, professional
enrichment and
12
Ibid
%&%
healthy working conditions, whether mandated or otherwise. )owever, e5penditure
on mandated activities cannot qualify for !"s financial components
1(
.
A5iC ,lthough 7!6s may select their !" and !ustainability pro$ects from a vast range
of available options, priority should be accorded to activities pertaining to AiC
inclusive growth of society, with special attention to the development of weaker
sections of society and the backward districts of the country, and AiiC environment
sustainability. !" and !ustainability initiatives should focus on capacity building,
skill development and infrastructural development for the benefit of the marginalised
and under privileged sections of the local communities and also in the backward
regions so that avenues are created for their employment and income generation,
and they also e5perience empowerment and inclusion in the economic mainstream.
.eaker sections would include !, !T, -*, minorities, women and children, *7B
families, old and aged, physically challenged, etc.
A5iiC It is mandatory for 7!6s to take up at least one ma$or pro$ect for development of a
backward district as identified by the 7lanning ommission for its *ackward "egion
/rand 9und A*"/9C !cheme, and one ma$or pro$ect for environment sustainability.
9or 1aharatna 7!6s, it is mandatory to take up one more ma$or pro$ect in either
of the two categories.
A5iiiC , *oard level committee headed by either the hairman and ? or 1anaging
>irector, on an Independent >irector would assist the *oard of >irectors to
formulate !" and !ustainability policies and oversee the implementation of !"
and !ustainability pro$ects?activities by the 7!6.
A5ivC There is emphasis on internalizing the philosophy and spirit of !" and
!ustainability within the organizational culture and ethos. The philosophy and
spirit of corporate social responsibility and sustainability should get embedded in
the core values of all the 7!6s, be imbibed by the employees at all levels and it
should permeate into all the activities, processes, operations and transactions
of the
enterprise. orporate enterprises professing t behave responsibly are e5pected to
1(
Ibid
%13%
produce goods and services that are safe and healthy for the consumers and
the environment, with reduced cost to the company in the long run.
A5vC ' per cent of the annual budget for !" and !ustainability activities has to be
earmarked for 6mergency needs, which would include relief work undertaken during
natural calamities?disasters, and contributions towards 7rime 1inisters ? hief
1inisters "elief 9unds.
A5viC 6thical conduct of business lies at the core of responsible business. To promote
organizational integrity it is essential that premium is placed on individual probity of
employees= transparency in all activities, dealing and transactions is encouraged=
unethical, corrupt and anti%competition practices are discouraged temptation of
quick returns and marginal gains in business through questionable means is
resisted= and, position and situations that give rise to possible conflict of interest are
avoided.
A5viiC !ustainability reporting and disclosure of all !" and !ustainability activities
undertaken by a 7!6 is mandatory. *y reporting transparently and with
accountability, public sector companies can gain and reinforce the thrust of the
stakeholders. This, in turn, would provide a powerful stimulus to their !" and
!ustainability policies and agenda, and motivate them to pursue them with greater
vigour
1<
.
,s per the above guidelines on !" issued by the >epartment of 7ublic
6nterprises A>76C in ,pril, 2313, all profit making entral 7ublic !ector 6nterprises
A7!6sC, including 1aharatna 7!6s are required to select !" activities which are
aligned with their *usiness strategy and to undertake them in a pro$ect mode. 7!6s are
mandated to spend their funds on !" pro$ects selected by them with the approval of
their respective *oards. ,ll profit making 7!6s are required to allocate budget
mandatorily through a *oard "esolution as percentage of net profit Aprevious yearC in
the following
manner8
1<
Ibid
P,0 o CPSES in t"e Pre*ious year E4penditure ran#e o CSR in a Financial
5ear 12 o proit3
AiC Bess than "s. 133 crore
AiiC "s. 133 crore to "s. '33 crore
AiiiC "s. '33 crore and above
(J%'J
2J%(J Asub$ect to a 1inimum of "s. ( rore C
3.'J%2J
Boss making 7!6s are not mandated to earmark specific funding for !"
activities. !" *udget is fi5ed for each financial year and this fund does not lapse. It is
transferred to a !" funds in which it accumulates. Implementation of !" activities of
7!6s is monitored by the administrative 1inistries?>epartments of concerned 7!6s.
!tates?FT?7!F%wise information of !" work undertaken by the 7!6s, including
1aharatna 7!6s and the number of persons benefited therefrom, is not maintained
centrally in the >epartment of 7ublic 6nterprises. Information furnished by 1aharatna and
Eavratna 7!6s on total funds allocated for !" and the funds utilized for the year
2313%
11 and 2311%12 is given in the ,nne5ure%II. 7!6s are free to take up !" 7ro$ects for
upliftment of weaker sections and backward districts
1'
.
Conclusion
The e5act provisions of the ompanies *ill, 2312 are still being debated. -nce the
*ill is passed in "a$ya !abha, detailed rules would give effect to the provisions of voluntary
guidelines issued in 233& to orporate !ector A7rivate ompaniesC, then ompanies
would be bound by legal provisions to implement orporate !ocial "esponsibilities
1@
. In
case of public sectors, revised guidelines on !" and sustainability are being
implemented from 1 ,pril 231(, as a commitment of the 7!6s to their stakeholders to
conduct business in an economically, socially and environmentally sustainable manner
1D
.
1'
Bok !abha Fnstarred Guestion Eo. 2;;1 dated 1<.(.231(
1@
!" "eport ard8 .here ompanies !tand % 9orbes India 1agazine dated 1;.(.231(
1D
"a$ya !abha Fnstarred Guestion Eo. 232 dated 12.(.231(