India Inc's evolving CSR landscape- from voluntary to mandatory


Bhuvanesh Sharma
VP- Corporate Affairs & Company Secretary
HOV Services Limited
3rd Floor, Sharda Arcade, Pune-Satara Road, Bibwewadi, Pune-411037

The Corporate Social Responsibility (CSR) is not a new concept in India. Ever since the inception, corporates like Bharat Petroleum; Birla Group; Hindustan Unilever; Indian Oil, Tata Group; Unilever to name a few have been involved in serving the community. Through donations and charity events, many other organizations have been doing their part for the society. On the other hand, the CSR programs of corporations like GlaxoSmithKline and a few others 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.

CSR is the integration of business operations and values, whereby the interests of all stakeholders including investors, customers, employees, the community and the environment is reflected in the company's policies and actions. "CSR if it is implemented with sustainability as a focus, then it enhances business sustainability, provides new opportunities, develops customer loyalty and improves stakeholder relationship," said the former President Abdul Kalam on December 20, 2012 at an award function organized by industry body the Associated Chamber of Commerce (ASSOCHAM). "It should become an integral part of corporate strategy, management practices, business operations, product development and conservation of environment" he added.

Corporate Social Responsibility (CSR) can be defined as the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time. The concept of corporate social responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors and comply with the law. A traditional view of the corporation suggests that its primary, if not sole, responsibility is to its owners, or stockholders. However, CSR requires organizations to adopt a broader view of its responsibilities that includes not only stockholders, but many other constituencies as well, including employees, suppliers, customers, the local community, state, and federal governments, environmental groups, and other special interest groups.

The essence of CSR comprises of philanthropic responsibility; corporation responsibility; ethical responsibility; environmental responsibility; and legal & economic responsibility. Put all together the alternative synonymous for CSR is People, Planet, and Profit. CSR is slowly evolving and developed countries having established standards for CSR. In developed countries, however the law does not stipulate for mandatory CSR contributions. Many European countries have, however specified that companies must include CSR information in their annual report.

In India the evolution of CSR refer to the changes over time in cultural norms of corporations' engagement and the way business managed to develop positive impacts on communities, cultures, societies, and environment in which those corporations operated. Over the time way back from 1850 during industrialization, the charity and philanthropy were main matter of CSR. CSR motives changed during independence movement in India to more of social reforms to encourage empowerment of women and rural development. Then came era of globalization and economic liberalization where due to increased growth momentum, Indian companies grew rapidly and therefore, they showed more interest and were able to contribute towards growth of society and for social cause.

In earlier days till today also, Indian companies were spending on philanthropic activities and whether such activities be construed as CSR activates, the new regulation is not clear. This will defiantly effect the sentiments of companies indulge in philanthropic activities keeping the view of government plan to make CSR activities mandatory and with penal provisions for not complying with. Important for government to ensure that it role does not create extreme situation where its role becomes interventionist.

The whole world is watching India Inc; will Indian companies be required mandatorily by law to contribute a certain percentage of net profits to CSR activities?

CSR is not a new concept in India but has been now discussed and talked upon with more gravity by India Inc due to recent proposed amendments by Government of India in Companies Bill 2011 providing for all companies to set aside 2% of net profit for CSR activities. The CSR clause in Companies Bill 2011 covers all companies that have either net worth in excess of Rs 500 crore, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more. They have to set aside 2% of the average net profit of the preceding three years for CSR activities.

The Bill clearly spells out about which company to comply, how to calculate 2% and how corporate governance will oversee the spend. However, there are many important questions which are undergoing discussion in India Inc, like: Who in the company will be responsible for implementing CSR activities; who will evaluate the CSR activities and their validity; what are CSR activities under new law.

From view of the Indian companies, meaning of CSR activities could be different from one company to another. For some companies it means providing lunch to its employee and to other it could be about tackling global warming, environmental issues. Indian companies have a tradition of philanthropy but CSR is totally different. CSR must relate to conducting the business but not as to giving to the local communities in which business operation are conducted. Corporate philanthropy and CSR are two different disciplines, but the difference gets indistinct. There is a perceptible changeover from giving as an obligation or charity to giving as a strategy or responsibility.

The companies in India have been spending on CSR activities and also doing through it different forms like through trust, foundations and will continue to do so but fears that the law will become mandatory and start penalizing them for not spending on CSR activities. Moreover, the amended provisions view the CSR spending as individual company rather than from group perspective. This will adversely affect the promoters having various group companies and have consolidation presentation of their financial statements. For example if there are 10 companies in group making profits, it implies 20% will be set aside, which can be used for repayment of capital finance, if any, or in new business development. Further the law is not clear on whether the CSR spending will 100% tax exemption.

It is imperative upon the companies as how to view the government mandate as tax or as an investment. If the money is spent on philanthropic projects unrelated to the business, then it is just like social tax on profits. However, if companies can use the 2 percent for philanthropic and shared value projects that create new business opportunities, reduce costs, or strengthen their industry cluster, then the same expenditures would take route of an investment that bring fruits back to the company.

In addition to 2% setting aside, the regulatory had required "business responsibility reporting" as a non-financial reporting which should include environmental, social and governance initiatives, outlined as per National Voluntary Guidelines (NVG) that have been formulated by the Ministry of Corporate Affairs. The mandatory requirement is for top 100 listing companies and these companies are required to submit this reporting along with their annual report for the fiscal year ending on or after December 31, 2012. However, majority of the top 100 companies do not seem to be prepared yet in formulating their responsibility reports. A recent study conducted by Carbon Masters, a consulting agency in the field of sustainability, to find the preparedness levels of top BSE-100 companies, indicated that 64% of the top affected companies are not prepared to submit SEBI's prerequisite Business Responsibility (BR) report.

From decades, India business sector generated wealth for shareholders; however the country continues to grapple with problems of poverty, unemployment, illiteracy and malnutrition. Corporate Growth is sometimes seen, by regulatory as widening the gap between India and Bharat (rural India) through its income-skewing competence. The Conesus of all the discussion upon CSR happening in corners of India Inc leads that:-India needs a new approach to solve social problems and foster growth; Companies have important role to play; and the government intends to build companies capacity to do so.

The basic objective of CSR is to maximize the company's overall impact on the society and stakeholders keeping in consideration of the following:

Environment: Businesses have a role to play in preserving natural resources and biodiversity while combating pollution and climate change. We are committed to minimizing our main impacts on the environment - energy use, business travel and waste management;

Community: Companies need to develop a long tradition of engaging with the communities in which we work by aligning our community involvement with our business activities and client relationships to ensure maximum impact; and

Sustainability: In wider sense sustainability includes both corporate social responsibility and environmental responsibility.

CSR policies, practices and programs are being comprehensively integrated by an increasing number of companies throughout their business operations and processes. A growing number of corporate feel that CSR is not just another form of indirect expense but is important for protecting the goodwill and reputation, defending attacks and increasing business competitiveness.

The government mantra is that corporate have equal right and duties towards citizens for social upbringing and therefore "Corporate Social responsibility" and "business responsibility reporting" are approaching its way through Companies Bill 2012.


Companies Amendment Bill 2012

Bhuvanesh Sharma
VP- Corporate Affairs & Company Secretary
HOV Services Limited
3rd Floor, Sharda Arcade, Pune-Satara Road, Bibwewadi, Pune-411037

Source: E-mail December 31, 2012



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