Corporate Social Responsibility
Praveer Surana FCA, ACS
June 21, 2014
Founder, Drashta CSR Consulting
Agenda for this session
Meaning and Importance
International scenario
Indian Scenario – Legal provisions
Ethics and CSR
Various projects in Indian context
2
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Corporate Social Responsibility
the responsibility of enterprise
for its impact on society
European Commission
3
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3P Approach
People
4
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Meaning
5

Commitment to its stakeholders to conduct business in an
economically, socially and environmentally sustainable manner that
is transparent and ethical

Way through which a company achieves a balance of economic,
environmental and social imperatives

Concept of CSR goes beyond charity, sponsorships or
philanthropy
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Social Importance

Licence to operate no longer given by Governments alone, but
communities that are impacted by a company’s business
operations



Communities as suppliers – Incorporate them in to supply chain


Banks
Communities as suppliers of workforce

6
ITC
Communities as consumers – Consumers of products or services


Bridging “Trust Deficit”
Nuclear Power Plants, major land acquisitions, mining, etc.
Software companies, call centres
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Economic Importance

Enhances corporate reputation leading to long-term economic benefits



Improves top-line and bottom-line through engaging communities



ITC
P&G
Attracting and retaining talent


7
Tata Motors – JLR
Bandhan
Hewitt & Associates study looked at 230 workplaces with more than 100,000
employees and found that the more a company actively pursues worthy
environmental and social efforts, the more engaged its employees are
Companies with highly engaged employees have three times the operating
margin (Towers and Watson) and four times the earnings per share (Gallup) of
companies with low engagement
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Environmental Importance

Meeting the needs of the present without compromising the
ability of future generations to meet their own needs


Sustainability required for long term wealth-creation for
shareholders


8
Coca-Cola India achieved a 'net zero balance' with respect to groundwater
usage through rainwater harvesting projects, drip irrigation projects,
rejuvenating traditional water bodies, etc.
Carbon credits
Eco-friendly construction
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Agenda for this session
Meaning and Importance
International scenario
Indian Scenario – Legal provisions
Ethics and CSR
Various projects in Indian context
9
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Evolved concept in developed economies
Human rights
Welfare
through
business
Sustainability
Shared value
Consumer
concerns
10
Triple
bottom line
Corporate
citizenship
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Role of international agencies

Great role of International business and trade agencies to ensure
compliance by multinational corporations working in different
geographies







EC: European Commission
ILO: International Labour Organisation
ISO: International Organisation for Standardisation
OECD: Organisation for Economic Co-operation and Development
UNGC: United Nations Global Compact
UNIDO: United Nations Industrial Development Organisation
WBCSD: World Business Council for Sustainable Development

Convergence of concept of CSR with concept of Sustainability

Forms the guiding principle to developing world
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Global standards and guidelines (1 of 2)

UN Guiding Principles on Business and Human Rights


ILO’s tripartite declaration of principles on multinational enterprises and
social policy


Inclusivity, materiality and responsiveness
Social Accountability International (SAI) SA8000 Standard


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Labour welfare, industrial relations, no discrimination
Institute of Social and Ethical Accountability: AccountAbility’s AA1000
series of standards


Focus on human rights and fundamental freedom
Human rights of workers
695 facilities in India have adopted this Standard including Bhilai Steel Plant, Dr. Reddy’s
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Global standards and guidelines (2 of 2)

OECD Guidelines: Multinational enterprises and CSR Policy Tool


ISO 26000: Social responsibility


framework based on social generally accepted accounting principles (SGAAP)
London Benchmarking Group model

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In line with the UN Guiding Principles on Business and Human Rights
Social Return on Investment Network


Holistic approach: human rights, labour practices, environment, fair operating practices,
consumer issues, community involvement and development
UN Global Compact Self-Assessment Tool


employment, human rights, environment, information disclosure, combating bribery, etc.
Assessment of impact of community investment to both business and society
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Legal framework internationally
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Mandatory
reporting for
listed companies
in Annual reports
France
Natural resource
based companies
to allocate CSR
budgets
Indonesia
Mandatory
reporting by
State-owned
companies
Sweden
Voluntary
reporting in
Sustainability
reports
USA
Malaysia
Denmark
UK
China
Germany
Australia
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CGS Survey, 2013 (1 of 3)

240 companies participated in the Corporate Giving Standard (CGS)
Survey conducted by CECP on 2012 contributions including 60 of the
largest 100 companies in the FORTUNE 500

Total contributions more than USD 20.3 billion (~ Rs. 1,22,000 crore)

Median spending ~ USD 20 million

59% of companies gave more in 2012 than in 2007 (before recession)

Aggregate giving rose 42% from 2007 to 2012

81% of companies have corporate foundation generally funded by them
annually
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CGS Survey, 2013 (2 of 3)
MEDIAN VALUES
All companies
(N=240)
Largest 100
Companies in
FORTUNE 500 (n=60)
Other
companies
(n=180)
Giving (USD million)
19.89
60.95
13.54
Total Giving as a % of Revenue
0.13%
0.09%
0.14%
Total Giving as a % of Pre-Tax Profit
1.00%
0.96%
1.01%
Total Cash Giving as a % of Pre-Tax Profit
0.71%
0.68%
0.73%
11.99%
13.69%
10.97%
620
542
649
Matching Gifts as a % of Cash Giving
Total Giving per Employee (USD)
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CGS Survey, 2013 (3 of 3)
Type and Priority of Contribution
18%
Direct cash
Foundation cash
47%
Non-cash
30%
28%
35%
25%
20%
17%
14%
15%
13%
12%
10%
5%
5%
5%
3%
3%
0%
Health &
Education KSocial Services
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Other
Community
Development
Higher
Education
Culture &
Arts
Civic & Public Environment Disaster Relief
Affairs
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Social Audit

Companies around the globe beginning to assess their social performance
and report the results of those assessments as a means of demonstrating
their commitment to social responsibility

Social auditing is the process of assessing and reporting a business’s
performance on fulfilling the economic, legal, ethical and philanthropic social
responsibilities expected of it by its stakeholders

Helps companies to assess performance of their social initiatives and take
corrective action to maximize the social impact

Focus on Human Rights, Labour Practices, Environment, Ethics, Consumer
issues, community involvement and development
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Integrated Reporting <IR>

<IR> pioneered by International Integrated Reporting Council, London is a
process founded on integrated thinking that results in a periodic integrated
report by an organization about value creation over time and related
communications regarding value creation

Companies like Unilever, HSBC, Deutsche Bank, Hyundai, Microsoft,
PepsiCo, National Australia Bank and Tata Steel are among over 100
businesses in the IIRC Pilot Programme

Recognition of “Social and Relationship Capital” and “Natural Capital”

Covers People, Planet, Profit, Governance and Strategic Management
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Agenda for this session
Meaning and Importance
International scenario
Indian Scenario – Legal provisions
Ethics and CSR
Various projects in Indian context
20
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It all began much earlier

Long history of philanthropic activities by businesses – was performed
but not much deliberated

Dharmadaya since ancient age

Was focussed on building institutions – schools, colleges, hospitals, etc.

Welfare role was largely played by Governments


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Socialist approach – Private Sector seen as exploiter
High tax rates
Evolution in recent times to include community development
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Initial focus on PSU to set example

“Guidelines on Corporate Social Responsibility for Central Public Sector
Enterprises” issued by The Department of Public Enterprises (DPE) in
April 2010

Revised to “Guidelines on Corporate Social Responsibility and
Sustainability for Central Public Sector Enterprises”

With effect from April 1, 2013, budgetary allocation required by Central
PSU for CSR and Sustainability activities/projects based on Profit after
Tax (PAT) in the previous year



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PAT in the previous year < Rs. 1000 million: 3% - 5%
PAT in the previous year >= Rs. 1000 million but < Rs. 5000 million: 2% - 3%
PAT in the previous year >= Rs. 5000 million: 1% - 2%
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National Voluntary Guidelines (NVG)

National Voluntary Guidelines on Social, Environmental and Economic
Responsibilities of Business issued in 2011 with objective of providing a
distinctive India-centric approach for small and large Indian businesses to
understand the nuances of responsible business

Consist of nine principles
1.
2.
3.
4.
5.
6.
7.
8.
9.
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Conduct and govern with ethics, transparency and accountability
Provide goods and services that are safe and contribute to sustainability
Promote the wellbeing of all employees
Respect the interests of, and be responsive toward all stakeholders,
Respect and promote human rights
Respect, protect, and make efforts to restore the environment
Influencing public and regulatory policy in a responsible manner
Support inclusive growth and equitable development
Provide value to customers and consumers in a responsible manner
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Business Responsibility Reporting (BRR)

SEBI mandated Business Responsibility Reporting ( BRR) based on
compliance with NVG in 2012 for top 100 listed entities based on
market capitalisation at BSE and NSE

Business Responsibility Reports to form part of Annual Report

Describing environmental, social and governance initiatives in the format
suggested in Clause 55 of the equity Listing Agreement

Helps companies monitor, measure, manage and communicate change for
sustainable growth

Based on ‘Apply or Explain’
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Game changer: Clause 135

Clause 135 of Companies Act, 2013 and rules framed there-under
notified to become effective from April 1, 2014

Applicable to all companies meeting any of the following financial criteria
during any financial year:




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Net profit >= Rs. 5 crore
Net worth >= Rs. 500 crore
Turnover >= Rs. 1,000 crore
Estimated to cover over 2,500 companies in India and generate over Rs.
12,000 crore spending in FY2014-15
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What is to be done

Constitute a CSR Committee of the Board
Minimum number of Directors in
CSR Committee
Independent
Other
Type of Company
Private Company with 2 Directors
0
2
Private Company with >= 3 Directors
Unlisted Public Company not required to
appoint Independent Director
0
3
0
3
Other Public Company
1
Foreign Company
0
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3 minus number of
Independent Directors
2
including AR and
another person
nominated by the
foreign company
What CSR Committee needs to do

Formulate and recommend a CSR policy to the Board indicating the
*activities as specified in Schedule VII of the Companies Act, 2013

Recommend the amount of expenditure to be incurred on the activities
indicated in the policy

Monitor the CSR policy regularly

Institute a transparent monitoring mechanism for implementation of the
CSR projects or programs or activities undertaken

Issue a responsibility statement every year that implementation and
monitoring is in compliance with CSR objectives and Policy
27
* Covered separately in this presentation
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What Board needs to do

Approve the Corporate Social Responsibility Policy

Disclose the contents of such CSR Policy in its report

Place CSR Policy on the company's website, if any

Ensure that the activities as are included in Policy are undertaken

Ensure that the company spends, in every financial year, >= 2% of the
average net profits made during the three immediately preceding
financial years, in India in pursuance of its CSR Policy.

If such amount not spent, specify the reasons thereof in its report

Include Annual Report on CSR in the *prescribed manner in its report
and publish it on the Company’s website
28
* Covered separately in this presentation
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What if
If the Committee or Board fails in its duties:


Company punishable with fine >= Rs. 50,000 but <=Rs. 25,00,000
Every officer in default punishable with imprisonment for <= 3 years
and/or fine >= Rs. 50,000 but <=Rs. 5,00,000
If the Company subsequently fails to meet financial criteria:

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Requirement and compliance under the CSR provision will cease to be
applicable to a company which for the three consecutive years falls
outside the purview of the threshold requirement of annual turnover or
net worth or net profit
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CSR Policy to include
List of CSR projects or programs which a company plans to
undertake falling within the purview of the Schedule VII
Modalities of execution of such project or programs
Implementation schedules for the same
Mechanism for monitoring process of such projects or
programs
Statement that the surplus arising out of the CSR projects or
programs or activities shall not form part of the business profit
30
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Activities covered in Sch. VII (1 of 2)





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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
Promoting gender equality, empowering women, setting up homes and
hostels for women and orphans; setting up old age homes, day care
centres and such other facilities for senior citizens and measures for
reducing inequalities faced by socially and economically backwards
groups
Ensuring environmental sustainability, ecological balance, protection of
flora and fauna, animal welfare, agro-forestry, conservation of natural
resources and maintaining quality of soil, air and water
Rural development projects
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Activities covered in Sch. VII (2 of 2)





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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 armed forces veterans, war widows and their
dependents
Training to promote rural sports, nationally recognised sports,
Paralympic 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
Contributions or fund provided to technology incubators located within
academic institutions which are approved by the Central Government
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Modalities of carrying out CSR activities

CSR activities shall be undertaken as per stated CSR Policy, as projects
or programs or activities, either new or ongoing

Activities in pursuance of normal course of business not covered

Preference to the local area and areas around it where it operates

Activities exclusively for employees/their families not covered

Companies may build CSR capacities of their own personnel as well as
those of their Implementing agencies through Institutions with
established track record of >= 3 financial years but such expenditure
shall be <= 5% of total CSR expenditure in one financial year

Contribution directly or indirectly to any political party shall not be
considered as CSR activity
33
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Execution alternatives
In-house through employees
Through registered trust or registered society or company
established by the company or its holding or subsidiary or associate
company under section 8 or otherwise
Through other registered trust/registered society/Section 8 Company
with an established track record of >= 3 years in undertaking similar
programs or projects
Collaborate with other companies for in such manner that the CSR
Committees of respective companies are in a position to report
separately
Donation to Government schemes
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Content of Annual Report on CSR







Brief outline of the CSR policy including overview of projects with a
reference to the web-link to the CSR policy and projects
Composition of the CSR Committee
Average net profit of the company for last three financial years
Prescribed CSR expenditure (2% of Average net profit as above)
Total amount to be spent for the financial year
Amount unspent , if any
Activity-wise details of the amount spent during the financial year



35
Sector / Location / Budget / Direct expenditure / Overheads / Cumulative expenditure / Breakup of
amount spent directly and through implementation agency
If the prescribed CSR expenditure not fully spent, provide reasons
Responsibility statement of the CSR Committee that the implementation
and monitoring is in compliance with CSR objectives and Policy
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Perplexed...

Expansion of scope by CSR Rules to include foreign companies

Profit Before Tax

Absence of reference point to permit expansion of Schedule VII

No clarity on tax treatment for undertaking CSR activities

Regulatory fault-line between foreign contribution and CSR regime
36
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Agenda for this session
Meaning and Importance
International scenario
Indian Scenario – Legal provisions
Ethics and CSR
Various projects in Indian context
37
Drashta CSR Consulting
Incomplete without each other...

Guidelines on Corporate Social Responsibility and Sustainability for
Central Public Sector Enterprises issued by the DPE in April 2013:
“Since corporate social responsibility and sustainability are so closely entwined,
it can be said that corporate social responsibility and sustainability is a
company’s commitment to its stakeholders to conduct business in an
economically, socially and environmentally sustainable manner that is
transparent and ethical.”

38
Ethical conduct a must for true implementation of CSR
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Ethics form the core of CSR

National Voluntary Guidelines on Social, Environmental and Economic
Responsibilities of Business issued in 2011 with objective of providing a
distinctive India-centric approach for small and large Indian businesses to
understand the nuances of responsible business:
“Principle 1: Businesses should conduct and govern themselves with Ethics ,
Transparency and Accountability”
39
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Relationship recognized worldwide

OECD CSR Policy Tool: Fair operating practices

UNGC: Work against corruption in all forms

Global Compact Self-Assessment Tool: Anti-corruption included in
Management Section
40
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Agenda for this session
Meaning and Importance
International scenario
Indian Scenario – Legal provisions
Ethics and CSR
Various projects in Indian context
41
Drashta CSR Consulting
Amount spent by Central PSU (Rs.crore)
Central PSU
Oil and Natural Gas Corporation Limited
Coal India Limited
Indian Oil Corporation Limited
NDMD Limited
Steel Authority of India Limited
National Thermal Power Corporation Limited
GAIL (India) Limited
Oil India Limited
National Aluminum company Limited
Hindustan Petroleum Corporation Limited
Power Grid Corporation of India Limited
Neyveli Lignite Corporation Limited
Bharat Petroleum Corporation Limited
Rashtriya Ispat Nigam Limited
Power Finance Corporation Limited
Rural Electrification Corporation Limited
Bharat Heavy Electrical Limited
Bharat Electronics Limited
Total
2010-11
Allocated
Utilized
335
219
262
152
131
128
82
62
94
69
72
72
70
64
25
29
27
27
15
20
20
16
12
13
22
18
15
12
12
9
5
1
22
4
3
2
1,225
919
Source: Lok Sabha Unstarred Question No. 2881 dated March 14, 2013
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2011-12
Allocated
Utilized
378
121
553
77
95
83
80
87
64
61
46
49
83
54
50
50
34
34
31
27
13
25
13
16
8
8
12
11
13
13
13
13
30
5
2
2
1,519
737
Notable work by Companies (1 of 3)

Ashok Leyland


Axis Bank


The Axis Bank Foundation runs Balwadis which are learning places for children living in large urban slum
clusters. It also conducts skill development programmes (PREMA and Yuva Parivartan) in motor driving,
welding, mobile repairing, tailoring etc, for the youth in backward districts
Bharat Petroleum Corporation


Operates a FunBus in Chennai and New Delhi. This bus, equipped with a hydraulic lift, takes differently
abled children and those from orphanages and corporation primary schools on a day’s picnic. The
company also runs AIDS awareness and prevention programmes in its Hosur factories for about 3.5
lakh drivers
Its rain water harvesting project Boond, in association with the Oil Industries Development Board,
selects draught-stricken villages to turn them from “water-scarce” to “water-positive”. Other social
programmes include adoption of villages, prevention and care for HIV/AIDS and rural health care
Hindalco Industries

Its CSR activities are concentrated in 692 villages and 12 urban slums, where it reaches out to about 26
lakh people. It has constructed check dams, ponds and bore wells to provide safe drinking water. In
education, it awards scholarships to students from the rural schools it support. Its other interests
include women empowerment and health care, in which it treats patients in hospitals, runs medical
camps and operates rural mobile medical van services
Source: Lok Sabha Members’ Reference Note No. 11 /RN/Ref./2013
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Notable work by Companies (2 of 3)

Indian Oil Corporation


Infosys


It runs the Indian Oil Foundation (IOF), a non-profit trust, which works for the preservation and
promotion of the country’s heritage. IOCL also offers 150 sports scholarships every year to promising
youngsters. Other initiatives lie in the domains of clean drinking water, education and health care
The Infosys Science Foundation, set up in 2009, gives away the annual Infosys Prize to honour
outstanding achievements in the fields of science and engineering. The company supports causes in
health care, culture and rural development. 100 school teachers in Karnataka, who were suffering from
arthritis, underwent free surgery as a part of a week-long programme
Mahindra & Mahindra

Nanhi Kali, a programme run by the KC Mahindra Education Trust, supports education of over 75,000
underprivileged girls. The trust has awarded grants and scholarships to 83,245 students so far. In
vocational training, the Mahindra Pride School provides livelihood training to youth from socially and
economically disadvantaged communities. M&M also works for causes related to environment, health
care, sports and culture
Source: Lok Sabha Members’ Reference Note No. 11 /RN/Ref./2013
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Notable work by Companies (3 of 3)

Oil & Natural Gas Corporation


Tata Consultancy Services


It offers community-based health care services in rural areas through 30 Mobile Medicare Units
(MMUs).The ONGC-Eastern Swamp Deer Conservation Project works to protect the rare species of
Easter Swamp Deer at the Kaziranga National Park in Assam. ONGC also supports education and
women empowerment
Its Computer Based Functional Literacy (CBFL) initiative for providing adult literacy has already
benefitted 1.2 lakh people. The programme is available in nine Indian languages. Besides adult education,
TCS also works in the areas of skill development, health care and agriculture
Tata Steel

It comes out with the Human Development Index (HDI), a composite index of health, education and
income levels, to assess the impact of its work in rural areas. Health care is one of its main concerns.
The Tata Steel Rural Development Society aims to improve agricultural productivity and raise farmers’
standard of living
Source: Lok Sabha Members’ Reference Note No. 11 /RN/Ref./2013
45
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Big change to come now

Design

Deliver

Disclose
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Role of CA in CSR - Regulatory







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Assisting on the applicability of CSR provisions
Review of CSR policy from tax and regulatory perspective
Analyzing CSR expenditure from tax perspective and evaluating
alternative options to maximize the tax benefit
Providing different modalities of carrying out CSR activities and
providing pro and cons of each options from tax and regulatory
perspective
Assisting in setting up of not-for-profit entity and obtaining necessary
approvals
Day-to-day tax and regulatory advisory and compliance services from
CSR perspective
Certification of CSR expenditure
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Role of CA in CSR - Advisory









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Review of the CSR activities
Identification of the sectors and the envisaged focus areas and assisting
to strategize for CSR policy
Assisting in development of CSR Policy
Assisting in preparation of investment, scaling up and replication plans
Assisting in analyzing Social Return on Investment (SROI)
Due diligence of implementation partners
Assisting in setting up internal controls, monitoring and evaluation
systems to implement, assess, document and report the impact of CSR
activities
Social Audit
Integrated Reporting <IR>
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Questions and feedback
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Thank you
Praveer Surana, FCA, ACS
Founder, Drashta CSR Consulting
(M) 9004363999
(E) [email protected]
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