Corporate Social Responsibility - CSR

Mufaddal MIM

15-I-131

Topics to Cover in CSR

1. Introduction to CSR – Definition , Phases & History ofCSR

2. Laws Related to CSR in India (sec 135)

3. Why CSR?

4. Life Cycle of CSR

5. CSR Initiative by Companies in IndiaJBIMS MIM Mufaddal Nullwala

JBIMS MIM Mufaddal Nullwala

1.1 Definition• CSR is about how companies manage the business processes to produce an overall positive impact on

society.• Achieving commercial success in ways that honor ethical values and respect people, communities, and

the natural environment.

Philip Kotler & Nancy Lee (2005)

• “a commitment to improve community well-being through discretionary business practices and contributions of corporate resources”.

WBCSD (World Business Council for Sustainable Development)

“The continuing commitment by business to behave ethically and contribute to sustainable economic development while improving the quality of life of the workforce and their families as well as of the local community and society.”


1.2 Basic Constituents of CSR

Contribute towards a sustainable economic development

Make desirable social changes

Improvement of social environment

Towards Business & Society


1.3 Levels/Phases of CSR

I. Social Obligation – Meet minimum regulations, do what is required by law, no moreII. Social Responsibility – Go beyond what is required by law, mitigate negative effectsIII. Social Responsiveness – Proactive approach, promote positive change

Levels of CSR: Example in Labor MarketsSocial

ObligationSocial

ResponsibilitySocial

Responsive

Comply withwage and

working time laws, minimum

benefits

Provide addedlabour benefits

Improve qualityof work life


1.4 History of CSR


2.1 CSR Law (Sec 135)India is the first Country in the world to mandate CSR (Law Applicable from 1 April, 2014)APPLICABILITYSection 135 applicable to Companies with

- Net worth Rs. 500 crore or more,- Turnover Rs 1000 Crore or more or- Net Profit Rs. 5 Crore or more

during any financial year. According to Indian Institute of Corporate Affairs anticipate that about 6000 Indian Companies will be required

to undertake CSR Projects in order to comply with the new guidelines, with many companies undertaking these initiative for the first time.

CSR SPEND IN FINANCIAL YEAR

III.

I. At least 2% of the average net profits of the company made during the three immediately preceding financial years.

II. MCA has clarified that computation of net profits for section 135 is as per section 198 of the CompaniesAct, which primarily considers profit before taxes.Where the company fails to spend such amount, the Board shall, in its report, specify the reasons for not spending the amount.


2.1 CSR Law (Sec 135)

CSR EXPENDITURE

I. The Finance (No. 2) Act, 2014 [Income-tax Act, 1961 (Act)] provides that expenditure incurred by the assesse

on activities relating to CSR referred to in section 135 of the Companies Act shall not be deemed to be the expenditure incurred for the purpose of business or profession.

II. The CSR projects or programs or activities undertaken in India only shall amount to CSR expenditure.

CSR Committee

III. CSR Committee shall consist of 3 or more Directors, with at least 1 Independent Director.

IV. CSR committee of a private company having only two directors can have only two members

III. The Board's report is required to disclose the composition of the CSR Committee


2.1 CSR Law (Sec 135)

CSR Policy

CSR Committee to recommend the policy

The policy shall indicate the activities to be undertaken by the company as specified in Schedule VII;

The CSR Committee shall recommend the amount of expenditure to be incurred on the activities referred in CSR Policy

The CSR Policy of the company shall be monitored by CSR committee from time to time.

Contents of the policy to be disclosed in the Board’s Report and to be displayed on the company web site


2.2 Comments by Leader of Corporate on CSR Law

Ratan Tata, the Former Chairman of Tata Sons

“We have a phenomenon which is meant to be good, But is going to be some what chaotic… we don’t as yet know what kind of monitoring there ‘ll be in t erm of how well this money is used.”

Azim Premji, the philanthropist and Head of Wipro

“ Spending 2% on CSR is a lot, especially for the companies that are trying to scale up in these difficult times. It must not be imposed.”


2.3 Statistics


2.4 Challenges

Companies face the same challenges they did in implementing CSR in year one.

“Finding the right implementing agencies is a big challenge in CSR,” said Sudhir Singh, a partner at consulting firm PwC India. He said that it will take another year or two for grassroots partners to reach the professionalism needed to absorb excess capital in the social sector made available because of the CSR law


3.1 Why CSR

Agenda1.Equity in the growth of economy2.CSR is one effective tool that synergizes the efforts of corporate & the social sector agencies towards sustainable growth & development of the societal objectives at large.

Approach3.CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure their adherence to law, ethical standards, and international norms.4.Business would embrace responsibility for the impact of their activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere.5.Furthermore, business would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality.

General IdeaCSR is the deliberate inclusion of public interest into corporate decision making, and the honoring of People andProfit.


3.2 Why CSR is aggressively needed today?

1.Changing social expectations: Consumers and society in general expect more from the companies whose products they buy.

2.Increasing affluence: This is true within developed nations, but also in comparison to developing nations. Affluent consumers can afford to pick and choose the products they buy.

3.Globalization: Growing influence of the media sees any mistakes by companies brought immediately to the attention of the public.


3.3 Potential business benefits of CSR1. Human resources:

A CSR program can be an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm‘s CSR policy during an interview, and having a comprehensive policy can give an advantage.

2. Risk management:Managing risk is a central part of many corporate strategies. Reputation as take decades to build up can be ruined in hours

through incident such as corruption scandals or environmental accident.These can draw unwanted attention from regulators, courts, governments & media. Building a genuine culture of doing the right thing within a corporation can offset these risk.

3. Brand differentiation:In crowded marketplaces, companies striving for a unique selling proposition. That can separate them from the competitionin the minds of consumers.CSR can play role in building customer loyalty based on distinctive ethical values.

4. License to operate:Corporation are keen to avoid interference in their business through taxation.By taking substantive voluntary steps, they can pursuit governments that they are taking issues such as health & safety, diversity, or the environment seriously as good corporate citizen for positive impact on the environment.


4.1 CSR Life Cycle


4.2 Process of CSR (Define, Implementation & M&E)

1. Formulating CSR Policy and Strategy

2. Establishing Internal Execution Structure

3. Assessing and Engaging Internal Stakeholders and Communities and Beneficiaries

4. Defining the Problem Statement and selecting Social Causes(s)

5. Identifying Partners to Implement Programmes and due Diligence

6. Designing CSR Programmes

7. Monitoring and Evaluating the impact

8. Reporting on CSR


4.2.1 Formulating CSR Policy and Strategy

Senior management and the board are the key influencers of strategy

90% of the companies surveyed reported that either their senior management, such as the CEO, CFO,

COO or the board of directors, were the key drivers of the CSR policy.

More than 50% of the companies reported that their board of directors had been taking an active interest

in CSR post the enactment of the CSR law.

Only a small proportion of companies consulted intermediaries (27%) or social organisations such as

NGOs (16%) when formulating their policies.


4.2.2 Establishing Internal Execution Structure

While many companies have dedicated CSR teams, a significant minority transfers the responsibility to

other business functions.


4.2.3 Assessing and Engaging Stakeholders

In this phase, Companies focused on engaging communities and employees.

Here, the needs of the community or end-beneficiaries are central to all approaches, strategic CSR,

sustainability, and shared value encourage expanding the scope to other stakeholders such as employees,

vendors, suppliers, etc.Some Stats:

In fact, almost 60% of them said that engaging communities is one of the main determinants of their

strategies.Almost 75% said they followed a process for assessing the needs of the communities, through internal

teams or by NGO partners, and small proportion also used external agencies.


4.2.4 Selecting Social CausesCSR has favoured some social causes more than others. Most companies reported supporting multiple causes,on an average 4 to 5 sectors.


4.2.5 Partner IdentificationThe identification and selection of NGOs is found to be the difficult task for most companies.

Some tools and resources for assessing NGO credibility and performance

Malcolm Baldrige Model for not-for-profit organisations

MANGO Framework for financial and accounting standards

MCKINSEY OCAT Framework―a free online tool that helps non-profits assess their operational capacity and identify strengths and areas for improvement

Factors Important for Partner Identification

Assessing credibility in terms of legal compliance

Responsible governance, and financial sustainability.

Companies preferred to partner with NGOs over social enterprises.


4.2.6 Selecting CSR ProgrammesCompanies follow a variety of approaches to select CSR programmes like,

• Customised Approach - Here, companies proactively worked with their implementation partners to create CSRprogrammes , suited to their needs and locations.

A. Signature programmesB. Location-specific programmes

• Supporting scalable and impactful programmes:

The second approach consisted of supporting existing programmes run by NGOs with a view to replicate them and/or scale them up.

Or by Companies that did not have an immediate location preference or a clear beneficiary group, such as banking, financial services, insurance or IT companies, or companies that were new to the CSR sector and wanted to comply with the law.


4.2.7 Monitoring and Evaluating ImpactAs companies spend more on social development projects, there has been a unanimous demand for measuring their effectiveness and impact.

While some companies and NGOs were content with counting the number of people, villages, and schools as the impact of their programmes, others were keen on measuring the changes in the quality of lives of people covered by them.

Some tools and resources for impact measurementA. IRIS is an initiative of the Global Impact Investing Network (GIIN), a non-profit organisation dedicated to

increasing the scale and effectiveness of impact investing. While indicators are more process related and relevant to impact investment, most of them can be easily adapted to CSR.

B. Social Return on Investment (SROI) is an analytic tool for measuring and accounting for a much broaderconcept of value, taking into account social, economic, and environmental factors.


4.2.8 Reporting on CSRThere is a lack of comprehensive reporting by companies on CSR.

While the law has mandated some level of reporting on CSR, it is limited to the spending and the reason for under-spending, if relevant. It does not require a lot of details on spend per sector, partners involved, nature of activities undertaken, and so on.

Why Important?It is absolutely critical that corporate India publishes detailed information on CSR regularly to ensure that this data can be used to track progress, understand trends, establish benchmarks for performance in CSR, and aid evidence-based decision making within the CSR space.

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5.1 CSR Initiative by Companies in IndiaThis exercise was undertaken in partnership with IIM Udaipur, Futuresacpe and Economic Times for 2016

Top 10 Companies in India in CSR Initiatives

1. Tata Steel Ltd2. Tata Power Company Ltd.3. UltraTech Cement Ltd.4. Mahindra & Mahindra Ltd.5. Tata Motors Ltd.6. Tata Chemicals Ltd.7. ITC Ltd.8. Shree Cement Ltd.9. Bharat Petroleum Corporation Ltd.10. Larsen & Toubro Ltd.


5.2.1 Achievement of Tata Steel Ltd.

Health

1.Lifeline Express worlds first hospital on rails catering to inaccessible rural area of Bihar, Jharkhand, Odisha, Chhatisgarh, West Bengal & Tamil Nadu

2.Maternal and New born Survival Initiative3.Healthcare Services through Camps4.Training Health Workers5.Initiatives on HIV/ AIDS Awareness6.Cleft Lip Treatment (http://www.tatasteelindia.com/corporate-citizen/health/curative-interventions.asp)7.Eye Care Services

http://www.tatasteelindia.com/corporate-citizen/health/curative-interventions.asp


5.2.2 Achievement of Tata Steel Ltd.

Education:

1.Primary Education (http://www.tatasteelindia.com/corporate-citizen/education/images/education-chart.gif)

2.Jyoti Fellowship (Financial assistance, through Jyoti Fellowship, is offered to meritorious students from economically backward Scheduled Caste and Scheduled Tribe families to enable them accomplish educational and career aspirations. It helps students pursuing education at high school, intermediate, under-graduate and post-graduate level.)

3.JN Tata Endowment4.Moodie Fellowship (This scholarship supports SC/ST students pursuing professional courses like B. Tech,

MBBS, MCA etc.)

http://www.tatasteelindia.com/corporate-citizen/education/images/education-chart.gif







5.2.3 CSR Initiative by Companies in India

Sports & Adventure

1. (In 2011-12, Deepika Kumari and Jayanta Talukdar, cadets of the Tata Archery Academy were selected to represent India at the London 2012 Olympics. Academy coach Purnima Mahato was nominated as the coach of the Indian Archery Team.)

2. In FY-13, a total of 60 sports events (Football, Archery, Athletics, Cross Country Race, Cycling, and Volleyball) were organised engaging nearly 23,000 youth across the Company’s operational areas

3. Premlata Agrawal, at the age of 48 years, became the first woman mountaineer - and one of the oldest internationally - to conquer all Seven Summits in 2013.

“Businesses cannot be successful when the society around them fails”.

Goodness is the only investment that never fails – Henry David Thoreau,American writer.

Corporate Social Responsibility is a hard-edged business decision. Not because it is a nice thing to do or because people are forcing us to do it because it is good for our business –Niall Fitzerald, Former CEO, Unilever

Thank You

Corporate Social Responsibility - CSR

Government & Nonprofit

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