Corporate Social Responsibility Praveer Surana FCA, ACS Founder, Drashta CSR Consulting June 21,...

Corporate Social Responsibility

Praveer Surana FCA, ACSFounder, Drashta CSR ConsultingJune 21,

2014

Drashta CSR Consulting

Agenda for this session

Meaning and Importance

International scenario

Indian Scenario – Legal provisions

Ethics and CSR

Various projects in Indian context2


Corporate Social Responsibility

the responsibility of enterprise for its impact

on societyEuropean Commission

3


3P Approach

People

Plan

e tProfit

4


Meaning

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

5


Social Importance

Licence to operate no longer given by Governments alone, but communities that are impacted by a company’s business operations

Bridging “Trust Deficit” Nuclear Power Plants, major land acquisitions, mining, etc.

Communities as suppliers – Incorporate them in to supply chain

ITC

Communities as consumers – Consumers of products or services

Banks

Communities as suppliers of workforce Software companies, call centres

6


Economic Importance

Enhances corporate reputation leading to long-term economic benefits

Tata Motors – JLR Bandhan

Improves top-line and bottom-line through engaging communities ITC P&G

Attracting and retaining talent 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

7


Environmental Importance

Meeting the needs of the present without compromising the ability of future generations to meet their own needs

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.

Sustainability required for long term wealth-creation for shareholders

Carbon credits Eco-friendly construction

8






Ethics and CSR



Evolved concept in developed economies

Human rights

Welfare through business

Triple bottom

line

Corporate citizenship

Consumer concerns

Shared value

Sustainability

10


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 world11


Global standards and guidelines (1 of 2)

UN Guiding Principles on Business and Human Rights Focus on human rights and fundamental freedom

ILO’s tripartite declaration of principles on multinational enterprises and social policy

Labour welfare, industrial relations, no discrimination

Institute of Social and Ethical Accountability: AccountAbility’s AA1000 series of standards

Inclusivity, materiality and responsiveness

Social Accountability International (SAI) SA8000 Standard Human rights of workers 695 facilities in India have adopted this Standard including Bhilai Steel

Plant, Dr. Reddy’s

12


Global standards and guidelines (2 of 2)

OECD Guidelines: Multinational enterprises and CSR Policy Tool

employment, human rights, environment, information disclosure, combating bribery, etc.

ISO 26000: Social responsibility Holistic approach: human rights, labour practices, environment, fair

operating practices, consumer issues, community involvement and development

UN Global Compact Self-Assessment Tool In line with the UN Guiding Principles on Business and Human Rights

Social Return on Investment Network framework based on social generally accepted accounting principles

(SGAAP)

London Benchmarking Group model Assessment of impact of community investment to both business and

society

13


Legal framework internationally

Mandatory reporting for listed companies in Annual reports

France Malaysia

Denmark UK

Natural resource based companies to allocate CSR budgets

Indonesia

Mandatory reporting by State-owned companies

Sweden

Voluntary reporting in Sustainability reports

USA China Germany

Australia

14


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 annually15



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%

Matching Gifts as a % of Cash Giving 11.99% 13.69% 10.97%

Total Giving per Employee (USD) 620 542 649

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17

47%

35%

18%

Direct cash

Foundation cash

Non-cash

Health

& S

ocia

l Ser

vice

s

Educ

atio

n K-1

2

Other

Comm

unity

Dev

elop

men

t

Highe

r Edu

catio

n

Cultu

re &

Arts

Civic &

Pub

lic A

ffairs

Envi

ronm

ent

Disast

er R

elie

f0%

5%

10%

15%

20%

25%

30% 28%

17%14% 13% 12%

5% 5%3% 3%

Type and Priority of Contribution


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 development18


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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Ethics and CSR


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 Socialist approach – Private Sector seen as exploiter High tax rates

Evolution in recent times to include community development

21 Drashta CSR Consulting


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

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 principles1. Conduct and govern with ethics, transparency and accountability2. Provide goods and services that are safe and contribute to

sustainability3. Promote the wellbeing of all employees4. Respect the interests of, and be responsive toward all

stakeholders,5. Respect and promote human rights6. Respect, protect, and make efforts to restore the environment7. Influencing public and regulatory policy in a responsible manner8. Support inclusive growth and equitable development9. 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’24


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: 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

Type of Company Minimum number of Directors in CSR CommitteeIndependen

t Other

Private Company with 2 Directors 0 2Private Company with >= 3 Directors

0 3

Unlisted Public Company not required to appoint Independent Director

0 3

Other Public Company 1 3 minus number of Independent Directors

Foreign Company 0

2 including AR and another person nominated by the foreign company

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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* Covered separately in this presentation

27


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* 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:

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 includeList 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

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Activities covered in Sch. VII (1 of 2)

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)

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 Government32


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

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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 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

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Ethics and CSR



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.”

Ethical conduct a must for true implementation of CSR

38


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”

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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

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Ethics and CSR



Amount spent by Central PSU (Rs.crore)

Central PSU 2010-11 2011-12 Allocated Utilized Allocated Utilized

Oil and Natural Gas Corporation Limited 335 219 378 121 Coal India Limited 262 152 553 77 Indian Oil Corporation Limited 131 128 95 83 NDMD Limited 82 62 80 87 Steel Authority of India Limited 94 69 64 61 National Thermal Power Corporation Limited 72 72 46 49 GAIL (India) Limited 70 64 83 54 Oil India Limited 25 29 50 50 National Aluminum company Limited 27 27 34 34 Hindustan Petroleum Corporation Limited 15 20 31 27 Power Grid Corporation of India Limited 20 16 13 25 Neyveli Lignite Corporation Limited 12 13 13 16 Bharat Petroleum Corporation Limited 22 18 8 8 Rashtriya Ispat Nigam Limited 15 12 12 11 Power Finance Corporation Limited 12 9 13 13 Rural Electrification Corporation Limited 5 1 13 13 Bharat Heavy Electrical Limited 22 4 30 5 Bharat Electronics Limited 3 2 2 2 Total 1,225 919 1,519 737

Source: Lok Sabha Unstarred Question No. 2881 dated March 14, 2013

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Notable work by Companies (1 of 3)

Ashok Leyland 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

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 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

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Source: Lok Sabha Members’ Reference Note No. 11 /RN/Ref./2013



Indian Oil Corporation 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

Infosys 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

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Oil & Natural Gas Corporation 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

Tata Consultancy Services 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

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Big change to come now

Design

Deliver

Disclose

46


Role of CA in CSR - Regulatory

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

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 youPraveer Surana, FCA, ACS

Founder, Drashta CSR Consulting

(M) 9004363999

(E) [email protected]

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Corporate Social Responsibility Praveer Surana FCA, ACS Founder, Drashta CSR Consulting June 21,...

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