16th Jan 2015

Relevance of Sustainability &

Changing Paradigm of Corporate Social Responsibility in India

IIFT | New Delhi

Agenda

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Social Compliance

an example in Apparel Sector

The Way Forward

CSR PROVISIONS in Companies Bill

Drivers for CSR in India Current Economic Scenario

Social Compliances

Social Compliances- Evolution & Present context

* Rising competition and increased cost of manufacturing have forced companies outsourcing their production and manufacturing operations globally.

* It has lead to a situation where unfair / unethical ways / hazardous ways of production are being used.

* Quality of products is of utmost importance in market place. At the same time due to growing consumer awareness / consciousness it has become very important to ensure that the products are produced ethically.

* Therefore it remains the responsibility of these companies to ensure that their vendor and supplier workplaces provide an environment of safety, health, respect, and integrity.

* Ignoring this responsibility can result in labour law violations, unethical practices, and other such incidents which directly impact brand reputation and stock performance. To avoid this scenario, many companies are establishing "social compliance" policies, standards, and Codes of Conduct.

Standards are mostly based on

* UN Declaration of Human Rights

* Conventions of the ILO

* International human rights norms and

* National laws - Labour and others.

Standards - Scope

* Child Labor * Working conditions - Health & Safety, Discrimination,

Working hours, Gender Equity, Wages and benefits, Forced Labor, Employee Grievance handling proceedure * Environment- protection and minimization of impact of

the organization. * Others

Some common STANDARDS

* SA 8000

* BSCI

SA 8000 requirements

*1. Child Labour *2. Forced or Compulsory Labour *3. Health and Safety *4. Freedom of Association & Right to *5. Collective Bargaining *5. Discrimination *6. Disciplinary Practices *7. Working Hours *8. Remuneration *9. Management System

* Top 100 companies on Indian Stock Exchange has mandatory requirement on CSR activities * Indian MNCs listings on foreign bourses needs reporting and compliance * Supply Chain of the foreign brands in India needs to comply with CSR requirements as mandated by buyers

Drivers for CSR

* Public sector companies have mandatory CSR spends requirements * Those corporates which will be covered by s 135 of companies bill have compulsory 2% of Net Prot spend on CSR projects * Top corporates brands which need to showcase their commitment to social responsibility as claim to be responsible corporates

Drivers for CSR

Example from India Apparel industry

Jalandhar, April 2012

Shital Fibers: Toll in Jalandhar Factory Accident Rises to 23: April 22 (IANS): The death toll in the blanket factory collapse in Jalandhar has risen to 23. A majority of those killed in the 4 storey factory collapse were migrant workers from Bihar and Uttar Pradesh.

Daily Mail 23rd June 2008: Primark's fashion sweatshops that pay children just

60p a day! *

* Low-cost clothes come at a high price for young children toiling in the store's Indian sweatshops. An investigation revealed that children as young as 9 were working in squalid conditions, sewing tiny beads and sequins onto cheap t-shirts by candle-light.

* The revelations were highly embarrassing for a company that has always claimed it is possible to sell T-shirts for as little as 2 without compromising its ethics.

Jalandhar, September, 2012

Date: September 22, 2012 by Ben Doherty Poor children made to stitch Sports Balls in Sweatshops

THE footballs used in are stitched by India's poorest children who work in appalling, dangerous and illegal conditions for as little as seven cents a ball.Two of Australia's most well-known football brands, Sherrin and Canterbury, have operations in India that use banned child labour.

Dhaka, December, 2010

Bangladesh Factory Fire Kills at Least 20

DHAKA, Bangladesh A fire at a 10 story garment factory north of Dhaka, the capital, killed at least 20 people and injured dozens others.

About 5,000 people worked in the building producing pants for customers in the United States and Europe,

Earlier, three people were killed in labor protests because some factories had not carried out a government-mandated 80 percent increase in the minimum wage, to 3,000 taka a month or about $43.

Piles of clothes in garment factories are easily combustible. Fires can be very deadly because some factory owners lock exits to prevent workers from leaving their machines.

Gap Caught in Child Labour Scandal

* October 30, 2007: * An investigation by the UK's Observer has revealed Gap clothing being

manufactured by children as young as eight. Gap's Indian vendors subcontracted a portion of its orders to child sweatshops.

* The children working in that factory have since been rescued from a life of slavery by Indian authorities.

Karachi, September, 2012

Karachi Sept 12: The death toll stands at 289, making it the largest number of casualties in a single industrial incident in Pakistan's history. Attention is turning to lax labour laws and the culture of corruption that allows regulations to be flouted. Workers were said to be unable to escape because the doors were locked. It is thought that this was to prevent them from leaving their shifts early. Allegedly, there was no emergency exit, with other doors blocked by piles of finished clothes.

Dacca, Nov 24, 2012 Fire at Bangladeshs 8-storey

Tazreen factory kills 112 people! OVERCROWDING, LOCKED FIRE DOORS NOT UNCOMMON IN BANGLADESHI FACTORIES Bangladesh has about 4,500 garment factories and is the world's biggest exporter of clothing after China, with garments making up 80 percent of its $24 billion annual exports. Working conditions in Bangladeshi factories are notoriously poor, with little enforcement of safety laws. Overcrowding and locked re doors are not uncommon.

Terrified women leaping to their deaths. Locked exits trapping workers. Piles of clothing blocking stairwells to safety

Washington, October, 2012

US lists 21 Indian items for using Child Labor

The US Labor Department has issued a list of 21 India-made products that use child or forced labor. Made-in-India garments and embellished textiles are among the top products in the list with the department saying that there is "evidence of labor abuses in a variety of different forms of textile embellishment, beyond the production of zari."

India Apparel Industry Several International Standards & Certications but NO Indian Standard

vBusiness Social Compliance Initiative (BSCI) - EU vEthical Trade Initiative (ETI) - UK vFair Labour Association (FLA) - USA vFair Wear Foundation (FWF) EU vChina Social Compliance 9000 vSocial Accountability 8000 (SA 8000) - USA vWorldwide Responsible Apparel Production (WRAP) USA

*Missing: A home-developed home-relevant Indian Standard

CSR Equation

* Reputational Capital + Human Capital + Social Capital + Financial Capital + Physical Capital turned into products and services which please the customers = Sustainable Prots Doing Good leads to doing Well in business

CSR Equation

* Reputational Capital comes from acting ethically * Human Capital comes from inspiring your employees to achieve levels of high performance * Social Capital comes from good company management, intelligent leadership stewardship values * Financial Capital comes from trust that your business will deliver as expected and as promised * Physical Capital (Land, Building, Plant and Machinery) comes from Financial Capital

CSR Journey of India

Philanthropy (Part of religious belief system, which corpora

COMPARISON OF ISO:26000 & NVGS Parameters ISO 26000 Draft National Voluntary Guidelines for the

Social, Environmental and Economic Responsibilities of Business

Index 6 Clauses 6 Chapters

Principle 7 9

Core Elements 7 Dened within each Principle and vary in with each nos

Focus 1. All Kind of organizations 1. Special Chapter on MSME 2. Business Responsibility Reporting

Framework

Reference Ref to 133 standards No reference as such

Integration A very important clause Not detailed as such

CSR New Companies Bill 2012

CSR PROVISIONS

Clause 135

Schedule VII of the Companies Bill 2012 lists out the CSR activities

C l a u s e 1 3 5 ( u n d e r Chapter IX Accounts of Compan ies ) o f the Companies Bill 2012 deals with Corporate Social Responsibility.

Companies Bill 2012 Clause 135 contains 5 sub-clauses

This is the rst time where a legal provision is introduced for Corporate Social Responsibility.

CLAUSE 135 (1)

CSR Committee

Every company having * net worth of rupees ve hundred crore or more or * turnover of rupees one thousand crore or more or * net prot of Rupees ve crore (625k euros) or more

during any nancial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an

independent director.

Thus, apart from audit committee and such other committees, a new committee called CSR Committee proposed.

CLAUSE 135 (2)

Disclosure of CSR Committee Constitution in the Boards Report * The Board's report under sub-section (3) of section 134 shall

disclose the composition of the Corporate Social Responsibility Committee.

CLAUSE 135 (3)

Functions of CSR Committee * The Corporate Social Responsibility Committee shall, (a)formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specied in Schedule VII; * (b) recommend the amount of expenditure to be

incurred on the activities referred to in clause (a); and * (c) monitor the Corporate Social Responsibility Policy of the company from time to time.

CLAUSE 135 (4)

Role of the Board

* The Board of every company referred to in sub-section (1) shall

(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

CLAUSE 135 ( 5)

CSR Expenditure / Mandatory CSR Spending

* The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every nancial year, at least two per cent. of the average net prots of the company made during the three immediately preceding nancial years, in pursuance of its Corporate Social Responsibility Policy:

* Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:

* Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

COMPLIANCE

* INABILITY TO SPEND AND TO GIVE COGENT REASON FOR THIS AMOUNTS TO DEFAULT OF COMPANIES ACT AND WILL HAVE LEGAL CONSEQUENCES

* U/S 134(8), IF THERE IS VIOLATION OF S.134(3)(O), THEN THE COMPANY WILL BE FINED BETWEEN 50K TO 2500K AND

THE OFFICER IN CHARGE WILL ALSO BE FINED BETWEEN 50K AND 500K AND ALSO WILL BE IMPRISONED UPTO THREE YEARS

SWOT Analysis of the Companies Bill

STRENGTHS

Structured frame work fo CSR created in the bill Bill will help in image enhancement and brand building Bill will harmonise relations between various stake holders Bill will enhance conict/ risk management

Committee of Directors to implement & monitor CSR will give due respect to it

Schedule VII gives enough freedom to choose projects

All controls vested in the board

India is 1st country to have mandatory CSR spend , will enhance overseas image

WEAKNESSES

The schedule VII is broad based, details on what will be covered and what will not, is missing Even smaller companies will need committee of 3 directors There are no specic principles of CSR as it is still evolving Skill gaps in the companies to understand and implement CSR projects Lot of inputs on what & how to do and CSR and what to report. Enough confusions and inspections fatigue Scope of litigations will increase

OPPORTUNITIES

Moving away from philonthophy to strategic CSR

Competitive advantage

Treat CSR spend as social invest rather than cost centre

Expanding business volume by becoming a responsible co.

Work on bottom of the pyramid market by developing value products for this segment, it is win win for both

Gaining social respect and media attention

Creating brand value

Increased business by joining supply chain for big corporations as responsible partner

THREATS

CSR may fall under RTI trap indirectly Legal action by regulators Disinvestment by overseas investors Pressure from NGOs/ Politicians/authorities

Bad exposes from media gps. / activists

Manipulations/ misrepresentations

Lack of expertise in the organisations on CSR policy formulations and implementations

Two schools of thought

* CSR spend should be in areas unrelated to business and in line with social agenda of the Govt.

* CSR spend should be linked to business and work towards creating resource conserving products and sustainable development.

*Schedule vii meets the aspirations of both the groups

The Way Forward !!

Way forward

* Companies will have to formalise their processes around CSR

* Form the committee

* Make formal CSR policy

* Choose the causes judiciously and align with the schedule vii

Way forward

* Structure the programmes better

* Device matrix to measure the impacts of spending

* Bring in professional who understands the imperatives and can articulate the vision of management

* Select partners carefully to ensure that CSR spend is relevant and achieves desired outcome

Way forward

* The time of cheque book philonthrophy is over * CSR will now become part of core strategy of the company.

Rajit Pal Singh Managing Director Reach Potential Consultants Pvt. Ltd

Ph - +91 9871156360 Email : rajitpal.singh@reachpotential.in

www.reachpotential.in

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