overview of corporate social responsibility presentation by : s. ravi, fca

Overview of Corporate Social Responsibility

Presentation by : S. Ravi, FCA

Corporate Social Responsibility (CSR): Definitions

‘The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large’.

– World Business Council For Sustainable Development

‘A commitment to improve community well being through discretionary business practices and contributions of corporate resources’.

– Philip Kotler and Nancy Lee (2005)

‘A way companies manage the business processes to produce an overall positive impact on society.’

– Mallen Baker, Founding Director, Business Respect

‘A multi layered concept that can be differentiated into four interrelated aspects – economic, legal, ethical and philanthropic responsibilities’.

– Archie Carroll (1991)

Overview of Corporate Social ResponsibilityBy: S. Ravi, FCA 2

The Pyramid of CSR


Philanthropic (Be a good

corporate citizen)

Ethical (Be ethical)

Legal (Obey the law)

Economic(Be profitable)

Contribute resources to the community,

improve quality of life

Obligation to do what is right, just

and fairLaw is society’s

codification of right and wrong

The foundation upon which all

others rest

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First Phase

(1850-1914)

Driven by noble deeds

of philanthropists and charity Second Phase

(1914-1960)

Largely influenced by Mahatma Gandhi’s theory

of trusteeship. Industrialists pressurized to

show their dedication towards the benefit of the

society

Third Phase(1960 – 1980)

CSR influenced by the emergence of Public sector

undertakings to ensure proper distribution of

wealth

Fourth Phase(1980 until the

present)

Indian companies

integrated CSR into a

sustainable business

strategy. What started as

charity is now understood and

accepted as responsibility.Four Phases of

CSR Development in

India

Overview of Corporate Social ResponsibilityBy: S. Ravi, FCA

Current state of CSR in India

Priority of business is getting widened from 1 P to 3 Ps by inclusion of People and Planet with Profit.

Short-term, charity based welfare interventions are being replaced by long-term, empowerment – based CSR.

Based on the realization that business cannot succeed in a society that fails, CSR is being considered as an imperative for carrying on business in the society rather than as a charity.

The new Companies bill passed by both Lok Sabha and Rajya Sabha mandates the corporates to spend 2% of their average net profits of the last three financial years towards CSR. This is applicable for companies with a turnover of 1000 Cr/ PAT of 5 Cr/ or net worth of 500 cr. The new bill replaces the Companies act 1956 and emphasizes carrying forward the agenda of Corporate Social Responsibility.


Current state of CSR in India

It is mandatory for Central Public Sector Enterprises to allocate 2-3% of the PAT for the inclusive development of a backward district (CSR & Sustainability guidelines by Department of Public Enterprises 2013), in which one key project has to be in CSR and the other in Sustainability for the development of the disadvantaged and marginalized communities.


CSR Importance and its Relevance Today


•Consumers and society in general expect more from the companies whose products they buy. This sense has increased in the light of recent corporate scandals, which reduced public trust of corporations, and reduced public confidence in the ability of regulatory bodies and organizations to control corporate excess.

1. Changing

social expectation

s

•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. A society in need of work & inward investment is less likely to enforce strict regulations and penalize organizations that might take their business & money elsewhere.

2.Increasing affluence

CSR as a strategy is becoming increasingly important for businesses today because of three

identifiable trends

CSR Importance and its Relevance Today


•Growing influence of media sees any mistakes’ by companies brought immediately to the attention of the public. In addition, the Internet fuels communication among like-minded groups and consumers - empowering them to spread their message, while giving them the means to co-ordinate collective action.

3.Globalization and free flow

of Information

CSR as a strategy is becoming increasingly important for businesses today because of three

identifiable trends

Few Key Steps to Implement CSR Successfully


Better communication between top management and organisation

Appoint for CSR position Good relationship with customer, supplier,

stakeholderAnnual CSR auditFeedback process

Companies Bill and CSR


Allow corporates to harness and channelize their core

competencies as well as develop effective business models

Promote and facilitate far better connect between

businesses and communities

Facilitate deeper thought and longer term strategies for

addressing some of our most persistent social, economic and

environmental problems

Assist in synergizing

partnerships between

Corporates, Governments, Civil Society

Organizations, Academic

Institutions and Social

Entrepreneurs

Purpose of Inclusion of CSR

in the Companies Bill

Companies Bill and CSR – Clause 135


Every Company

With

Net Worth of Rs. 500 Crores or

more

Turnover of Rs. 1000 Crores or

more

Net Profit of Rs. 5

Crores or more

During any Financial 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.

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Companies Bill and CSR


Duty of the Board Duty of the Corporate Social Responsibility

Committee Disclose the composition of the CSR

Committee in its report Approve the Company’s CSR policy

after considering the recommendations of the committee

Disclose the CSR policy in its report and on Company Website

Ensure the implementation of the policy

To spend at least 2% of the Company’s average profit for the last 3 financial years for this purpose

Give preference to spending in local areas where it operates

Specify reasons in report in case of failure

Formulate and recommend a CSR Policy to the Board indicating the activities to be undertaken by the Company

Recommend the amount of expenditure to be incurred on CSR related activities

Monitor the Company’s CSR policy from time to time.

Activities Required for Qualifying Companies

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Companies Bill – Permissible CSR Activities


Eradicating extreme hunger and poverty; Promotion of education; Promoting gender equality and empowering women; Reducing child mortality and improving maternal health; Combating [HIV], [AIDS], malaria and other diseases; Ensuring environmental sustainability; Employment-enhancing vocational skills; Social business projects; Contribution to the Prime Minister’s National Relief Fund or

any other fund set up by the Central Government or the state governments for socioeconomic development, and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and

Such other matters as may be prescribed.

Schedule VII of the Companies Bill requires the CSR policy created by the CSR committee involve at least one of the following focus areas:

Points of Concern

The Companies Bill does not define CSR only contains a list of activities that may be included by a company in its CSR policy. The bill does not prescribe the proportion of funds to be contributed towards any activity.

2% spending on CSR is not mandatory for Companies, the rules are in line with the ‘Comply or Explain’ principle with penalties applicable only if an explanation is not offered. This could really be an escape clause for companies not meeting the necessary CSR requirements.

Tax treatment to CSR spending by companies whether it is to be treated as non-deductible income since it is an allocation of profit, or, whether it is to be treated as an allowable expenditure under the Income Tax Act.

Even central public sector enterprises, subject to CSR norms under separate guidelines, will, on enactment of the bill, come within the purview of these new provisions.


Tax Exemption

Section 80G of Income Tax Act – Donations

This section does not restrict the deduction to individuals, companies or any specific category of taxpayer. Allowable to all kind of Assessee.

Donations made to foreign trusts do not quality for deduction under this section.

Deduction cannot be claimed for donations made to political parties for any reason, including paying for brochures, souvenirs or pamphlets brought out by such parties.

Only donation made to prescribed funds and institutions qualify for deduction.

Maximum allowable deduction:- If aggregate of the sums donated exceed 10% of the adjusted gross total income, the amount in excess of 10% ceases to be entitled for tax benefit.

Only donations in cash/ cheque are eligible for the tax deduction.

NRIs are also entitled to claim tax benefits against donations, subject to the donations being made to eligible institutions and funds.


Tax Exemption

Section 35 AC of Income Tax Act – Expenditure on eligible projects/ schemes

To promote reinvestment of business profits in areas where massive capital input is required for socio-economic development, a tax incentive has been provided under Section 35AC of the Income Tax Act, 1961.

The section provides that where an assessee incurs any expenditure by way of payments of any sum to:

i) a public sector company or;ii) a local authority or;iii) to an association/ institution approved by the

National Committeefor carrying out any eligible project or scheme for promoting the social and economic welfare or upliftment of the public as the Central Government may specify, then the amount so paid shall be allowed as deduction from the business income of the assessee/ contributor of such amount.


Public Sector Undertakings – Key Contributors To Socio-Economic Development of India & CSR


The government of India formed public sector undertakings (PSUs) with the purpose of building industrial capacity, creating employment opportunities and improving the socio-economic condition.

Both, central public sector enterprises (CPSEs) and state level PSUs have played a vital role in supporting the socio-economic development of the country. They are actively involved in various areas of CSR such as education, healthcare, improving infrastructure, social empowerment, vocational training and environmental protection among others.

With a high degree of support from the government, CSPEs acts as a catalyst of social enterprise by providing such diverse services for grass root development.

Public Sector Undertakings – Key Contributors To Socio-Economic Development of India & CSR


Over the past two decades, India has emerged as one of the world’s strongest emerging markets and PSUs have played a vital role in achieving this growth and development.

In order to sustain this growth, CSR initiatives have become important as they form a crucial part of the companies’ strategic decision-making process. In order to integrate this into their business models and achieve the nation’s aim of inclusive growth, the revised CSR and sustainability guidelines issued by the Department of Public Enterprises (DPE) in December 2012 (effective April 2013) are expected to play a crucial role. The revised guidelines has urged the CPSEs to embrace a robust CSR practice that is in the interest of all stakeholders.

Key Highlights of the Revised CSR and Sustainability Guidelines for CPSEs


CPSEs expected to formulate their policies with a balanced emphasis on all aspects of CSR and Sustainability – equally with regard to their internal operations, activities and processes, as well as in their response to externalities. Earlier guidelines focused mainly on CSR activities for external stakeholders.

Earlier, CSR and sustainable development treated as two separate subject areas and were dealt with differently for the purpose of memorandum of understanding (MoU) evaluation. However, now they are combined into a single set of guidelines for greater transparency.



The revised CSR and sustainability budgetary allocation for CPSEs is as under:

CPSEs to take up at least one major project mandatorily for development of a backward district.

CPSEs expected to act in a socially responsible manner at all times. Even in their normal business activities, CPSEs should try to conduct business in a manner that is beneficial to both, business and society.

PAT of CPSE in the previous year

Budgetary allocation (as % of PAT in previous

year)

Less than Rs. 100 Crore 3% - 5%

Rs. 100 Crore to Rs. 500 Crore

2% - 3%

Rs. 500 Crore and above 1% - 2%



CPSEs have to disclose the reasons for not fully utilizing the budget allocated for CSR and Sustainability activities for a year. Further, if the CPSEs are unable to spend the earmarked amount for CSR in a particular year, it would have to spend the amount in the next two financial years, failing which, it would be transferred to ‘Sustainability Fund’.

Emphasis is placed on the scalability of CSR and Sustainability projects, in terms of their size and impact, rather than on their numbers.

Employees to avail the infrastructure facilities created by the company from its CSR and Sustainability budget, provided the facilities are originally created essentially for the external stakeholders, and the use of these facilities by the CPSE’s employees (internal stakeholders) is only incidental and confined to less than 25 percent of the total number of beneficiaries.

SEBI - Making CSR Reporting Compulsory


SEBI vide its circular CIR/CFD/DIL/8/2012 dated August13, 2012 has made it mandatory for top 100 listed companies (by market capitalization) to report certain critical information as part of their business responsibility.

This includes how much the company is spending on CSR as a percentage of its net profit, the number of stakeholders' complaints received and resolved, details of any pending case filed by stakeholder against any unfair trade practice, irresponsible advertising or anti-competitive behaviour adopted by the company.

The provisions of this circular shall be applicable with effect from financial year ending on or after December 31, 2012.

This will enable the shareholders to have a better understanding of the manner in which their companies' function and adopt responsible business practices.

The circular exhorts the companies to follow the national voluntary guidelines on social, environmental and economic responsibility that have been formulated by Ministry of Corporate Affairs in July 2011.

World Bank - CSR Initiatives


According to the World Bank, “Corporate social responsibility is the commitment of business to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve their lives in ways that are good for business and for development”. The World Bank in India is working with the

Department of Public Enterprises (DPE), GoI, to evolve CSR policies and guidelines through its knowledge missions and advocacy initiatives. They together are working to create an institution that will undertake capacity building for CSR in Public Sector Enterprises and to develop a strong communications strategy for the CSR work of Public Sector Enterprises.

World Bank - CSR Initiatives


The Ministry of Corporate Affairs has also set up through the Indian Institute of Corporate Affairs, the National Foundation for CSR in partnership with the World Bank. The mission of the foundation includes building an enabling environment for the corporate sector to work in partnership with the government, non- governmental & civil society organizations and local communities towards goal of inclusive growth, reduction of poverty, and achievement of Millennium Development Goals.

The World Bank is supporting the GoI to develop and coordinate CSR activities across the country through workshops, knowledge missions, international seminars and training programs to bring about learning from international best practices and experiences as well as evolving CSR concepts worldwide and CSR policies evolved by Govts world over.

What the Companies should do?


Determining the Corpus earmarked for CSR

Identifying the areas/activities for CSR

– Education, Healthcare, Social business project, Donation, Environmental Sustainability, Employment etc.

Identifying the AgenciesBaseline SurveyDispersingMonitoring and Impact Analysis

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Some of the Positive Outcomes That can Arise When Businesses Adopt a Policy of Social Responsibility and Sustainability


Company Benefits

• Improved financial performance• Lower operating costs• Enhanced brand image and reputation• Increased sales and customer loyalty• Greater productivity and quality• More ability to attract and retain employees• Reduced regulatory oversight• Access to capital• Workforce diversity• Product safety and decreased liability

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Some of the Positive Outcomes That can Arise When Businesses Adopt a Policy of Social Responsibility and Sustainability


Benefits to Community and General Public

Environmental Benefits

• Charitable contributions• Employee volunteer

programs• Corporate involvement

in community education, employment and homelessness programs• Product safety and

quality

• Greater material recyclability

• Better product durability and functionality

• Greater use of renewable resources

• Integration of environmental management tools into business plans, including life-cycle assessment and costing, environmental management standards, and eco-labeling

CSR and Sustainability Initiatives - Examples

Tata Consultancy Services

The Adult Literacy Program (ALP) was conceived and set up by Dr. F C Kohli along with Prof. P N Murthy & Prof. Kesav Nori of TCS in May 2000 to address the problem of illiteracy. ALP believes illiteracy is a major social concern affecting a third of the Indian population comprising old and young adults. To accelerate the rate of learning, it uses a TCS-designed Computer–Based Functional Literacy Method (CBFL), an innovative teaching strategy that uses multimedia software to teach adults to read within about 40 learning hours.


CSR and Sustainability Initiatives - Examples Larsen & Toubro (L & T) Limited

Considering that construction industry is the second largest employer in India after agriculture, employing about 32 million-strong workforce, L&T set out to regulate and promote Construction Vocational Training (CVT) in India by establishing a Construction Skills Training Institute (CSTI) on a 5.5 acre land, close to its Construction Division Headquarters at Manapakkam, Chennai. CSTI imparts, totally free of cost, basic training in formwork, carpentry, masonry, bar-bending, plumbing and sanitary, scaffolder & electrical wireman trades to wide spectrum of the rural poor.

CSTI has also set up a branch at Panvel, Mumbai, initially offering training in formwork, carpentry and masonry trades. The Manapakkam and Panvel facilities together provide training to about 300 candidates annually who are inducted after a process of selection, the minimum qualification being tenth standard. Since inception, these two units have produced about 2,000 skilled workmen in various trades, with about sixty percent of them being deployed to L&T’s jobsites spread across the country.


CSR and Sustainability Initiatives - Examples ITC Limited

ITC partnered the Indian farmer for close to a century. ITC is now engaged in elevating this partnership to a new paradigm by leveraging information technology through its trailblazing 'e-Choupal' initiative. ITC is significantly widening its farmer partnerships to embrace a host of value-adding activities: Creating livelihoods by helping poor tribals make their

wastelands productive; Investing in rainwater harvesting to bring much-needed

irrigation to parched dry lands; Empowering rural women by helping them evolve into

entrepreneurs; and Providing infrastructural support to make schools exciting

for village children.

Through these rural partnerships, ITC touches the lives of nearly 3 million villagers across India.



CISCO System Inc.

The company pursues a strong “triple bottom line” which is described as profits, people and presence. It promotes a culture of charitable giving and connects employees to nonprofit organizations serving the communities where they live. It invests its best-in-class networking equipment to those nonprofit organizations that best put it to work for their communities, eventuating in positive global impact. It takes its responsibility seriously as a global citizen. Education is a top corporate priority for Cisco, as it is the key to prosperity and opportunity.


CSR and Sustainability Initiatives - ExamplesSuccessful companies allocate resources to ensure well being of stakeholders which also enables the company to acquire a key differentiator vis-à-vis its competition, thereby making the business sustainable. Tata Chemicals and HUL pioneered iodization of salt to

combat iodine deficiency. Their market campaign to change the mindset of BPL customers to pay a little extra for the pack of iodized salt was clearly laudable. These efforts not only increased their market share and profitability but at the same time addressed an important nutritional issue of national importance.

Hindustan Unilever (HUL), for example, invests in research working with nutrition and health specialists to further improve its “ready to eat” food business, enhance hygiene through its “regular hand wash” campaign, etc. These initiatives not only position its products distinctively against the competitors and enhance brand equity, but also ensure well being of customers and the environment.



Linking sustainability to business strategy can also improve access to supply chains.

In order to combat the global shortage of pulp-wood for paper board production, ITC and Ballarpur Industries are helping small farmers with degraded land pieces by providing them saplings, financial and technical support and an assured buy back of timber. This ensures sustainable raw material supply for the company, and also improves farmer’s livelihood.



Social initiatives can also help enhance ethical values in society and at the same time can offer a distinctive edge to companies.

Fluor Corporation, one of the largest construction companies in the world, worked for three decades with Transparency International to fight corruption; today its “anti-corruption” movement has 150 large companies across industries having signed a “zero-tolerance” policy on bribery. In industries marred by corruption, Flour is today perceived as an ethical player, thereby positioning itself with a significant competitive advantage.



Socially responsible initiatives has potential to improve employability in the society and at the same time provide companies access to skilled labor, a key driver of profitability across many industry sectors.

Maruti has recently adopted forty Industrial Training Institutes (ITI) which not only enhances skill level of youth making them employable, but also guarantees supply of skilled personnel to Maruti. Similar investments in skills development training are made by companies like Microsoft, Infosys, Tata Steel and L&T.

Rather than paying donations, using core strengths to address social issues is the best form of sustainable corporate social responsibility.Overview of Corporate Social Responsibility

By: S. Ravi, FCA 35

Thank You


overview of corporate social responsibility presentation by : s. ravi, fca

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