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Write off

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The Assignment

On

“Corporate Social Responsibility”

Subject: Business Environment

Submitted By: Ronik Passwala (07)

Jigar Vaghela Vaibhav Shah (64)

Chirag Rathod Mayank Patel (13)

Submitted To: Ms Kruti Bhatt

MBA Sem-2, Division-B

Department of Business and Industrial Management (DBIM), VNSGU, Surat.

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Introduction

The 21st century is characterized by unprecedented challenges and opportunities,

arising from globalization, the desire for inclusive development and the imperatives of

climate change. Indian business, which is today viewed globally as a responsible

component of the ascendancy of India, is poised now to take on a leadership role in the

challenges of our times. It is recognized the world over that integrating social,

environmental and ethical responsibilities into the governance of businesses ensures their

long term success, competitiveness and sustainability. This approach also reaffirms the

view that businesses are an integral part of society, and have a critical and active role to

play in the sustenance and improvement of healthy ecosystems, in fostering social

inclusiveness and equity, and in upholding the essentials of ethical practices and good

governance. This also makes business sense as companies with effective CSR, have

image of socially responsible companies, achieve sustainable growth in their operations

in the long run and their products and services are preferred by the customers.

Indian entrepreneurs and business enterprises have a long tradition of working

within the values that have defined our nation's character for millennia. India's ancient

wisdom, which is still relevant today, inspires people to work for the larger objective of the

well-being of all stakeholders. These sound and all-encompassing values are even more

relevant in current times, as organizations grapple with the challenges of modern-day

enterprise, the aspirations of stakeholders and of citizens eager to be active participants in

economic growth and development.

The idea of CSR first came up in 1953 when it became an academic topic in

HR Bowen’s „Social Responsibilities of the Business‟. Since then, there has been

continuous debate on the concept and its implementation. Although the idea has been

around for more than half a century, there is still no clear consensus over its definition.

One of the most contemporary definitions is from the World Bank Group, stating,

"Corporate social responsibility is the commitment of businesses to contribute to

sustainable economic development by working with employees, their families, the local

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community and society at large, to improve their lives in ways that are good for business

and for development."

Corporate Social Responsibility Voluntary Guidelines 2009

In order to assist the businesses to adopt responsible governance practices, the

Ministry of Corporate Affairs has prepared a set of voluntary guidelines which indicate

some of the core elements that businesses need to focus on while conducting their affairs.

These guidelines have been prepared after taking into account the governance challenges

faced in our country as well as the expectations of the society. The valuable suggestions

received from trade and industry chambers, experts and other stakeholders along with the

internationally prevalent and practiced guidelines, norms and standards in the area of

Corporate Social Responsibility have also been taken into account while drafting these

guidelines.

Fundamental Principle:

Each business entity should formulate a CSR policy to guide its strategic planning and

provide a roadmap for its CSR initiatives, which should be an integral part of overall

business policy and aligned with its business goals. The policy should be framed with the

participation of various level executives and should be approved by the Board.

Core Elements:

The CSR Policy should normally cover following core elements:

1. Care for all Stakeholders:

The companies should respect the interests of, and be responsive towards all

stakeholders, including shareholders, employees, customers, suppliers, project affected

people, society at large etc. and create value for all of them. They should develop

mechanism to actively engage with all stakeholders, inform them of inherent risks and

mitigate them where they occur.

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2. Ethical functioning:

Their governance systems should be underpinned by Ethics, Transparency and

Accountability. They should not engage in business practices that are abusive, unfair,

corrupt or anti-competitive.

3. Respect for Workers' Rights and Welfare:

Companies should provide a workplace environment that is safe, hygienic and humane

and which upholds the dignity of employees. They should provide all employees with

access to training and development of necessary skills for career advancement, on an

equal and non-discriminatory basis. They should uphold the freedom of association and

the effective recognition of the right to collective bargaining of labour, have an effective

grievance redressal system, should not employ child or forced labour and provide and

maintain equality of opportunities without any discrimination on any grounds in recruitment

and during employment.

4. Respect for Human Rights:

Companies should respect human rights for all and avoid complicity with human rights

abuses by them or by third party.

5. Respect for Environment:

Companies should take measures to check and prevent pollution; recycle, manage and

reduce waste, should manage natural resources in a sustainable manner and ensure

optimal use of resources like land and water, should proactively respond to the challenges

of climate change by adopting cleaner production methods, promoting efficient use of

energy and environment friendly technologies.

6. Activities for Social and Inclusive Development:

Depending upon their core competency and business interest, companies should

undertake activities for economic and social development of communities and

geographical areas, particularly in the vicinity of their operations. These could include:

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education, skill building for livelihood of people, health, cultural and social welfare etc.,

particularly targeting at disadvantaged sections of society.

Implementation Guidance:

1.

2.

3.

4.

The CSR policy of the business entity should provide for an implementation strategy

which should include identification of projects/activities, setting measurable physical

targets with timeframe, organizational mechanism and responsibilities, time schedules

and monitoring. Companies may partner with local authorities, business associations

and civil society/non-government organizations. They may influence the supply chain

for CSR initiative and motivate employees for voluntary effort for social development.

They may evolve a system of need assessment and impact assessment while

undertaking CSR activities in a particular area. Independent evaluation may also be

undertaken for selected projects/activities from time to time.

Companies should allocate specific amount in their budgets for CSR activities. This

amount may be related to profits after tax, cost of planned CSR activities or any other

suitable parameter.

To share experiences and network with other organizations the company should

engage with well established and recognized programmes/platforms which encourage

responsible business practices and CSR activities. This would help companies to

improve on their CSR strategies and effectively project the image of being socially

responsible.

The companies should disseminate information on CSR policy, activities and progress

in a structured manner to all their stakeholders and the public at large through their

website, annual reports, and other communication media.

Provision for CSR in Companies Bill 2012

Till date it is very difficult exercise to analyse the spending of CSR by various firms

and private companies and such information is not maintained at government level, even

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among the top 100 firms by revenue, there are many who don’t report their CSR spends or

even declare the social causes they support, that is because they are not required to do so

by law and no provisions for CSR exists in the Companies Act, 1956 so currently the

Ministry does not maintain such details. But all that will change when the new Companies

Bill, 2012 (which has already been passed by the Lok Sabha) becomes a law.

The Companies Bill, 2012 incorporates a provision of CSR under Clause 135 which

states that every company having net worth Rs. 500 crore or more, or a turnover of Rs.

1000 crore or more or a net profit of rupees five crore or more during any financial year,

shall constitute a CSR Committee of the Board consisting of three or more Directors,

including at least one Independent Director, to recommend activities for discharging

corporate social responsibilities in such a manner that the company would spend at least 2

per cent of its average net profits of the previous three years on specified CSR activities. It

is proposed to have detailed rules after passing of Companies Bill 2012 by Rajya Sabha to

give effect to this provision.

According to Schedule-VII of Companies Bill, 2012 the following activities can be

included by companies in their CSR Policies:-

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

Eradicating extreme hunger and poverty;

Promotion of education;

Promoting gender equality and empowering women;

Reducing child mortality and improving maternal health;

Combating human immunodeficiency virus, acquired immune deficiency syndrome, 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 by the Central Government or the State Governments for socio-economic development

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and relief and funds for the welfare of the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities and women; and

(x) such other matters as may be prescribed.

The Companies Bill, 2012, Clause 135 also provides for constitution of a CSR

Committee of the Board. The CSR Committee is required to;

(a)

(b)

(c)

Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;

Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and

Monitor the Corporate Social Responsibility Policy of the company from time to time.

The data pack compiled by CSR identity.com together with Forbes India is revealing

to some extent how much each company will have to fork out on CSR when they will

bound by law and their actual spending for the financial year 2012. The data is given in

Annexure -I.

Guidelines on CSR for Public Enterprises

The Department of Public Enterprises had issued Guidelines on Corporate Social

Responsibility (CSR) for CPSEs in April, 2010 which have been issued formally to the

Ministries/Departments for compliance in the Central Public Sector Enterprises (CPSEs)

under their administrative control. Following are the salient features of guidelines on CSR

& Sustainability:

(i) 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.

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(ii) In the revised guidelines, CSR and Sustainability agenda is perceived to be equally

applicable to external and internal stakeholders, including the employees of a

company, and a company’s corporate social responsibility is expected to cover even

its routine business operations and activities. CPSEs are 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.

(iii) In the revised guidelines CSR and Sustainable Development have been clubbed

together in one set of guidelines for CSR and Sustainability because of close

linkage between the two concepts.

(iv) Public Sector enterprises are required to have a CSR and Sustainability policy

approved by their respective Boards of Directors. The CSR and Sustainability

activities undertaken by them under such a policy should also have the

approval/ratification of their Boards. Within the ambit of these guidelines, it is the

discretion of the Board of Directors of CPSEs to decide on the CSR and

Sustainability activities to be undertaken.

(v) The financial component/budgetary spend on CSR and Sustainability will be based

on the profitability of the company and shall be determined by the Profit After Tax

(PAT) on the company in the previous year.

PAT of CPSES in the Previous year Range of the Budgetary allocation for CSR and Sustainability activities (as % of PAT in previous year)

(i) Less than Rs. 100 crore 3%-5%

(ii) Rs. 100 crore to Rs. 500 crore 2%-3% (iii)

Rs. 500 crore and above 1%-2%

All CPSEs shall strive to maximize their spending on CSR and Sustainability

activities and move towards the higher end of their slabs of budget allocation.

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(vi) Loss making companies are not mandated to earmark specific funding for CSR and

Sustainability activities. However, they must pursue CSR and Sustainability policies

by integrating them with their business plans, strategies and processes, which do

not involve any financial expenditure. They may also collaborate with the profit

making CPSEs and assist them in ingenious ways without financial support in CSR

and Sustainability activities.

(vii) Mandatory compliance with legal requirement/rules/regulations/laws in letter and in

spirit will be covered under CSR and Sustainability activity. However, expenditure on

such activities would not be covered by CSR‟s financial component and would be

considered as mainstream business spend.

(viii) The unutilized budget for CSR activities planned for a year will not lapse and will,

instead, be carried forward to the next year. However, the CPSEs will have to

disclose the reasons for not fully utilising the budget allocated for CSR and

Sustainability activities planned for each year. The unspent amount will have to be

spend within the next two financial years, failing which, it would be transferred to a

„Sustainability Fund‟ to be created separately for CSR and Sustainability activities.

(ix) From amongst these beneficiaries of CSR and Sustainability spend (financial

component) of a company, the stakeholders directly impacted by its operations and

activities can rightfully stake a claim for attention before others. Such stakeholders

are generally located in the periphery of commercial operations of a company. The

corporate social responsibility of a company towards these stakeholders extends

beyond its legal obligation to compensate for, and ameliorate the impact of its

commercial activities. For this reason, CPSEs must accord priority to these

stakeholders and undertake CSR and Sustainability projects in the periphery of its

commercial operations on priority.

(x) CPSEs are expected to take initiative to promote welfare of employees and labour

by addressing their concerns of safety, security, professional enrichment and

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healthy working conditions, whether mandated or otherwise. However, expenditure

on mandated activities cannot qualify for CSR’s financial components.

(xi) Although CPSEs may select their CSR and Sustainability projects from a vast range

of available options, priority should be accorded to activities pertaining to (i)

inclusive growth of society, with special attention to the development of weaker

sections of society and the backward districts of the country, and (ii) environment

sustainability. CSR and Sustainability initiatives should focus on capacity building,

skill development and infrastructural development for the benefit of the marginalised

and under privileged sections of the local communities and also in the backward

regions so that avenues are created for their employment and income generation,

and they also experience empowerment and inclusion in the economic mainstream.

Weaker sections would include SC, ST, OBC, minorities, women and children, BPL

families, old and aged, physically challenged, etc.

(xii) It is mandatory for CPSEs to take up at least one major project for development of a

backward district as identified by the Planning Commission for its Backward Region

Grand Fund (BRGF) Scheme, and one major project for environment sustainability.

For Maharatna CPSEs, it is mandatory to take up one more major project in either of

the two categories.

(xiii) A Board level committee headed by either the Chairman and / or Managing

Director, on an Independent Director would assist the Board of Directors to

formulate CSR and Sustainability policies and oversee the implementation of CSR

and Sustainability projects/activities by the CPSE.

(xiv) There is emphasis on internalizing the philosophy and spirit of CSR and

Sustainability within the organizational culture and ethos. The philosophy and spirit

of corporate social responsibility and sustainability should get embedded in the core

values of all the CPSEs, be imbibed by the employees at all levels and it should

permeate into all the activities, processes, operations and transactions of the

enterprise. Corporate enterprises professing to behave responsibly are expected to

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produce goods and services that are safe and healthy for the consumers and the

environment, with reduced cost to the company in the long run.

(xv) 5 per cent of the annual budget for CSR and Sustainability activities has to be

earmarked for Emergency needs, which would include relief work undertaken during

natural calamities/disasters, and contributions towards Prime Minister’s / Chief

Minister’s Relief Funds.

(xvi) Ethical conduct of business lies at the core of responsible business. To promote

organizational integrity it is essential that premium is placed on individual probity of

employees; transparency in all activities, dealing and transactions is encouraged;

unethical, corrupt and anti-competition practices are discouraged‟ temptation of

quick returns and marginal gains in business through questionable means is

resisted; and, position and situations that give rise to possible conflict of interest are

avoided.

(xvii) Sustainability reporting and disclosure of all CSR and Sustainability activities

undertaken by a CPSE is mandatory. By reporting transparently and with

accountability, public sector companies can gain and reinforce the thrust of the

stakeholders. This, in turn, would provide a powerful stimulus to their CSR and

Sustainability policies and agenda, and motivate them to pursue them with greater

vigour.

As per the above guidelines on CSR issued by the Department of Public

Enterprises (DPE) in April, 2010, all profit making Central Public Sector Enterprises

(CPSEs), including Maharatna CPSEs are required to select CSR activities which are

aligned with their Business strategy and to undertake them in a project mode. CPSEs are

mandated to spend their funds on CSR projects selected by them with the approval of their

respective Boards. All profit making CPSEs are required to allocate budget mandatorily

through a Board Resolution as percentage of net profit (previous year) in the following

manner:

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PAT of CPSES in the Previous year Expenditure range of CSR in a Financial Year (% of profit)

(i) Less than Rs. 100 crore 3%-5%

(ii) Rs. 100 crore to Rs. 500 crore 2%-3% (subject to a Minimum of Rs. 3 Crore )

(iii) Rs. 500 crore and above 0.5%-2%

Loss making CPSEs are not mandated to earmark specific funding for CSR

activities. CSR Budget is fixed for each financial year and this fund does not lapse. It is

transferred to a CSR funds in which it accumulates. Implementation of CSR activities of

CPSEs is monitored by the administrative Ministries/Departments of concerned CPSEs.

States/UT/PSU-wise information of CSR work undertaken by the CPSEs, including

Maharatna CPSEs and the number of persons benefited therefrom, is not maintained

centrally in the Department of Public Enterprises. Information furnished by Maharatna and

Navratna CPSEs on total funds allocated for CSR and the funds utilized for the year 2010-

11 and 2011-12 is given in the Annexure-II. CPSEs are free to take up CSR Projects for

upliftment of weaker sections and backward districts.

Conclusion

The exact provisions of the Companies Bill, 2012 are still being debated. Once the

Bill is passed in Rajya Sabha, detailed rules would give effect to the provisions of voluntary

guidelines issued in 2009 to Corporate Sector (Private Companies), then Companies

would be bound by legal provisions to implement Corporate Social Responsibilities. In case

of public sectors, revised guidelines on CSR and sustainability are being

implemented from 1 April 2013, as a commitment of the CPSEs to their stakeholders to

conduct business in an economically, socially and environmentally sustainable manner.

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Notable Work by Some Companies

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‟.

Some of BPCL‟s other social programmes include adoption of villages, prevention and

care for HIV/AIDS and rural health care.

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. Some of its other initiatives lie in the domains of clean

drinking water, education, hospitals and health care.

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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. In an interesting initiative

undertaken by it, 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.

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 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.