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CORPORATE SOCIAL IRRESPONSIBILITY IN INDIA

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A Project on Corporate Social Irresponsibility in India

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CORPORATE SOCIAL IRRESPONSIBILITY IN INDIA

  1. 1. CORPORATE SOCIAL IRRESPONSIBILITY IN INDIA A PROJECT ON MARKETING RESEARCH SUBMITTED TO: SIR NARENDER VERMA SUBMITTED BY: ANKIT DABRAL 13MSM16
  2. 2. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 1 Table Of Contents S. No. Topic Name Page No. 1 Introduction 2 2 The Origins of Socially Responsible Business 4 3 Meaning 5 4 Corporate Social Responsibility in India 6 5 The Companies Act, 2013 8 6 List of activities under schedule VII 10 7 Why is CSR clause of new Companies Act so critical for SME’s 11 8 Corporate Social Responsibility (CSR) & Small and Medium Enterprises 12 9 Example of Corporate Social Irresponsibility 15 10 How Can 1 Organisation Adopt or work for CSR 21 11 Conclusion 25
  3. 3. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 2 Introduction India is a country of myriad contradictions. On one hand, it has grown to be one of the largest economies in the world, and an increasingly important player in the emerging global order, on the other hand, it is still home to the largest number of people living in absolute poverty (even if the proportion of poor people has decreased) and the largest number of undernourished children. What emerges is a picture of uneven distribution of the benefits of growth which many believe, is the root cause of social unrest. Companies too have been the target of those perturbed by this uneven development and as a result, their contributions to society are under severe scrutiny. Governments as well as regulators have responded to this unrest and the National Voluntary Guidelines for Social, Environmental and Economic Responsibilities of Business or the NVGs (accompanied by the Business Responsibility Reports mandated by the SEBI for the top 100 companies) and the CSR clause within the Companies Act, 2013 are two such instances of the steps taken. According to Indian Institute of Corporate Affairs, a minimum of 6,000 Indian companies will be required to undertake CSR projects in order to comply with the provisions of the Companies Act, 2013 with many companies undertaking these initiatives for the first time.
  4. 4. Further, some estimates indicate that CSR commitments from companies can amount to as much as 20,000 crore INR. This combination of regulatory as well as societal pressure has meant that companies have to pursue their CSR activities more professionally. This handbook attempts to bring together good practices of companies and grant-making foundations so as to assist companies pursue their CSR activities effectively, while remaining aligned with the requirements of the Companies Act, 2013. The Origins of Socially Responsible Business C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 3 CSR is as old as the legal corporation itself. In the late nineteenth century, commentators regret the decline of “the personal responsibility on which the integrity of democratic institutions
  5. 5. depends” in private business, and they urged the business community not to undermine social values through their new brand of greedy capitalism and to an extent, it worked. Business stewardship was insufficient, however, to deal with the social needs created by the Great Depression, a void filled by government intervention and the idea that the private sector had a “social responsibility” did not gain traction again until the 1960s and 1970s. Then, the concept reappeared with the rapid increase in the size and power of corporations, and it shifted focus from the noblesse oblige of wealthy business owners to an institutional philosophy that placed business alongside government, local communities, and religion to collectively enhance society. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 4 Meaning Corporate Social Irresponsibility means the negligence / ignorance of the enterprises for their impact on society. The enterprises don’t completely meet their social responsibility, enterprises “should have in place a process to integrate social, environmental, ethical human rights and consumer concerns into their
  6. 6. business operations and core strategy in close collaboration with their stakeholders”. CSR in India tends to focus on what is done with profits after they are made. On the other hand, sustainability is about factoring the social and environmental impacts of conducting business, that is, how profits are made. Hence, much of the Indian practice of CSR is an important component of sustainability or responsible business, which is a larger idea, a fact that is evident from various sustainability frameworks. Corporate Social Responsibility In India: CSR in India has traditionally been seen as a philanthropic activity. And in keeping with the Indian tradition, it was an activity that was performed but not deliberated. As a result, there is limited documentation on specific activities related to this concept. However, what was clearly evident that much of this had a national character encapsulated within it, whether it was endowing institutions to actively participating in India’s freedom movement, and embedded in the idea of trusteeship. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 5
  7. 7. As some observers have pointed out, the practice of CSR in India still remains within the philanthropic space, but has moved from institutional building (educational, research and cultural) to community development through various projects. Also, with global influences and with communities becoming more active and demanding, there appears to be a discernible trend, that while CSR remains largely restricted to community development, it is getting more strategic in nature (that is, getting linked with business) than philanthropic, and a large number of companies are reporting the activities they are undertaking in this space in their official websites, annual reports, sustainability reports and even publishing CSR reports. The Companies Act, 2013 has introduced the idea of CSR to the forefront and through its disclose-or-explain mandate, is promoting greater transparency and disclosure. Schedule VII of the Act, which lists out the CSR activities, suggests communities to be the focal point. On the other hand, by discussing a company’s relationship to its stakeholders and integrating CSR into its core operations, the draft rules suggest that CSR needs to go beyond communities and beyond the concept of philanthropy. It will be interesting to observe the ways in which this will translate into action at the ground level, and how the understanding of CSR is set to undergo a change. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 6
  8. 8. The Companies Act, 2013: In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013, which was passed by both Houses of the Parliament, and had received the assent of the President of India on 29 August 2013. The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore INR and more, or a net worth of 500 crore INR and more, or a net profit of five crore INR and more. The new rules, which will be applicable from the fiscal year 2014-15 onwards, also require companies to set-up a CSR committee consisting of their board members, including at least one independent director. The Act encourages companies to spend at least 2% of their average net profit in the previous three years on CSR activities. The ministry’s draft rules, that have been put up for public comment, define net profit as the profit before tax as per the books of accounts, excluding profits arising from branches outside India. The Act lists out a set of activities eligible under CSR. Companies may implement these activities taking into account the local conditions after seeking board approval. The indicative activities which can be undertaken by a company under CSR have been specified under Schedule VII of the Act. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 7
  9. 9. The draft rules (as of September 2013) provide a number of clarifications and while these are awaiting public comment before notification, some the highlights are as follows:  Surplus arising out of CSR activities will have to be reinvested into CSR initiatives, and this will be over and above the 2% figure.  The company can implement its CSR activities through the following methods: Directly on its own .  Through its own non-profit foundation set- up so as to facilitate this initiative.  Through independently registered non-profit organisations that have a record of at least three years in similar such related activities .  Collaborating or pooling their resources with other companies .  Only CSR activities undertaken in India will be taken into consideration.  Activities meant exclusively for employees and their families will not qualify. A format for the board report on CSR has been provided which includes amongst others, activity-wise , reasons for spends under 2% of the average net profits of the previous three years and a responsibility statement that the CSR policy, implementation and monitoring process is in compliance with the CSR objectives, in letter and in spirit. This has to be signed by either the CEO, or the MD or a director of the company . C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 8
  10. 10. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 9
  11. 11. Why is the CSR clause of the new Companies Act, C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 10 2013 so critical for SMEs? By requiring companies, with a minimum net profit of 5 crore INR, to spend on CSR activities, the Companies Act, 2013 is likely to bring in many SMEs into the CSR fold. This will usher in a fresh set of challenges to a sector that is increasingly being asked by its B2B customers to comply with environmental and social standards, while remaining competitive in terms of price and quality. Thus, SMEs will have to quickly learn to be compliant with these diverse set of requirements and it is hoped that this handbook will facilitate their ability to comply with the CSR clause of the Companies Act, 2013. Business Responsibility Reporting The other reporting requirement mandated by the government of India, including CSR is by the SEBI which issued a circular on 13 August 2012 mandating the top 100 listed companies to report their ESG initiatives. These are to be reported in the form of a BRR as a part of the annual report. SEBI has provided a template for filing the BRR. Business responsibility reporting is in line with the NVG published by the Ministry of Corporate Affairs in July 2011. Provisions have also been made in the listing agreement to incorporate the submission of BRR by the relevant companies. The listing agreement also provides the format of the BRR. The BRR requires companies to report their performance on the nine NVG principles. Other listed companies have also been encouraged by SEBI to voluntarily disclose information on their ESG performance in the BRR format. Corporate Social Responsibility (CSR) & Small and Medium Enterprises (SME’s) Small and medium enterprises (SMEs) significantly contribute towards India’s economic growth. These serve independently and also as ancillary to larger units
  12. 12. and help generate employment and industrialize the rural and backward regions of India. They employ nearly 40% of India’s workforce and contribute around 45% to India’s manufacturing output20. What do they do ? The business activities of SMEs are performed in proximity to the locals. This enables them to be aware of community needs, manage expectations and develop CSR programmes appropriately.  Now that the CSR clause in the Companies Act, 2013 covers companies that have a net profit of five crore INR and above, it is expected that while micro-enterprises will not qualify, many small and medium enterprises (SMEs) will.  SMEs are being treated separately in this handbook because of their distinct features. The CSR activities of these enterprises are driven by the personal interests of promoters who hold a significant financial stake in the business. They tend to be in clusters and engaged in similar business activities. While the quantum of revenue available for CSR with individual SMEs is expected to be small, all eligible companies in a specific geographical cluster, who single handed as well as collectively impact the same community, can pool their resources to create a sizeable CSR fund. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 11 How can SMEs contribute to CSR initiatives? This section analyses the option of undertaking collaborative CSR activities by SMEs. This collaboration can also be used by other companies to maximise the impact of their CSR initiatives while reducing the operational costs for fund management. Why collaborate for CSR initiatives? CSR is for all companies. SMEs in India have participated in CSR activities but these efforts have not been optimally delivered. One possible reason can be the fact that CSR activities depend on the profits of an SME and any fluctuations in profits can adversely affect their
  13. 13. capability to continue their contribution for CSR. Another reason can be the limited human resources available to SMEs which may also result in the lack of a professional approach. Collaboration has the following advantages:  Reduces operational cost: Individual CSR efforts by a company consist of establishing a CSR department, assessing the needs of local communities, undertaking programmes directly or through an NGO and conducting regular impact assessment studies. A common organisation catering to a number of companies will carry out these activities collectively and thus reduce the operational cost of management. Undertake long-term projects: A major hindrance in developing long-term projects is the uncertainty in the CSR budget. This is dependent on the financial performance of the company. A fluctuating performance implies that the CSR budget allocations can be unreliable and can jeopardize a programme initiated earlier. Pooling resources addresses this issue to a certain extent as the other partners can increase their share in case there is variance in allocation from a certain segment of the cluster. The long-term programmes also have greater impact than the short-term projects. Communities are increasingly realising the importance of the support offered by these programmes in making their lives better. Long-term programmes also lead to better community relations and this ensures avoiding situations of community unrest that hamper business activities. Learning from experiences: A common entity with multiple participants from the cluster will help assess community needs, undertake relevant programmes based on past experiences and address a greater number of community issues. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 12
  14. 14. Example of Corporate Social Irresponsibility: C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 13 (Source: http://www.downtoearth.org.in/node/3395 ) In the unfortunate case of Chakla village in Jharkhand, neither existed. After facing resistance in several villages, the Abhijeet Group settled upon this village because its mixed population made it easier to buy land for a power plant. After four villagers the company had employed were shot down, allegedly by Maoist rebels, police are now investigating the relations between the company and a breakaway Maoist group. The company may have used the strongmen to break the resistance in the village to sell land. Villagers resist selling land to companies because it is a raw deal. Most are yet to see a factory that improves their lives--a lot of them see pollution and coercive land deals. But they have seen politicians bring them some relief, which is why they prefer politicians to corporates. This is exactly the opposite of India's urban rich, which prefers corporates, as
  15. 15. illustrated after the 2008 Mumbai terror attacks and in the television news studios that have an eye and a half on their TRPs. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 14 CASE STUDY ON DG CEMENT COMPANIES CORPORATE SOCIAL RESPONSIBILITY AFTER GENERAL ORDER, 2009 (S.R.O. 983(I)/2009) DG CEMENT COMPANY IN 2010 Company is a responsible corporate citizen and fully recognizes its responsibility towards community, employees and environment in 2010. Corporate philanthropy  Company contributed for the construction of Choa saiden shah bye-pass road. In addition we also rebuilt factory road at D.G. khan site for smooth and safe transportation. Energy conservation  The management of company is so keen about the global warming and playing its part to cut down the use of fossil fuels to its minimum. For this purpose they have put a project of power generation from waste heat recovery. Earlier these heat and gases were going in the air. The company has spent about Rs. 2.0 billion on this project. This project is expected to save about 20k tons of fossil fuel annually and put its favorable impact on environment by reducing green house gases. Environmental protection measures  A complete environment management system is in place at D.G. khan cement and it provides a complete systematic approach to comply with natural environmental quality standards. Traditionally, cement plants are considered to be environmentally hazardous but company has installed most modern and state of the art equipment for dust collection. Needed quantity of bag filters and electrostatic precipitators have been installed to collect the dust and waste gases and feed them again in the system? Community investment and welfare schemes  Water is in short supply in surrounding area of our production facilities. Company has made necessary arrangements to provide drinking water to local residents free of cost at different locations as per the needs of the residents.
  16. 16. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 15 Consumer protection measures  There are no consumer protection measures for consumers in the annual general report. Welfare spending for under-privileged classes  D.G. khan cement fully realizes the role of local community and always gives maximum preference to local resident for employment opportunities. in addition, several social community projects by management of D.G. khan cement have been placed to uplift the living standards of local residents Industrial relations  The transactions between the related parties were made at arm's length prices determined in accordance with the comparable uncontrolled prices method. The company has fully complied with the best practices on transfer pricing as contained in the listing regulations of stock exchanges in Pakistan. Employment of special persons  There is no any special person employed in the company. Occupational safety  Being a safety conscious company your management has placed stiff occupational standards keeping in view the potential threats and associated risks. For operation of the system responsibilities, awareness & training, documentation operational control, departmental objectives and emergency preparedness/ response have been implemented at different levels. Consistent adherence to the system and continual improvements are ensured by periodic management reviews.  Primary focuses of these standards are: o Prevent injuries and damage to health of employees, contractors, visitors and the company's infrastructure. o To make workplaces safer that meets or surpasses legislative and other requirements applicable. o Establish measurable objective and targets that are reviewed periodically to ensure continual improvements. o To provide awareness and information to all the employees, contractors and visitors. Health  A free medical centre and hospital has been established providing medical facilities to the locals of the area at both the manufacturing facilities. A team of male and female doctors with paramedic staff has been appointed to provide round the clock medical services to the local residents. In addition fully equipped ambulance service is also available to transfer the emergency patients to nearby hospitals. National-cause donations  Company is fully aware of the miseries of the flood affected people. In this regard, company provided food to 300 people daily twice a day in the D.G. khan area. In addition, DGKC also provided shelter in
  17. 17. the form of tents to hundreds of families. Going forward, employees of the company have also surrendered their one day salary for the flood affected people C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 16 Contribution to national exchequer  Company paid Rs. 2, 60,492,000 as tax to the government in 2010. Rural development programmes  D.G. khan cement is fully aware of its responsibility towards imparting education to future generation. For this purpose company has established a school named Dera model school which is run by a trust. All the expenses are borne by the company. In addition, a branch of renowned Bloomfield school is also running at the company premises. The company has provided building and complete infrastructure to this school. In addition company gives monthly subsidy to partly cover the running expenses. Our company spent Rs. 11.292 million Against Rs. 9.790 million Last year on account of school related expense. About 500 students are currently enrolled in both the schools. DG CEMENT COMPANY IN 2012 In 2012, company is not giving any disclosure of its corporate social responsibility and not maintains its annual reports according to the S.R.O. 983(i)/2009. Corporate philanthropy  Company contributed for the maintenance of Choa saiden shah bye-pass road. In addition they also rebuilt factory road at D.G. khan site for smooth and safe transportation. Energy conservation  Company has put a project of power generation from waste heat recovery. Earlier these heat and gases were going in the air. The company has spent about Rs. 2.5 billion on this project. This project is
  18. 18. expected to save about 20k tons of fossil fuel annually and put its favorable impact on environment by reducing green house gases. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 17 Environmental protection measures  Traditionally, cement plants are considered to be environmentally hazardous but your company has installed most modern and state of the art equipment for dust collection. Needed quantity of bag filters and electrostatic precipitators have been installed to collect the dust and waste gases and feed them in the system? The plants of the company not only comply with the national environmental standards but also surpass the standards set by the World Bank. Community investment and welfare schemes  Water is in short supply in surrounding area of our production facilities. Company has made necessary arrangements to provide drinking water to local residents free of cost at different locations as per the needs of the residents. The company has spent huge amount to lay down the required pipelines. Consumer protection measures  There in no consumer protection measures for consumers in the annual general report. Welfare spending for under-privileged classes  Several social community projects by management of D.G. khan cement have been placed to uplift the living standards of local residents Industrial relations  Company has fully complied with the best practices on transfer pricing as contained in the listing regulations of stock exchanges in Pakistan. Employment of special persons  There are 5 special persons employed in the company in context of corporate social responsibility in 2012. Occupational safety  Being a safety conscious company your management has placed stiff occupational standards keeping in view the potential threats and associated risks. For operation of the system responsibilities, awareness & training, documentation operational control, departmental objectives and emergency preparedness/ response have been implemented at different levels. Health
  19. 19.  Free medical centre and hospital has been established providing medical facilities to the locals of the area at both the manufacturing facilities. a team of male and female doctors with paramedic staff has been appointed to provide round the clock medical services. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 18 Business ethics and anti-corruption measures  Company has also provided financial assistance for the new campus of U.E.T at Chakwal. Going forward, students of Ph.D. programs from local universities as well from abroad are associated with professionals of your company for their thesis and research work. National-cause donations  There is no significant work in national clause donations. Company did some work in flood caused by rains in Dera Ghazi Khan. Contribution to national exchequer  Company paid Rs. 55,652,000 as tax to the government in 2012. Rural development programmes  A branch of renowned Bloomfield school is also running at the company premises. The company has provided building and complete infrastructure to this school. In addition company gives monthly subsidy to partly cover the running expenses. Our company spent Rs. 12.574 million against Rs. 11.292 million last year on account of school related expense. About 500 students are currently enrolled in both the schools. Reference of Case Study: DG Khan Cement Company Annual reports 2007, 2008, 2010 and 2012 How Can 1 Organisation Adopt or work for CSR: A. Comparative analysis of the three choices for legal entity: Differential factors Trust Society Section 8 company22
  20. 20. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 19 Basic document Trust deed which contains objects of the trust (bye-law) Memorandum of association Articles of association with rules and regulations Memorandum of association Articles of association Formation Simple Simple Slightly difficult Jurisdiction Deputy registrar or charity commissioner Registrar of Societies Registrar of Companies Legislation / statute Relevant state trust act Societies Registration Act 1860 Companies Act 2013 Objectives Social benefits and charitable Literary, charitable, scientific and resource oriented Nonprofit activities Re-amendment or modification of objects Alteration can be undertaken only by the founder or settler Easy, legal procedures Complicated, legal procedures Required members Minimum = 2, maximum = no limit Minimum = 7, maximum = no limit Minimum = 7, maximum = no limit Registration As trust with the registrar As society with society registrar As per Companies Act under Section 8 (earlier Section 25) Stamp duty 4% of trust property value will be executed in non-judicial stamp paper with the registrar No stamp paper required for memorandum of association, and rules and regulations No stamp paper required for memorandum and articles of association Name Easy to choose Easy to choose Prior approval required from Registrar of Companies Management board Trustees Governing body Board of directors and management committee
  21. 21. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 20 Succession in management By election By election By appointment Meetings No provisions Annual meeting as per law, governing body meeting as per the rules of society, Quite extensive as per the provision of Company Law Statutory regulations Nominal Limited Maturable and exhaustive Membership transfer Not possible Not possible Free or control as per desire Member admission Not applicable Governing body control General body or board control through issue of capital Payment to members As notified in trust deed Not restricted As approved by company and state B. Designing a volunteering programme: As part of their corporate social responsibility efforts, companies encourage their employees to volunteer for a cause (usually pre-selected by corporate human resources or foundations) during work hours under formalised employee volunteering programmes (EVPs). These EVPs involve substantial opportunity cost for employers and therefore must be carefully planned and executed. Who is a corporate volunteer? It’s an employ who actively takes on a task, responsibility, or project on his or her own accord without needing to be assigned or told to do so as part of his or her daily job duties. Corporate volunteering is generally considered an altruistic activity and is intended to promote larger social or environmental good or
  22. 22. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 21 improve the quality of life of a target beneficiary or a community. Most often, there are no financial gains for the work or service provided by such volunteers. However, sometimes this volunteering involves incentives such as personality or profile development, skill development, socialisation, and fun. In certain areas of volunteering work such as health services, education or emergency rescue volunteers receive training before they can contribute. However, most volunteers serve on a need basis without any prior educational or work experience of related background. C. Community Engagement: A community can be defined as a homogenous group of individuals bound together geographically, politically, culturally or by certain values, principles or shared characteristics. For the purposes of this discussion, we define community as the collection of stakeholders who reside in the local vicinity of company operations and who rely on or are impacted by its shared resources. Community engagement is defined as a process in which the needs, priorities and values of various individuals (not directly associated with or dependent on a given company) and that of other external organisations in a community are incorporated into corporate decision-making and management activities. Tools, technical guidance and standards to be used: Participatory rural appraisal Focus group discussions Door-to-door surveys
  23. 23. C o r p o r a t e S o c i a l I r r e s p o n s i b i l i t y Page 22 Conclusion Thus, it can be concluded that Corporate Social Irresponsibility means the negligence / ignorance of the enterprises for their impact on society. Corporate Social Responsibility of these corporates is not just limited to environment but also to society, stakeholders, suppliers etc. Though the Company Act, 2013 requires at least 2% of the net profit of last three years to be put for CSR activities but how many companies actually use this amount for CSR and this amounts to Corporate Social Irresponsibility. In order to stop it strict measures and implementation of the Act is essential.

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