The document discusses India's recent amendment to the Companies Bill 2013 which mandates that large companies spend at least 2% of their net profits on corporate social responsibility (CSR) activities. This landmark legislation could herald a new era of CSR in India and globally. While some see it as an opportunity for companies to give back to society, others are skeptical about its enforcement. The legislation may also benefit European companies seeking to invest in India by helping them understand local communities better through CSR initiatives. Overall, the bill aims to promote a more responsible approach to business while also attracting foreign investment to India.

1. Feature
Feature
It said:
“Responsible entrepreneurship can
play a major role in improving the
efficiency of resource use, minimizing
wastes and protecting human health
and environmental quality. Business
and industry, including transnational
corporations, and their representative
organizations, have a critical role
in helping the world achieve the
Agenda 21 goals for sustainable
development.”
CSR in India
A good business
opportunity
India’s amendment to Companies Bill 2013, which has been recently cleared, has come as a
whiff of fresh air. It heralds a new era in Corporate Social Responsibility (CSR), not just in India but
internationally. India-EU business, if takes the CSR route, can become a big opportunity.
Rajendra Shende
Two Decades of Public Debate on private sector.
J
une 1992. I was reading
chapter 30- titled ‘Business
and Industry’. It is one of the
40 chapters of path-breaking
300 pages document, called ‘Agenda
21’ a historical outcome of Earth
Summit in 1992, agreed by 174 Heads
of State. Considered as the blue print
and the road map for the sustainable
06 October-November 2013 BIZ@INDIA
development in 21st century, Agenda
21, for the first time in long history of
United Nations, attempted to broaden
its stakeholders to include private
sector.
I had just left a private sector
assignment in India and joined United
Nations Environment Programme in
its Paris office to enable developing
countries to implement the global
environmental agreement on Ozone
Layer Protection. Going through the
chapter gave me the hints of the
transformation of the messages of
United Nations. The writing in the
chapter later became the foundation of
the modern thinking on the Corporate
Social responsibility or CSR.
Indeed, the Business Charter on
Sustainable Development of the
International Chamber of Commerce
(ICC) and the chemical industry’s
Responsible Care programme had
already set the stage, but for the first
time the United Nations succeeded
in spreading a concept that business
cannot prosper in an unstable society
threatened and torn by wars between
the states and degradation of the
ecosystems. Peace and stability is
essential for business to thrive in a
sustainable way. Hence, it became
evident that maintaining peace in
the world is not only responsibility of
the governments but also the private
sector.
Later Kofi Annan, the then
Secretary General of United Nations
used the first words of the UN Charter,
“We the Peoples” as the title of his
report setting out the agenda for
the Millennium Summit of 2000, at
which political leaders from all over
the world came together to reassess
the challenges of a new century, and
adopted a collective response, known
as the “Millennium Declaration” where
the role of the business corporations
and their responsibility was made
explicit in achieving Millennium
Development Goals (MDGs). I felt
that MDGs heralded changing the
mindset of the United Nations; to both
reflect rand influence the temper of
the times, to make private sector an
integral part of the sustainable societal
development.
Private sector has made a
spectacular journey since then.
Emergence of the digital and mobile
technology, civil society activism, all
round awareness on respecting the
ecosystem and need for its valuation,
science based policy making regime,
board level bold decision on ‘giving
back’ to the society and its whole
hearted support to Corporate Social
Responsibility principles have all
contributed to set the transformational
changes.
At the same time, there are
challenges that seem to be pulling
back and decelerating the progress
of responsible business. First, the
greed. It, we now know, resulted into
the unprecedented financial crisis that
engulfed almost the entire world. The
spark of greed at Lehman Brothers
and other investment banksin 2008,
resulted into a worldwide fire, which
spread with God-speed due to the
ready fuel of unethical and dishonest
corporate behavior thriving under
the disguise of capitalism and open
market. In 2013, the world is yet to
recover from that crisis. The crisis
has made the world relook and reflect
atthe so-called ‘best practices’ of
Once travelling by a taxi in
Mumbai, the taxi driver showed me
the 27-storeyed house of a leading
industrialist. I was awed. I exclaimed ,
“Wow, this man must be having
everything that he indulges in!”
The taxi driver responded, ‘ He has
every thing except one, which I have’.
I looked at him with raised eyebrows.
“ Enough”, he responded.
capitalism and ‘open market’policies.
The inertia of the private sector to
take urgent action on Climate Change,
a defining challenge of 21st century
is another challenge for the dynamic
response to global crisis.
Revolution of wheels – the
Indian way
India’s amendment to Companies
Bill 2013, which has been recently
cleared by the Indian parliament,
therefore, comes as whiff of fresh
air. It heralds a new era in Corporate
Social Responsibility (CSR), not just
in India but internationally. The new
Companies bill 2013 under its section
135 mandates companies having a net
worth of 60 million euros or more; or a
turnover of 120 million euros or more;
or a net profit of 0.6 million euros or
more to have a CSR spend of at least
two per cent of their average net
profit of past three years and to report
those activities in their annual report.
The companies are also required
to constitute a Corporate Social
Responsibility
(CSR)
Committee
consisting of three or more directors,
with at least one independent director.
The CSR Committee is required
to formulate CSR Policy and also
recommend the amount of expenditure
to be incurred on the CSR activities.
The implementation is scheduled in
the financial year 2014-15, with nearly
8000 companies falling under the new
legislation with nearly 2.4 billion euros
of CSR activities.
‘This is the first time, and historically
it may be the first time in the world, that
a country has considered mandating
expenditures for the public good,
rather than simply taxing companies
or leaving them to their own devices,’’
Minister for Corporate Affairs Sachin
Pilot said while introducing the bill in
the Parliament.
This is remarkable, especially
in the context of India’s business
community, though supportive of
the amendment has been slow and
not consistent in adopting CSR. It is
also known to take a more traditional
philanthropic approach.
Genesis
It may appear that ‘giving back’
concept has origin in recent GatesBuffet syndrome. However, Indian
history has long known to embed such
principle in its Hindu, Buddhist and
even Moghul kingdoms. The concept
of earmarking CSR funds from profits
lies in the consensus that now exists
in India both in business (especially
larger companies such as Tata, Wipro,
and Infosys) and wider society that
business should ‘give back’ to society,
and has an important role to play in
BIZ@INDIA October-November 2013
31

2. Srategy and trade
helping to alleviate India’s persistent
poverty and inequality.
India is home to the largest number
of poor people in the world, despite
the massive economic growth that
the country has witnessed in recent
past. Faced with the choice of higher
business taxes on the one hand and
mandated CSR on the other, the
government, through dialogues and
consultative process, has decided
that mandatory CSR with flexible
approaches is a better solution.
In fact, the Companies Bill is farreaching, and not just for making
CSR mandatory. It seeks to liberalize
and align the archaic Indian business
legal framework with those of more
liberal mechanisms, partly with a
view to enhancing the flow of foreign
investment into the country, a need
of the country starved of the foreign
exchange and burden of an everincreasing Current Account Deficit. So
it is not just intended to benefit the civil
society and the companies that will be
impacted by the CSR measures, but
also those of foreign inward investors
like from the EU seeking to gain the
goodwill of the communities (or the
consumers in business language) they
will be working with.
Will the new CSR legislation be a
game changer?
The answer could be yes, no or
may be. The Indian government has
skillfully decided not to ‘police’ around
the implementation of legislation. It
recognizes that CSR has been already
ongoing in a number of corporations
of the size covered under the Act.
Surely, the legislation will not
engender a new love of philanthropy.
The legislation is inherently difficult
to enforce and some businesses
will undoubtedly seek to implement
it cynically. Many will welcome the
absence of strict implementation and
definite regulations, but surely they
would be drafted in future.
Yet the measure has its wide
business supporters too, and CSR is
likely to become a part of an inevitable
march towards more responsible
32 October-November 2013 BIZ@INDIA
Srategy and trade
It is always difficult
for the companies in
EU to assimilate in
business, Indian culture
and mindset. EUenterprises would
have an opportunity to
understand the civil
society in India and its
communities, which
would be consumers
for the enterprises
governance in all areas. There are
many businesses already, in India
and elsewhere, which see CSR as
a win-win opportunity to both do
good for the community and for their
business. Ultimately it will be the
interested stakeholders (customers,
communities
and
shareholders)
who are driving this march. As they
become more knowledgeable through
the communication revolution and
social media about which businesses
are really trying and which are only
pretending, they will punish the latter
through customer disloyalty or in other
ways. Once that starts to happen,
genuine CSR will rapidly become the
norm and businesses will ignore it at
their peril. The pace of change may
be tempered by the need to focus on
growth and overcoming recessionary
pressures, but nonetheless it will
accelerate in the months ahead.
FDI between EU and India –a CSR’s
spin-off?
It is perhaps exporters and inward
investors that will lead the way. It
is they that have the most to lose
and win in the short-run. On the one
hand, Indian companies seeking
to export will be facing increasing
pressures not just at home, but also
in their export markets. EU economic
policy and that of its members,
not to mention the expectations of
customers, are increasingly requiring
effective socially and environmentally
responsible corporate governance.
For these companies, effective CSR is
already becoming a license to trade,
and they had better become good at it
quickly or they will find penetrating, or
retaining share in, the EU market more
and more difficult.
On the other hand, European
companies have fared poorly in
exporting to India. Their effective CSR
activities oriented towards Indian
society as a part of these companies’
investment strategy could help change
that. Of course, the CSR measures of
India may be seen as protectionist in
this context – adding through these
CSR measures yet another barrier to
trade. Yet European businesses have
in general been more advanced in
adopting CSR than Indian businesses,
and may surprise at their ability to
surmount this obstacle, given the
opportunities they have in India known
for its ‘social diversity’.
Old Challenges and New
Opportunities
It is always difficult for the
companies in EU to assimilate in
India’s way of doing business, Indian
culture and mindset. EU-enterprises
would have an opportunity to
understand the civil society in India
and its communities, which would be
consumers for the enterprises. While
CSR for them was voluntary, now its
mandatory nature would prove to be
a blessing in disguise. Number of EU
schemes like carbon trading, carbon
credits, applying EU imposed targets
(like Renewable energy) could be
piloted by relevant companies in India.
All of this signals interesting days
ahead for those in EU-India business,
government and civil society engaged
in defining and implementing the
CSR activities. The challenges and
opportunities will exist, not just for
those companies who embrace the
legislation (many companies do
support it in fact), but also for the
communities and agencies that they
must work with to make their CSR
initiatives a reality.
Compared to the normal model,
where taxes are paid to the state,
and the state invests in social
improvement, the Indian model, in
mandating CSR spend from profits
made holds interesting advantages.
Part of the thinking behind the Bill is
that companies might best focus their
CSR contributions in the area of their
expertise. So, for instance, EU-Indian
telecoms companies might focus on
telemedicine and chemical companies
on alleviating pollution. This should in
principle facilitate innovative initiatives
based on strong know-how.
Experience shows, however, that
to make this happen will require a
combination of enlightened business
leadership on the one hand, and
strong community representation on
the other. A recent survey in India
showed that it was not just business
that was backward in its adoption
of CSR, but also local agencies
representing communities who could
benefit from CSR who are poor
at knowing how to negotiate CSR
initiatives effectively. There is then the
job of work to be done both in briefing
the CEOs and community leaders
on the changing paradigm and the
implications for them, as well raising
awareness of roles and responsibilities
in business and agencies. Work
also needs to be done in skilling
CSR managers in business and the
community in the tools for developing
and implementing appropriate CSR
initiatives. Finally, there is a need
to create an effective market to match
up the supply side – the resources of
companies implementing CSR - with
the needs of communities for social
or
environmental
improvements.
India’s bottom of the pyramid (BOP)
has a very large base. That it self is
spells huge opportunities for EU-
India collaboration though CSR. It is
CSR that will help identifying BOP
needs.
Green Shoots Network
The TERRE Policy Centre in
India and France, with its focus
on brokering practical solutions to
sustainability between business and
community stakeholders, and its
location in Maharashtra the second
largest industrial region of India, is
strategically positioned to contribute
to these challenges. It is for this reason
that we are launching a much-needed
initiative, the Green Shoots Network,
to support business and communities
in their CSR endeavors.
The word ‘free’ in the term ‘free
trade’ may in the future turn the
connotations it currently has among
many for ruthless business practice,
into a connotation of a new business
led enlightenment, of new green
shoots of economic growth. TERRE
considers that the moment has come
that Green Shoots will transform into
Green Industry and Green Societies. It
is a dream well worth pursuing.
Highlights of the Companies Bill 2013
The bill requires companies that meet certain set of criteria, to spend at least
two per cent of their average profits in the last three years towards Corporate
Social Responsibility (CSR) activities. But only companies reporting 0.6 mn euros
or more profits in the last three years have to make the CSR spend.
The Bill allows companies the freedom to choose areas of work for CSR and the
mandate of a rotation in auditors every 5 years gives the process added credibility.
Thus the bill makes it compulsory to not just earmark the funds but also form
a CSR committee (of board members consisting 3 or more directors out of which
atleast one is an independent director), formulate a CSR policy , allocate the
amount to different activities and monitor the implementation from time to time.
Further, the CSR policy is to be disclosed on the company website.
With regard to implementation, only project based investments, and not mere
donations, will be accepted as CSR which involve innovative social inventions/
initiatives that factor in hazards, risks and vulnerabilities. Baselines surveys,
social impact assessment and meticulous evaluation including documentation is
mandatory along with training and re orientation of the staff.
The CSR amount unused/unlapsed in a particular year will be carried forward to
the following year. CSR budget itself hence is non-lapsable.
With regard to failure to spend the requisite amount, the bill states that the
company shall have to provide sufficient reasons for not spending the allocated
CSR budget. While no specific penalties are contemplated in the Bill with respect
to CSR, sections 450 and 451, provide for general penalties for flouting the rules
and repeat offences.
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