Planning, monitoring and assessing the impact of CSR projects

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This presentation reviews the corporate social responsibility of business, in India, in the context of the newly enacted Companies Act, 2013.

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Planning, monitoring and assessing the impact of CSR projects

  1. 1. Planning, Monitoring and Assessing the impact of CSR Projects ENHANCING BOARD PERFORMANCE November 16th 2013, Kolkata 1
  2. 2. Does business have any... Social Responsibility at all? 2
  3. 3. “The business of business is to make money for its shareholders” - Milton Friedman*, Economist * American economist and writer who taught at the University of Chicago for more than three decades. He was a recipient of the 1976 Nobel Prize in Economics. As a leader of the Chicago school of economics, he profoundly influenced the research agenda of the economics profession. The Economist described him as "the most influential economist of the second half of the 20th century...possibly of all of it”. 3
  4. 4. However, not everyone agrees with Friedman.. “Every single pressing social and global issue of our time is a business opportunity”. “Management is a matter of world affairs”. - Peter Drucker* *Writer, professor, management consultant, hailed by Business Week as “the man who invented management”. Drucker’s 39 books, along with his countless scholarly and popular articles, predicted many of the major developments of the late 20th century. 4
  5. 5. CSR has a triple bottom line focus • Traditionally, companies measuring their success by traditional method: the good old fashioned FINANCIAL bottom line • CSR has two additional bottom line focus; – SOCIAL bottom line – ENVIRONMENTAL bottom line • Annual report includes or has addendum: Social Report 5
  6. 6. The Triple Bottom Line* Environmental Triple Bottom Line * A term coined by John Elkington, founder of Sustainability, a think tank and consultancy that works with businesses through markets in the pursuit of economic, social and environmental sustainability. 6
  7. 7. CSR has started impacting company performance…… Vedanta Resources, the mining company routinely criticized for its performance on human rights, the environment and safety, has been attacked by a top City investor for allowing its poor sustainability record to depress its share price. At its annual meeting in central London on Thursday, which also heard from human right campaigners including the former model Bianca Jagger and Peter Frankental from Amnesty International, Stephanie Maier, head of corporate responsibility at Aviva Investors, said Vedanta's shares had underperformed mining peers by 29% since 2010 She added that, while the miner had made improvements, its independent directors were too weak to push through significant change. "This cultural change should be driven by the board, and an appropriately skilled and experienced board is therefore crucial. We are disappointed, therefore, to see another director [Deepak Parekh, who joined the board last month] appointed without a credible track record in mining or sustainability issues and we withhold support for all non-executive directors as we do not consider that there is sufficiently robust and independent challenge and oversight at board level. - Simon Goodley, The Guardian Thursday 1 August 2013 7
  8. 8. In India…CSR is now a mandatory requirement • Corporate Social Responsibility (CSR) has, for the first time, been recognized under Company Law. • Clause 135 (under Chapter IX – Accounts of Companies) of the Companies Act, 2013 deals with Corporate Social Responsibility. • Clause 135 contains 5 sub-clauses with one Explanation. • Schedule VII of the Companies Act, 2013 lists out the CSR activities. 8
  9. 9. Companies Act 2013 and CSR What will be the role of the Board of Directors with respect to CSR? • Review the recommendations made by the CSR Committee • Approve the CSR Policy for the company • Disclose contents of the Policy in the company's report/website • Shall ensure that the company spends in every financial year, at least two per cent of the average net profits How much will a company be required to spend on CSR? • At least 2% of its average net profit made during the three immediately preceding financial years 9
  10. 10. Companies Act 2013 and CSR What does your company need to disclose in the Annual Report with respect to its CSR activities? The Boards financial report under sub-section (3) of section 134, shall disclose the composition of CSR committee, CSR policy and initiatives Amount of expenditure incurred on Corporate Social Responsibility activities Valid reasons in case of failure to spend the earmarked CSR budget 10
  11. 11. Companies Act 2013 and CSR What are the activities that your company can undertake as approved CSR activity? According to Schedule VII, Activities – as a Project Mode, which may be included by companies in their Corporate Social Responsibility Policies are: 1. 2. 3. 4. 5. 6. 7. 8. 9. Eradicating hunger and poverty Promotion of education Promoting gender equality and empowering women Health - reducing child mortality, improving maternal health, combating HIV, AIDS, malaria Employment enhancing vocational skills Contribution to PM's fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women Ensuring environmental sustainability Social business projects Such other matters as may be prescribed 11 The specified activities are based on the Millenium Development Goals adopted by the UN General Assembly
  12. 12. Companies Act 2013 and CSR What happens if my company’s current initiative is not in the list? The list in schedule VIII to the Companies Act 2013 while specifying activities under CSR states- ‘activities which may be included by companies in their Corporate Social Responsibility Policies’. The listed activities are largely as specified in UN Millennium Development Goals. So the list does not appear to be not binding but suggestive in nature. 12
  13. 13. CSR and India Inc. According to industry estimates, the mandatory CSR rules would apply to close to 9,000-10,000 companies. "This money would not come to the government of India. It is the companies' money and they can spend as per the decision taken by the CSR committee of their board. But they must report the same," Pilot said. "Our assessment is that if every company that is qualified for doing the CSR does so, then Rs 15,000-20,000 crore would be spent in a year in various projects such as environment, skill development, water, sanitation etc. We have left the canvas very wide as we thought it would not be proper to make it restrictive." Source: http://businesstoday.intoday.in/story/sachin-pilot-on-corporate-social-responsibility-companies-act/1/198487.html 13
  14. 14. CSR and India Inc. Source: Business Standard, November 4, 2013 14
  15. 15. CSR and India Inc. • Most companies in India engage with local communities near their area of operations, and the beneficiaries of CSR activities are generally the local population. • Most firms have adopted the same sectors for CSR (e.g., healthcare, or education), and then they spend CSR budgets on a project to project basis -doing some health camps, adopting a village, building a road, maintaining a facility, and so on. • Such project to project variations in CSR initiatives is seemingly devoid of a strategy , and also shows a lack of synergy with business operations. An attempt to align the business strategy with CSR strategy will help firms to leverage their CSR expenditures . A directional change in perspective of Indian corporations is required in the planning and strategizing of their CSR operations . Source: Singh, Ramendra & Agarwal,Sharad (2013);Corporate Social Responsibility for Social Impact: Approach to Measure Social Impact using CSR Impact Index, WPS 729/2013,Working Paper Series, IIM 15 Calcutta
  16. 16. Stages in the evolution of corporate CSR SR Each stage provides more direct and concrete benefit to the corporation’s CSR strategy its mission. 16
  17. 17. Strategic CSR Strategic corporate responsibility is a business strategy that is integrated with core business objectives & core competencies to create business value and positive social change, and is embedded in day to day business operations. 17
  18. 18. Responsible Banking from YES BANK – an example of integrating and mainstreaming CSR 18
  19. 19. Measuring value creation from ESG (CSR) activities Source : Mc Kinsey study findings, 2009 ESG : Environment, Social and Corporate Governance 19
  20. 20. Source : Mc Kinsey study findings, 2009 ESG : Environment, Social and Corporate Governance 20
  21. 21. Source : Mc Kinsey study findings, 2009 ESG : Environment, Social and Corporate Governance 21
  22. 22. Source : Mc Kinsey study findings, 2009 ESG : Environment, Social and Corporate Governance 22
  23. 23. Measuring outcome is key to a successful CSR program… “What gets measured, gets done.” “… the general tendency in many companies is to evaluate performance primarily on the basis of cost and efficiency. There are many more criteria to judge…” Peter Drucker (1909 – 2005) 23
  24. 24. CSR reporting standards ‘Sustainability Guidelines’ developed by the Global Reporting Initiative (www.globalreporting.org) SA800 certification developed by the international human rights organisation Social Accountability International. (www.sa-intl.org) 24
  25. 25. CSR reporting standards.....contd. The Green Globe programme for ‘benchmarking, certification and performance improvement’, based on Agenda 21 proposals from the 1992 Rio Earth Summit (www.greenglobe.org) ISO 14000 international environmental management standards (www.14000.org) 25
  26. 26. CSR reporting standards.....contd. The United Nations Global Compact (UNGC) framework and mechanism designed to encourage businesses to adopt CSR policies (www.unglobalcompact.org) The FTSE 4 Good Index – measures the performance of companies who meet globally recognised CSR standards. (www.ftse.com/Indices/FTSE4Goo d_Index_Series) 26
  27. 27. …however defining the outcome is not an easy task ! 135 (4) The Board of every company referred to in subsection (1) shall,— (a) after taking into account the recommendations made by the Corporate Social Responsibility committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company. 27
  28. 28. Framework for evaluating CSR Projects from: Singh, Ramendra & Agarwal,Sharad (2013);Corporate Social Responsibility for Social Impact: Approach to Measure Social Impact using CSR Impact Index, WPS 729/2013,Working Paper Series, IIM Calcutta 28
  29. 29. Measuring returns from CSR projects • Social impact index= Net improvement in quality of life, and number of lives affected due to the nature of the CSR activity and based on the needs of the Targeted Beneficiary ( in terms of increase in awareness in social, economic, health, environment, education, political, and other areas of life etc) • Economic impact index= Net improvement in incomes, wealth, savings, and assets, and number of lives affected, due to the nature of the CSR activity, and based on the needs of the Targeted Beneficiary( in terms of economic value created, income-generating assets created etc). • ROI = (Net Social Value created for TB +Net Economic Value created for TB)/Financial Investment of the firm. ROI be calculated by external auditing firms every 6 months after the beginning of the project, until at least after 5 years of the completion of the activities to ensure that the impact is sustainable, and was not short-lived. from: Singh, Ramendra & Agarwal,Sharad (2013);Corporate Social Responsibility for Social Impact: Approach to Measure Social Impact using CSR Impact Index, WPS 729/2013,Working Paper Series, IIM Calcutta 29
  30. 30. Please visit my Author’s page at http://ssrn.com/author=1714442 for access to my papers and research on Corporate Governance with specific reference to India. Comments and views are welcome at spande@nihilent.com 30
  31. 31. THANK YOU 31
  32. 32. CSR & the Companies Act, 2013 32
  33. 33. Clause 135 of the Companies Act,2013 135. (1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore 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. 135(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee 33
  34. 34. Clause 135 of the Companies Act,2013 135 (3) The Corporate Social Responsibility Committee shall,— (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time. 34
  35. 35. Clause 135 of the Companies Act,2013 135(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy: 35
  36. 36. Clause 135 of the Companies Act,2013 Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount. Explanation.—For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198. 36

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