For the use of Me mbe rs of Parli a men t Not f or Pub li cation
Corporate Social Responsibility
------------------------------------------------------------------------------------------------------------------------ The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for publication. This Service is not to be quoted as the source of the information as it is based on the sources indicated at the end/in the text. This Service does not accept any responsibility for the accuracy or veracity of the information or views contained in the note/collection. Corporate Social Responsibility 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 !", 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 ob$ective 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 1 . The idea of !" first came up in 1&'( when it became an academic topic in )" *owen s +!ocial "esponsibilities of the *usiness . ! ince then, there has been continuous debate on the concept and its implementation. ,lthough the idea has been around for more than half a century, there is still no clear consensus over its definition. -ne of the most contemporary definitions is from the .orld *ank /roup, stating, 0orporate social responsibility is the commitment of businesses to contribute to sustainable economic development by working with employees, their families, the local 1 India, 1inistry of orporate ,ffairs, orporate !ocial "esponsibility 2oluntary /uidelines 233& %2% community and society at large, to improve their lives in ways that are good for business and for development.4 2 Corporate Social Responsibility Voluntary Guidelines 2009 In order to assist the businesses to adopt responsible governance practices, the 1inistry of orporate ,ffairs 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 e5pectations of the society. The valuable suggestions received from trade and industry chambers, e5perts and other stakeholders along with the internationally prevalent and practiced guidelines, norms and standards in the area of orporate !ocial "esponsibility have also been taken into account while drafting these guidelines ( . Fundamental Principle: 6ach business entity should formulate a !" policy to guide its strategic planning and provide a roadmap for its !" 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 e5ecutives and should be approved by the *oard. Core Elements: The !" 7olicy should normally cover following core elements8 1. Care or all Sta!e"olders: The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, pro$ect 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. 2 The hallenges of !ocial orporate !ocial "esponsibility8 9acts for :ou, 1ay 231(, pp. (;%(& ( India, 1inistry of orporate ,ffairs, orporate !ocial "esponsibility 2oluntary /uidelines 233& %(% 2. Et"ical unctionin#: Their governance systems should be underpinned by 6thics, Transparency and ,ccountability. They should not engage in business practices that are abusive, unfair, corrupt or anti%competitive. $. Respect or %or!ers& Ri#"ts and %elare: ompanies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non%discriminatory basis. They should uphold the freedom of association and the effective recognition of the right to collective bargaining of labour, have an effective grievance redressal system, should not employ child or forced labour and provide and maintain equality of opportunities without any discrimination on any grounds in recruitment and during employment. '. Respect or (uman Ri#"ts: ompanies should respect human rights for all and avoid complicity with human rights abuses by them or by third party < . ). Respect or En*ironment: ompanies should take measures to check and prevent pollution= recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water, should proactively respond to the challenges of climate change by adopting cleaner production methods, promoting efficient use of energy and environment friendly technologies. +. ,cti*ities or Social and -nclusi*e .e*elopment: >epending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include8 < Ibid %<% education, skill building for livelihood of people, health, cultural and social welfare etc., particularly targeting at disadvantaged sections of society. -mplementation Guidance: 1. The !" policy of the business entity should provide for an implementation strategy which should include identification of pro$ects?activities, setting measurable physical targets with timeframe, organizational mechanism and responsibilities, time schedules and monitoring. ompanies may partner with local authorities, business associations and civil society?non%government organizations. They may influence the supply chain for !" initiative and motivate employees for voluntary effort for social development. They may evolve a system of need assessment and impact assessment while undertaking !" activities in a particular area. Independent evaluation may also be undertaken for selected pro$ects?activities from time to time. 2. ompanies should allocate specific amount in their budgets for !" activities. This amount may be related to profits after ta5, cost of planned !" activities or any other suitable parameter. (. To share e5periences and network with other organizations the company should engage with well established and recognized programmes?platforms which encourage responsible business practices and !" activities. This would help companies to improve on their !" strategies and effectively pro$ect the image of being socially responsible. <. The companies should disseminate information on !" 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 ' . Pro*ision or CSR in Companies /ill 2012 Till date it is very difficult e5ercise to analyze the spending of !" by various firms and private companies and such information is not maintained at government level, even ' Ibid %'% among the top 133 firms by revenue, there are many who don t report their !" 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 !" e5ists in the ompanies ,ct, 1&'@ so currently the 1inistry does not maintain such details. *ut all that will change when the new ompanies *ill, 2312 Awhich has already been passed by the Bok !abhaC becomes a law @ . The ompanies *ill, 2312 incorporates a provision of !" under lause 1(' which states that every company having net worth "s. '33 crore or more, or a turnover of "s. 1333 crore or more or a net profit of rupees five crore or more during any financial year, shall constitute a !" ommittee of the *oard consisting of three or more >irectors, including at least one Independent >irector, 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 !" activities. It is proposed to have detailed rules after passing of ompanies *ill 2312 by "a$ya !abha to give effect to this provision D . ,ccording to !chedule%2II of ompanies *ill, 2312 the following activities can be included by companies in their !" 7olicies8% AiC eradicating e5treme hunger and poverty= AiiC promotion of education= AiiiC promoting gender equality and empowering women= AivC reducing child mortality and improving maternal health= AvC combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases= AviC ensuring environmental sustainability= AviiC employment enhancing vocational skills= AviiiC social business pro$ects= Ai5C contribution to the 7rime 1inisters Eational "elief 9und or any other fund set by the entral /overnment or the !tate /overnments for socio%economic development @ !" "eport ard8 .here ompanies !tand % 9orbes India 1agazine dated 1;.(.231( %@% D "a$ya !abha Fnstarred Guestion Eo. 2&;@ dated 22.<.231( %D% and relief and funds for the welfare of the !cheduled aste, the !cheduled Tribes, other backward classes, minorities and women= and A5C such other matters as may be prescribed ; . The ompanies *ill, 2312, lause 1(' also provides for constitution of a !" ommittee of the *oard. The !" ommittee is required to= AaC formulate and recommend to the *oard, a !" 7olicy which shall indicate the activities to be undertaken by the company as specified in !chedule 2II= AbC recommend the amount of e5penditure to be incurred on the activities referred to in clause AaC= and AcC monitor the orporate !ocial "esponsibility 7olicy of the company from time to time. AdC The format for disclosure of !" policy and the activities therein as part of *oard s report will be prescribed in the rules once the *ill is enacted & . The data pack compiled by !" identity.com together with 9orbes India is revealing to some e5tent how much each company will have to fork out on !" when they will bound by law and their actual spending for the financial year 2312. The data is given in ,nne5ure HI 13 . Guidelines on CSR or Public Enterprises The >epartment of 7ublic 6nterprises had issued /uidelines on orporate !ocial "esponsibility A!"C for 7!6s in ,pril, 2313 which have been issued formally to the 1inistries?>epartments for compliance in the entral 7ublic !ector 6nterprises A7!6sC under their administrative control. 9ollowing are the salient features of guidelines on !" I !ustainability8 AiC orporate !ocial "esponsibility and !ustainability is a company s commitment to its stakeholders to conduct business in an economically, socially and environmentally sustainable manner that is transparent and ethical. ; Bok !abha Fnstarred Guestion Eo. <11( dated 21.(.231( & Bok !abha !tarred Guestion Eo. 1'( dated D.(.231( 13 !" "eport ard8 .here ompanies !tand % 9orbes India 1agazine dated 1;.(.231( %;% AiiC In the revised guidelines, !" and !ustainability agenda is perceived to be equally applicable to e5ternal and internal stakeholders, including the employees of a company, and a company s corporate social responsibility is e5pected to cover even its routine business operations and activities. 7!6s are e5pected to formulate their policies with a balanced emphasis on all aspects of !" and !ustainability H equally with regard to their internal operations, activities and processes, as well as in their response to e5ternalities 11 . AiiiC In the revised guidelines !" and !ustainable >evelopment have been clubbed together in one set of guidelines for !" and !ustainability because of close linkage between the two concepts. AivC 7ublic !ector enterprises are required to have a !" and !ustainability policy approved by their respective *oards of >irectors. The !" and !ustainability activities undertaken by them under such a policy should also have the approval?ratification of their *oards. .ithin the ambit of these guidelines, it is the discretion of the *oard of >irectors of 7!6s to decide on the !" and !ustainability activities to be undertaken. AvC The financial component?budgetary spend on !" and !ustainability will be based on the profitability of the company and shall be determined by the 7rofit ,fter Ta5 A7,TC on the company in the previous year. P,0 o CPSES in t"e Pre*ious year Ran#e o t"e /ud#etary allocation or CSR and Sustainability acti*ities 1as 2 o P,0 in pre*ious year3 AiC Bess than "s. 133 crore AiiC "s. 133 crore to "s. '33 crore AiiiC "s. '33 crore and above (J%'J 2J%(J 1J%2J ,ll 7!6s shall strive to ma5imize their spending on !" and !ustainability activities and move towards the higher end of their slabs of budget allocation. 11 "a$ya !abha !tarred Guestion Eo. 232 dated 12.(.231( %;% AviC Boss making companies are not mandated to earmark specific funding for !" and !ustainability activities. )owever, they must pursue !" and !ustainability policies by integrating them with their business plans, strategies and processes, which do not involve any financial e5penditure. They may also collaborate with the profit making 7!6s and assist them in ingenious ways without financial support in !" and !ustainability activities 12 . AviiC 1andatory compliance with legal requirement?rules?regulations?laws in letter and in spirit will be covered under !" and !ustainability activity. )owever, e5penditure on such activities would not be covered by !"s financial component and would be considered as mainstream business spend. AviiiC The unutilized budget for !" activities planned for a year will not lapse and will, instead, be carried forward to the ne5t year. )owever, the 7!6s will have to disclose the reasons for not fully utilising the budget allocated for !" and !ustainability activities planned for each year. The unspent amount will have to be spend within the ne5t two financial years, failing which, it would be transferred to a +!ustainability 9und to be created separately for !" and !ustainability activities. Ai5C 9rom amongst these beneficiaries of !" and !ustainability spend Afinancial componentC of a company, the stakeholders directly impacted by its operations and activities can rightfully stake a claim for attention before others. !uch stakeholders are generally located in the periphery of commercial operations of a company. The corporate social responsibility of a company towards these stakeholders e5tends beyond its legal obligation to compensate for, and ameliorate the impact of its commercial activities. 9or this reason, 7!6s must accord priority to these stakeholders and undertake !" and !ustainability pro$ects in the periphery of its commercial operations on priority. A5C 7!6s are e5pected to take initiative to promote welfare of employees and labour by addressing their concerns of safety, security, professional enrichment and 12 Ibid %&% healthy working conditions, whether mandated or otherwise. )owever, e5penditure on mandated activities cannot qualify for !"s financial components 1( . A5iC ,lthough 7!6s may select their !" and !ustainability pro$ects from a vast range of available options, priority should be accorded to activities pertaining to AiC inclusive growth of society, with special attention to the development of weaker sections of society and the backward districts of the country, and AiiC environment sustainability. !" and !ustainability 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 e5perience empowerment and inclusion in the economic mainstream. .eaker sections would include !, !T, -*, minorities, women and children, *7B families, old and aged, physically challenged, etc. A5iiC It is mandatory for 7!6s to take up at least one ma$or pro$ect for development of a backward district as identified by the 7lanning ommission for its *ackward "egion /rand 9und A*"/9C !cheme, and one ma$or pro$ect for environment sustainability. 9or 1aharatna 7!6s, it is mandatory to take up one more ma$or pro$ect in either of the two categories. A5iiiC , *oard level committee headed by either the hairman and ? or 1anaging >irector, on an Independent >irector would assist the *oard of >irectors to formulate !" and !ustainability policies and oversee the implementation of !" and !ustainability pro$ects?activities by the 7!6. A5ivC There is emphasis on internalizing the philosophy and spirit of !" and !ustainability 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 7!6s, be imbibed by the employees at all levels and it should permeate into all the activities, processes, operations and transactions of the enterprise. orporate enterprises professing t behave responsibly are e5pected to 1( Ibid %13% 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. A5vC ' per cent of the annual budget for !" and !ustainability activities has to be earmarked for 6mergency needs, which would include relief work undertaken during natural calamities?disasters, and contributions towards 7rime 1inisters ? hief 1inisters "elief 9unds. A5viC 6thical 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. A5viiC !ustainability reporting and disclosure of all !" and !ustainability activities undertaken by a 7!6 is mandatory. *y 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 !" and !ustainability policies and agenda, and motivate them to pursue them with greater vigour 1< . ,s per the above guidelines on !" issued by the >epartment of 7ublic 6nterprises A>76C in ,pril, 2313, all profit making entral 7ublic !ector 6nterprises A7!6sC, including 1aharatna 7!6s are required to select !" activities which are aligned with their *usiness strategy and to undertake them in a pro$ect mode. 7!6s are mandated to spend their funds on !" pro$ects selected by them with the approval of their respective *oards. ,ll profit making 7!6s are required to allocate budget mandatorily through a *oard "esolution as percentage of net profit Aprevious yearC in the following manner8 1< Ibid P,0 o CPSES in t"e Pre*ious year E4penditure ran#e o CSR in a Financial 5ear 12 o proit3 AiC Bess than "s. 133 crore AiiC "s. 133 crore to "s. '33 crore AiiiC "s. '33 crore and above (J%'J 2J%(J Asub$ect to a 1inimum of "s. ( rore C 3.'J%2J Boss making 7!6s are not mandated to earmark specific funding for !" activities. !" *udget is fi5ed for each financial year and this fund does not lapse. It is transferred to a !" funds in which it accumulates. Implementation of !" activities of 7!6s is monitored by the administrative 1inistries?>epartments of concerned 7!6s. !tates?FT?7!F%wise information of !" work undertaken by the 7!6s, including 1aharatna 7!6s and the number of persons benefited therefrom, is not maintained centrally in the >epartment of 7ublic 6nterprises. Information furnished by 1aharatna and Eavratna 7!6s on total funds allocated for !" and the funds utilized for the year 2313% 11 and 2311%12 is given in the ,nne5ure%II. 7!6s are free to take up !" 7ro$ects for upliftment of weaker sections and backward districts 1' . Conclusion The e5act provisions of the ompanies *ill, 2312 are still being debated. -nce the *ill is passed in "a$ya !abha, detailed rules would give effect to the provisions of voluntary guidelines issued in 233& to orporate !ector A7rivate ompaniesC, then ompanies would be bound by legal provisions to implement orporate !ocial "esponsibilities 1@ . In case of public sectors, revised guidelines on !" and sustainability are being implemented from 1 ,pril 231(, as a commitment of the 7!6s to their stakeholders to conduct business in an economically, socially and environmentally sustainable manner 1D . 1' Bok !abha Fnstarred Guestion Eo. 2;;1 dated 1<.(.231( 1@ !" "eport ard8 .here ompanies !tand % 9orbes India 1agazine dated 1;.(.231( 1D "a$ya !abha Fnstarred Guestion Eo. 232 dated 12.(.231(