Corporate Social Responsibility

Corporate Social Responsibility Role of NPO- New Professional opportunities with regard to CSR obligation under Companies Act 2013. CA CS Minal Agarwal

“Life does not gets better by Chance It gets better by Change” Change

It all began much earlier • Long history of philanthropic activities by businesses – was performed but not much deliberated • Dharmadaya since ancient age • Was focussed on building institutions – schools, colleges, hospitals, etc. • Welfare role was largely played by Governments • Socialist approach – Private Sector seen as exploiter • High tax rates • Evolution in recent times to include community development

“The business of the business is to do business” was the traditional approach It was initiated with the concept of “ Giving Back” . GIVE-N-TAKE relationship b/w corporate and society-foundation of CSR started with. CSR is extremely important for sustainable development of all stakeholders (all the people, on whom the business has an impact, including the society at large). CSR can be better understood by “corporate conscience”, “corporate citizenship", "social performance”, or ”sustainable business”. The TRADITIONAL Concept-CSR

Corporate Social Responsbility • CSR is the process by which an organization thinks and evolves its Relationship with stakeholders for the Common good • CSR is not charity or mere donation • CSR is a way of conducting business, by which corporate entities visibly contribute to the social good

“We only have what we give” “Businesses cannot be successful when the society around them fails.” “Basically, our goal is to make sure that when it comes to water and energy, we replenish the environment and leave it in a net zero state.”-Indra Nooyi Corporate Social Responsibility

Corporate Sustainbility Investing in Future For A Sustainable Environment Where Business can GROW

3P Approach

When The Wind Blows……… “There Are Those Who Build Walls” & “There Are Those Who Build Wind Mills”

CSR Applicability- w.e.f 1-4-14 Every Company (Pub or Pvt) Net Worth of Rs. 500 Cr or more Turnover of Rs. 1000 Cr or more Net Profit of Rs. 5 Cr or more During any Financial Year Shall constitute a Corporate Social Responsibility Committee of the Board consisting of Minimum 3 directors, out of which at least one director shall be an independent director.

Minimum 2% of the average net profit of last 3 preceding financial years. • “Net Profit” shall mean: • Net profit before tax as per books of accounts. • Shall not include profits arising from branches outside India. • Dividendreceivedfromothercompanies in Indiawhich are complyingwith provisions of Section 135 of the CA, 2013 • For the purpose of First CSR reporting the Net Profit shall mean average of the annual net profit of the preceding 3 financial years ending on or before 31 March 2014. CSR Activities Amountified

Applicability • 1st Financial Year – From 1.4.2014 to 31.3.2015 • Applicability to be seen during 2014-15 • If criteria is met, Company must constitute CSR Committee

Minimum of 3 directors At least 1 out of 3 as Independent director. Exemption to unlisted public companies and private companies which are not required to appoint an independent director from having an independent director in their CSR Committee Private company and a foreign company: need to have a minimum of 2 members in their CSR Committee. Board’s Report to disclose composition of CSR Committee. CSR Committee:Constitution

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 of the Act. Recommend the amount of expenditure to be incurred on the CSR activities. Monitor the Corporate Social Responsibility Policy of the company from time to time. Prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company. Functions of CSR Committee:

Projects and programmes that are to be undertaken by the company. List of CSR projects planned to be implement in the current year Implementation schedules for all the CSR Activities planned. A declarationthat surplus arising out of the CSR activity will not be part of business profits of a company. A statement that the corpus would include the following: a. 2% of the average net profits of block of 3 yrs, b. any income arising there from c. surplus arising out of CSR activities. Contents of CSR Policy

Activities relating to:— (i) Eradicating extreme Hungerand Poverty (ii) Promotion of Education (iii) Promoting Gender Equality and Empowering Women (iv) Reducing Child Mortality and improving Maternal Health (v)Combating Human Immuno-deficiency Virus, acquired immune deficiency syndrome, malaria and other diseases (vi) Ensuring Environmental Sustainability (vii) Employment enhancing Vocational Skills (viii) Social Business projects (ix) Contribution to the Prime Minister's National Relief 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 (x) such other matters as may be prescribed. What? Is considered as a CSR Activity:

Activities not mentioned in Schedule VII CSR Activities outside India. Activities exclusively for the benefit of employees of the company or their family members. Activities undertaken in the normal course of business. Contribution to any political party. One off events such as marathons/awards/contribution/sponsorship Expenses incurred for fulfillment of any Act/Law(Labour Laws) Activities: Not considered CSR

OWN SETUP-A Company may set up an organization which is registered as a Trust or Section 8 Company, or Society or Foundation or any other form of entity operating within India to facilitate implementation of its CSR activities in accordance with its stated CSR Policy. OUTSOURCCED SETUP-A company may also conduct/implement its CSR programmes through Trusts, Societies, or Section 8 companies operating in India, which are not set up by the company itself. COLLABORATIVE SETUP- Companies may collaborate or pool resources with other companies to undertake CSR activities and any expenditure incurred on such collaborative efforts would qualify for computing the CSR spending. How to do CSR Activities?

OUTSOURCED SETUP-3Yrs Track record: If the entity through which the CSR activities are being undertaken is not established by the company or its holding, subsidiary or associate company, such entity would need to have an established track record of three years undertaking similar activities. OUTSOURCED SETUP-5% Of total CSR Expense-A company can build CSR capabilities of its personnel or implementation agencies through institutions with established track records of at least three years, provided that the expenditure for such activities does not exceed 5% of the total CSR expenditure of the company in a single financial year. Contribution to Corpus of a Trust/ society/ section 8 companies etc. will qualify as CSR expenditure as long as (a) the Trust/ society/ section 8 companies etc. is created exclusively for undertaking CSR activities or (b) where the corpus is created exclusively for a purpose directly relatable to a subject covered in Schedule VII of the Act. How to do CSR Activities?

Disclose the composition of the CSR Committee in its report • Approve the Company’s CSR policy after considering the recommendations of the committee • Disclose the CSR policy in its report and on Company Website • Ensure the actual implementation of the policy • To spend at least 2% of the Company’s average profit for the last 3 financial years for this purpose • Manner in which the amountspentprojectwiseclearlymentioning the detailspertaining to sector, location of project, budget, expenditure and whetherspent direct or throughanyimplementingagency • Give preference to spending in local areas where it operates • Specify reasons in report in case of failure Responsibility of Board of Directors

Companies Act, 2013 has introduced the concept of CSR in the Act itself and even though the Act advocates it strongly but it has still prescribed a “comply or explain” approach only. This means as per the new norms, the 2% spending on CSR is not mandatory but reporting about it is mandatory. In case, a company is unable to spend the required amount, then it has to give an explanation for the same only, No penalties/fines. Wrapping up: “comply or explain”

Non-compliance • For failure to spend prescribed amount on CSR activities: • Disclosure to be made in the Directors’ report under Section 134(3)(o) of the Act, specifying reasons for not spending the amount.

Fine/Penalty of Rs.50,000 to Rs.25 Lakhs u/s 134 of Companies Act 2013 if the company fails to specify the reasons for not spending the 2% profit amount for CSR in its Board of Directors Report. Non-compliance

CSR being made mandatory justifies the quote. “It is the duty of the government to make it difficult for the people to do wrong and easy to do right”.

Improved financial performance • Lower operating costs • Enhanced brand image and reputation • Increased sales and customer loyalty • Greater productivity and quality • More ability to attract and retain employees • Reduced regulatory oversight • Access to capital • Workforce diversity • Product safety and decreased liability Positive Outcomes of CSR

Tata Consultancy Services The Adult Literacy Program (ALP) was conceived and set up by Dr. F C Kohli along with Prof. P N Murthy & Prof. KesavNori of TCS in May 2000 to address the problem of illiteracy. ALP believes illiteracy is a major social concern affecting a third of the Indian population comprising old and young adults. To accelerate the rate of learning, it uses a TCS-designed Computer–Based Functional Literacy Method (CBFL), an innovative teaching strategy that uses multimedia software to teach adults to read within about 40 learning hours. CSR Initiatives - Examples

ITC Limited ITC partnered the Indian farmer for close to a century. ITC is now engaged in elevating this partnership to a new paradigm by leveraging information technology through its trailblazing 'e-Choupal' initiative. ITC is significantly widening its farmer partnerships to embrace a host of value-adding activities: • Creating livelihoods by helping poor tribals make their wastelands productive; • Investing in rainwater harvesting to bring much-needed irrigation to parched dry lands; • Empowering rural women by helping them evolve into entrepreneurs; and • Providing infrastructural support to make schools exciting for village children. Through these rural partnerships, ITC touches the lives of nearly 3 million villagers across India. CSR Initiatives - Examples

CISCO System Inc. The company pursues a strong “triple bottom line” which is described as profits, people and presence. It promotes a culture of charitable giving and connects employees to nonprofit organizations serving the communities where they live. It invests its best-in-class networking equipment to those nonprofit organizations that best put it to work for their communities, eventuating in positive global impact. It takes its responsibility seriously as a global citizen. Education is a top corporate priority for Cisco, as it is the key to prosperity and opportunity. CSR Initiatives - Examples

Successful companies allocate resources to ensure well being of stakeholders which also enables the company to acquire a key differentiator vis-à-vis its competition, thereby making the business sustainable. • Tata Chemicals and HUL pioneered iodization of salt to combat iodine deficiency. Their market campaign to change the mindset of BPL customers to pay a little extra for the pack of iodized salt was clearly laudable. These efforts not only increased their market share and profitability but at the same time addressed an important nutritional issue of national importance. • Hindustan Unilever (HUL), for example, invests in research working with nutrition and health specialists to further improve its “ready to eat” food business, enhance hygiene through its “regular hand wash” campaign, etc. These initiatives not only position its products distinctively against the competitors and enhance brand equity, but also ensure well being of customers. CSR Initiatives -Examples

Socially responsible initiatives has potential to improve employability in the society and at the same time provide companies access to skilled labor, a key driver of profitability across many industry sectors. • Maruti has recently adopted forty Industrial Training Institutes (ITI) which not only enhances skill level of youth making them employable, but also guarantees supply of skilled personnel to Maruti. Similar investments in skills development training are made by companies like Microsoft, Infosys, Tata Steel and L&T. Rather than paying donations, using core strengths to address social issues is the best form of sustainable corporate social responsibility. CSR Initiatives - Examples

National Voluntary Guidelines for Social, Environmental and Economic Responsibilities of Business (NVG) 12th July 2011 Given by Ministry of Corporate Affairs – India Business Responsibility Reports (BRR) – SEBI - mandated the top 100 listed companies of BSE & NSE to report under the BRR Aug 13, 2012 added clause 55 to listing agreement Section 135 w.e.f 1st April 2014 Companies Act, 2013 (India) CSR LAWS IN INDIA

Business Responsibility Report – Suggested Framework ESG-Environmental-Social- Governance perspective Section A: General Information about the Company Section B: Financial Details of the Company Section C: Other Details Section D: BR Information Clause 55 of listing agreement

Principle 1: Businesses should conduct and govern themselves with Ethics, Transparency and Accountability Principle 2: Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle Principle 3: Businesses should promote the wellbeing of all employees Clause 55 of listing agreement Section E: Principle-wise performance

Principle 4: Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalized. Principle 5: Businesses should respect and promote human rights Principle 6: Business should respect, protect, and make efforts to restore the environment ` Clause 55 of listing agreement Section E: Principle-wise performance

Principle 7: Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner Principle 8: Businesses should support inclusive growth and equitable development Principle 9: Businesses should engage with and provide value to their customers and consumers in a responsible manner Clause 55 of listing agreement Section E: Principle-wise performance

Role of international agencies • Great role of International business and trade agencies to ensure compliance by multinational corporations working in different geographies • EC: European Commission • ILO: International Labour Organisation • ISO: International Organisation for Standardisation • OECD: Organisation for Economic Co-operation and Development • UNGC: United Nations Global Compact • UNIDO: United Nations Industrial Development Organisation • WBCSD: World Business Council for Sustainable Development • Convergence of concept of CSR with concept of Sustainability • Forms the guiding principle to developing world

Global standards & guidelines • UN Guiding Principles on Business and Human Rights • Focus on human rights and fundamental freedom • ILO’s tripartite declaration of principles on multinational enterprises and social policy • Labour welfare, industrial relations, no discrimination • Institute of Social and Ethical Accountability: AccountAbility’s AA1000 series of standards • Inclusivity, materiality and responsiveness • Social Accountability International (SAI) SA8000 Standard • Human rights of workers • 695 facilities in India have adopted this Standard including Bhilai Steel Plant, Dr. Reddy’s

Global standards & guidelines • OECD Guidelines: Multinational enterprises and CSR Policy Tool • employment, human rights, environment, information disclosure, combating bribery, etc. • ISO 26000: Social responsibility • Holistic approach: human rights, labour practices, environment, fair operating practices, consumer issues, community involvement and development • UN Global Compact Self-Assessment Tool • In line with the UN Guiding Principles on Business and Human Rights • Social Return on Investment Network • framework based on social generally accepted accounting principles (SGAAP) • London Benchmarking Group model • Assessment of impact of community investment to both business and society

Legal framework internationally

Opportunities Plethora of new opportunities for CA with CSR

Another great opportunity for the profession Advisory on CSR activities to be taken up selection of agencies through which the activities could be undertaken Monitoring and audit of CSR spends… Formation of NPO for CSR outsourcing Audits of these NPO Sector. Fund raising Project Reports by NPO Faculty/Consultant/Freelancer CSR expert Professional Opportunities

CSR MANAGERS- A global- in house department & designation…Industry opportunity. how to strategically include CSR within their business goals leading and educating their enterprise regarding the importance of CSR goals of becoming a socially and environmentally responsible firm – one which reduces it’s negative and enhances its positive impacts on society and the environment. CSR-Managers

Consultancy in CSR Business responsibility reports SEBI Accounting for CSR Taxation for CSR Application of FCRA Application & compliance with FEMA Advising on NPO Governance Grading/ Rating NPOs Social Audit Selection of NPOs – a. Trust b. Society c. Company d. Non Trading Corporations 11. Consultants in funding – India & outside India 12. Complying with Standards 13. Integrated Reporting 14. Internal audit of CSR CSR - PROFESSIONAL OPPORTUNITIES

Writing articles in CSR related magazines and other publications Participating as speaker in conferences Communicating with people related to CSR activities Building a CSR information website Writing books on topics covered under CSR Projecting oneself as a CSR Expert Reaching out to the prospective service receivers Using social media to reach more number of people related to CSR Increase expertise in the field of CSR by undertaking capacity building initiatives DEVELOPING WORK IN CSR

Social Audit Companies around the globe beginning to assess their social performance and report the results of those assessments as a means of demonstrating their commitment to social responsibility Social auditing is the process of assessing and reporting a business’s performance on fulfilling the economic, legal, ethical and philanthropic social responsibilities expected of it by its stakeholders Helps companies to assess performance of their social initiatives and take corrective action to maximize the social impact Focus on Human Rights, Labour Practices, Environment, Ethics, Consumer issues, community involvement and development

Integrated Reporting <IR> <IR> pioneered by International Integrated Reporting Council, London is a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding value creation Companies like Unilever, HSBC, Deutsche Bank, Hyundai, Microsoft, PepsiCo, National Australia Bank and Tata Steel are among over 100 businesses in the IIRC Pilot Programme Recognition of “Social and Relationship Capital” and “Natural Capital” Covers People, Planet, Profit, Governance and Strategic Management

"There's enough in the world to meet the needs of everyone but there's not enough to meet the greed of everyone". ……Mahatma Gandhi

Thank You-Be in Touch CA CS Minal Agarwal Agarwal_minal@yahoo.com +91-9818039002 www.camkagarwal.com www.professionaltimes.org

Corporate Social Responsibility