CSR: Help Others, Not Yourself

Hindustan Unilever (HUL) spends a lot of resources in rural India educating villagers about the need for good hygiene practices. Taken at face value, this is one of the projects that qualify as Corporate Social Responsibility (CSR) activity.

But the CSR rules of the Companies Act 2013 will not allow HUL to treat such community outreach activities as CSR. It will be treated as an activity undertaken in the normal course of business. That’s because, HUL will derive direct benefit from this activity – demand for its toiletries and detergents will grow among the targeted communities. The Indian subsidiary of the Anglo-Dutch FMCG major will have to book all such expenses as business promotion expenditure.

Its Project Shakti, a programme that combines social responsibility, sustainability and business strategy, too will not qualify as a CSR activity, even in part, because CSR rules do not allow shared value propositions.

Like HUL, many India companies across industries have activities that combine sustainability with business strategy – and none of them can treat a part of the spending on such activities as CSR expense. Companies have another little bother to deal with – CSR activities carried out by a department within the company will not qualify as CSR activity under the Companies Act.

This is because the Rules accompanying the Companies Act, 2013 say that CSR activities must be undertaken by a separate entity – it could be trust, a society or another company set up specifically for the purpose. It is not necessary that these trusts, societies and companies should be set up by the company on its own – companies can work with an existing independent one that has a three-year track record for carrying out such activities. Companies can also collaborate with other companies for a joint CSR programme – provided each can identify and report separately their part of the joint activity and what was achieved.

Effectively, the new Act and its Rules make it necessary for companies to spin off CSR activities that are currently carried out internally into a separate entity registered as a trust or a society or a not for profit company.
What qualifies as CSR activity
The Companies Act lists out all 10 sets of activities that qualify as CSR activities. Most of the listed activities are not foreign to companies – much of their work in CSR is among the 10 specified. For instance, contribution to environmental sustainability is an activity many big Indian companies showcase. Others are known to work in the areas of education, particularly female literacy.

Besides these, projects identified in the Rules include eradicating hunger and poverty, promoting education and employment enhancing vocational skills, protection of national heritage, art and culture and contributing to the Prime Minister’s National Relief Funds. Promoting gender equality, empowering women, rural development, funding or contributing to technology incubators within approved academic institutions and promoting all kinds of sports also qualify as CSR activity.

While this is a longer list than the one originally written into the Act that went through Parliament, companies need not limit themselves to the ones listed – though there is a little confusion on that due to the wording of the Act.

What is clearly not CSR
Any contribution directly or indirectly to political parties will not be counted as CSR expenditure – it will be treated as political funding. Any activity or project that benefits only the employees of a company and their families too will not count as CSR. The first condition is a welcome step as it lowers, although it may not eliminate, opportunities for politicians to arm twist companies to support specific projects where they have a vested interest. The second condition may prove restrictive in new areas of development where at least one member of a family is employed by the company – if the employment was part of a compensation settlement with a village for land acquired or leased from farmers.

Who needs to have a CSR policy
It is mandatory for any company operating in India, including branches and project offices of foreign companies as well as unlisted Indian companies, with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more in any financial year to have a CSR policy. Its CSR policy is to be decided by a committee of the board, which will also identify projects and monitor their implementation. In doing so, companies have to give preference to local areas and areas where its business operates. While there is nothing wrong with that stipulation, there could be a concentration of CSR projects in certain pockets such as industrial belts and clusters, special economic zones and some towns and cities, while many areas that require a lot of intervention may get ignored.

All these companies are required to set aside two per cent of their average net profit of the preceding three years for CSR activities and ensure that they spend that money. Any failure to spend the funds has to be adequately explained by the board in its report. There is as yet no penalty for failure to spend or for falling short of target. The government is relying on peer pressure and companies’ own need to be seen as caring to ensure the spending happens.

Areas of concern
Many see the mandatory spending as an additional tax of two per cent on corporate profits, as the Income Tax Act does not yet allow the spending as a deduction from profit. If the CSR expenditure is a deduction, net profit will be lower and so would be the income tax that companies pay on their net earnings. It remains to be seen if the new government formed after May 16 will amend the Income Tax Act to allow that deduction.

Another area of concern is for branches and project offices of foreign companies. CSR spending could run into Foreign Contribution Regulation Act (FCRA) and Foreign Exchange Management Act (FEMA) red-tape. Under FCRA rules, NGOs receiving contributions from foreign entities – branches and project offices are not Indian companies – need to get approvals from the home ministry. Under FEMA, branch offices and project offices can take up eight kinds of activities and CSR is not among them. FDI is not allowed in companies set up as not for profit. But income generated from FDI is also treated as FDI and therefore any contribution from profits to CSR activities could be viewed as routing FDI into CSR.

Foreign banks face another set of problem. A Reserve Bank of India circular of 2005 allows foreign banks to contribute up to one per cent of their profit of the previous year to non-profits and charity. The question remains whether these banks should comply with the RBI circular or the Companies Act.

Sharing responsibility
India is the first country to legislate mandatory CSR spending for companies. But India is not the first to go down that path. Denmark and the United Kingdom issued directives in 2002 and 2006, respectively, asking companies to spend on sustainable development. India may have merely followed them.

Indian companies may grudgingly follow the government directive, but the world is watching India’s attempt to share what is widely seen as perceived as state responsibility with the private sector and possibly replicate India’s experience. For India companies, it is also an opportunity to deploy their organizational and managerial capacity to play a significant role in activities where government has failed to deliver. Dividends would follow in terms of a healthier nation, a better educated and trained work force, larger markets for its goods and services and more importantly, in building of a caring corporate brand.

[By Tina Edwin]

(This article first appeared in Business Today)

(Source: http://businesstoday.intoday.in/story/csr-help-others-not-yourself/1/205918.html)

Exclude Tobacco companies from CSR

Cigarette, beedi and kattha manufacturers should be kept out of the corporate social responsibility (CSR) initiatives, as it would help them promote their brands and earn good will, they should instead be asked to pay their CSR contributions directly to state and central governments for welfare schemes, a PIL filed in Madras high court has said.

The PIL, filed by S Cyril Alexander, state convenor of Tamil Nadu People’s Forum for Tobacco Control (TNPFTC), pointed out that as the CSR scheme which took effect from April 1, companies are mandated to spend 5% of their profit after tax (PAT) on various welfare, development and relief activities. In the bargain, they are allowed to use their brand names and company logo, which is an opportunity to promote their brand name and create a good will.

While welcoming the legal obligation companies had been put under the CSR regime, the PIL said: “Allowing the tobacco industry to take part in CSR scheme would result only in promotion of their brand names, and would totally run counter to the very purpose and object behind the introduction of CSR scheme. In turn, it would only push up the expenditure incurred by the public exchequer towards health, environment and social welfare.”

Cyril said regular CSR norms should not cover tobacco industry, as promoting tobacco goods under CCR schemes would harm public health and well-being. Narrating the deaths and disabilities caused by tobacco products, which result in heart attacks, strokes, cancer and other diseases, the PIL said that in India about 1 million people die of tobacco use every year. Noting that there are 275 tobacco users in the country, he said, “if this present trend continues, tobacco alone will account for 13% of all deaths in India by 2020.”

Calling for excluding the tobacco industry from the CSR regime, the PIL said they should instead pay the amount to state and central governments which would spend the funds on meeting the medical expenses of people affected by tobacco products, and for furthering the National Tobacco Control Programme (NTCP) initiatives.

On Monday, the first bench comprising Acting Chief Justice Satish K Agnihotri and Justice M M Sundresh issued notice to the authorities, returnable in two weeks.

[THE TIMES OF INDIA]

CSR As An Anti-Poverty Instrument

In 2000, the United Nations made the historic announcement of eight Millennium Development Goals (MDGs). They were very specific and had a timeline of 15 years for delivery. Progress on most of these objectives has been encouraging, but as we look towards the next round of development goals, we must recognise how the world has changed since 2000.
The global financial crisis had a devastating impact on both individuals and the public sector. Conversely, the rise of the BRIC economies and Africa’s emergence mean that aid is simply not needed on the same scale as it was before.

Therefore, we in the emerging economies need to reconsider not only the substance of the new development framework, but also the implementation process. In the original MDGs, the private sector was noticeable mostly by its absence. This time, we must step up as part of the solution and pioneer new approaches that could hold the key to a more innovative and inclusive way to deliver development.

Take, for example, India. While its economy has expanded impressively over the past decade and half, so has income inequality. Improvements on social indicators such as malnutrition and hunger have not kept pace with its growing prosperity, primarily because public spending to tackle these challenges was simply inadequate.
CSR – a game changer
But now the Indian government has introduced the first step of a potential gamechanger, and we in Africa have taken note. A new law enacted this month makes it mandatory for private corporations to invest at least 2 per cent of their profits in corporate social responsibility (CSR). The private sector in India now has a unique opportunity to respond to the collective aspirations of an entire country and accelerate action towards achieving the MDGs on hunger, health and sustainability. We applaud India for this.

My own group of companies also contributes 2 per cent of pre-tax profits to social development. Yet we go beyond this, and seek to create social impact through all the businesses we operate. While the Indian government now requires Indian companies to contribute towards social development, I challenge the Indian private sector to go further. Take up the challenge and strive to balance economic prosperity and social wealth which helps ultimately to create more gainful jobs and all inclusive nation.

In framing the new development agenda, the private sector must focus on tackling unemployment and job creation on a massive scale, and on dramatically improving access to electricity. These goals are critical to both lives and quality of life, and cannot be accomplished without collaboration with the private sector.

Development framework
For example, much of the mandated and voluntary private sector investments could go into creating many of the 100 million new jobs India will need over the next decade.

Lack of access to electricity is also a major challenge that will prevent us from eradicating poverty. Millions of mothers are giving birth in the dark, life-saving vaccine deliveries are challenged by lack of power to support their cold chains, and 90 million children go to school without electricity.

If we agree that access to electricity and improved livelihoods are vital components for the success of the post-2015 development agenda, then the private sector must have a key role to play in its design and implementation.

For governments, achieving the goals of the post-2015 development framework will mean enacting reforms and creating new policies to build more competitive business environments. We in the private sector must act with integrity, making sure that markets drive development, not oppose it.

We must focus on creating and multiplying value in the societies in which we source, supply and operate, and integrate this into our corporate governance, our operations, our project development and our profit calculation, across the value chain.

To truly combat poverty, we must combine the best qualities of all sectors: the political will, resources, and convening power of governments; the compassion, selflessness and dedication of non-profits; the innovation, expertise, and financial capital of the private sector; and the drive, creativity and entrepreneurial spirit of the people we seek to help. Only then can we hope to take on the challenges of the post-2015 development agenda.

[The writer is chairman of the Heirs Holdings group, Lagos][Courtesy: csrtimes.com]

Indian cos may go dutch to meet CSR norms, maximise impact of social joint ventures

Companies in India, particularly mid sized and small ones, may go dutch to meet corporate social responsibility (CSR) norms under the new corporate law, a move that can help them cut down on common costs and maximize impact of the money they spend on philanthropy.

India has become the first country in the world to make it mandatory from this month for firms with a net worth of over Rs 500 crore or yearly sales of Rs1,000 crore plus or those booking net profit in excess of Rs 5 crore to allocate at least 2% of their profits to social responsibilities. State-run Rural Electrification Corporation has decided to contribute about Rs2 crore to a literacy project which was already receiving funds from the largest public sector natural gas company GAIL (India).

More such arrangements of resource pooling between firms with shared philanthropic ambitions are being thrashed out in what could well become a trend. "REC's decision to back non-governmental organisation Aroh Foundation's Padho Aur Badho, a government-led right to education initiative which had received about Rs5 crore from GAIL, came after it approached Indian Institute of Corporate Affairs (IICA), an arm of the Ministry of Corporate Affairs, which in turn identified that the PSU's social vision matches that of GAIL and advised it to join the ongoing project," said a consultant with direct knowledge of the matter.

NGOs, development sector consultants and the government are all betting big on the future of such social joint ventures. For instance, Samabhavana Society, a home-grown not-for profit group which works with 'difficult communities' such as male sex workers is rolling out this month its prototype portal where it will showcase work of different grass-roots level NGOs with marginalised population and exhort various corporate groups to invest their CSR funds in their area of interest.

"We are already sifting through the track record of the work NGOs have done with different communities in last three years. This would be classified into different categories and hosted on the cloud for the companies to review where we can help channelise their funds into groundlevel work," said Jasmir Thakur, founder of Samabhavana Society. It will generate periodic reports of progress and build plan to use social media platforms to display the kind of results such collaborative pieces of work are generating.

"That the government is bullish about the prospect of such groupings going is apparent from the fact that we have specially set up a dedicated cell under National Foundation for CSR (NFCSR), an arm of IICA to facilitate more such alignments between companies," said Nikhil Pant, chief programme executive of NFCSR. The government is focusing on helping 1,400 top listed firms to comply with the norms and this trend may gather more steam as the focus shifts to smaller firms, he added. While spelling out nuanced rules for the CSR obligations earlier this year, the corporate affairs ministry made an explicit mention of such possibilities.

"A company may also collaborate with other companies for undertaking projects or programmes or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects," says the new corporate law. The logic behind such team-ups is compelling. "Of the 16,400 odd companies in the CSR net this year, almost 14,000 companies would need to make small contributions of less than Rs1 crore.

Individually, they may not achieve much but splitting the bills can help them rationalise administrative, back office and other common spends and attain economies of scale and make a meaningful difference," said Linn Dorin, chief principal of Global Finance Strategies (GFS), an international development consultancy which advises donors, governments and NGOs in areas of finance, administration and operations. GFS, which entered India this year, is in hectic talks with multiple companies and is working out such cause led groupings.

[courtesy: Shubham Batra, YASHODHARA DASGUPTA & Soma Das, ET Bureau ]