Are businesses all about making profits or does contributing to social good fit into the picture? Do businesses actually understand the real value of CSR? Is CSR all about ‘building trust’? These are some of the questions Vineet Dubey probes as he contemplates the rise of CSR in India, against the backdrop of this fully-grown phenomenon in the West
Are businesses all about making profits or does contributing to social good fit into the picture? With Corporate Social Responsibility (CSR) being made mandatory, will students in the social service sector stand to gain?
Whatever stand is taken by the corporates, the new Companies Act 2013 urges them to actively take up social causes, by making Corporate Social Responsibility statutory.
Ringing in a paradigm shift – the new Companies Act 2013
Ringing in a paradigm shift is the new Act which stipulates that at least 2 per cent of average net profits in 3 immediately preceding financial years must be spent on CSR on an annual pattern.
This is applicable to companies with a net worth of Rs. 500 crore or turnover of Rs. 1,000 crore or net profit more than Rs. 5 crore in any financial year. They are also required by law to form a CSR Committee – to frame and implement a strategic policy.
If companies are to kickstart new or augment existing CSR activities seriously, career opportunities for those in the social sector are bound to open up, sooner than later.
Commenting on this historic CSR clause, the well-known educationist and philanthropist, Nita Ambani, highlighted the point that everyone needs to be taken along for society’s sustainable growth and welfare. “I think it is an important step and should be taken in a positive spirit…” she added, “because unless the society moves along taking everybody together, you cannot have a sustainable society.”
The corporate group that she is part of – Reliance Foundation is indeed, involved in extensive relief and rehabilitation work in natural calamity-hit areas of Uttarakhand. Through its activities focused on providing livelihood in the state, the plan is very extensive – to cover about 25,000 people (around 5,000 households).
Ministry of Corporate Affairs’ guidelines
A call for restraint was given by Corporate Affairs Minister Sachin Pilot, as India Inc gears up for a mandatory social welfare spending regime. 
To refrain from spending on profit-earning activities to meet these norms – was his advice to companies.
It would go against the “letter and spirit” of this new requirement, if this was perceived as yet another profit-earning motive. The whole purpose of this innovative legislation would be defeated if they view CSR spending as “profit making opportunities”. This was the point-of-view expressed by the Minister, though he was open to the idea of the companies enjoying some tax benefits from CSR spends. “I would be happy if companies are able to get some taxation benefits out of it. I don’t know what kind of structure it might evolve (into) and what might be the proposals that will come to the Finance Ministry,” he said.
However, the final decision of what constitutes CSR would be decided by the committee of the board constituted by the concerned company, the minister explained.
Having got the President’s nod, the new Companies Bill, is in the process of being notified into a law. Meanwhile, as they wait and watch for the new rules to be implemented, a number of firms have sought confirmation on whether spends on education, healthcare and other welfare-related ventures would qualify for the mandatory CSR spending.
‘Smiles’ not ‘Profits’
It should generate ‘smiles’ rather than profits. “CSR should be viewed as something that you are doing – whether through cash or kind, or man-hours, or anything else – to bring ‘smiles’ to people’s faces and not for your EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation),” Pilot pointed out.
While finer details would emerge after the specific rules for various clauses of the new Companies’ Bill are formulated, the CSR norms would be applicable to companies whose net worth or turnover or net profit falls into the guidelines laid out.
This new legislation requires companies to set up a board-level CSR Committee that has 3 or more directors, including at least 1 independent director.
The Minister left the final call to be taken by the CSR Committees, on the board of each of these companies. Let them disclose to the world that this is what we are doing as CSR, said Pilot. “If you are devastating the environment, not giving opportunities to communities in making profits, and then you give 2 per cent thinking that you are doing great benefit to the country and the economy, then it is not the right (way) to look at it,” he concluded.
British Companies to contribute to CSR work in India
British companies are expected to contribute as much as 100 million pounds per year for CSR work in India.
The research conducted by NextGen, one of India’s largest sustainability and CSR management company, working with Fortune-500 clients across 16 sectors, was hailed by Hugo Swire, Britain’s Minister of state for Foreign and Commonwealth Affairs, during his recent visit to Delhi.
“The Companies Act (2013) will have a profound impact on the CSR landscape, and I am delighted that British companies are working closely with Indian business and developing partnerships to help share UK expertise in this area,” Swire said.
“The wide range of work and initiatives already being undertaken emphasises that we are here as a long-term partner with India, working in support of India’s goals and objectives,” he added.
Swire hosted a roundtable, roping in some of Britain’s top businesses in India, including Rolls Royce, John Lewis Partnership, Standard Chartered, JCB, Pearson, BAE, HSBC, PwC, AoC, KPMG, British Airways and Rio Tinto, at the recently launched UK India Business Council’s (UKIBC) British Business Centre in Gurgaon. The objective was to analyse their inputs in various CSR initiatives in India.
The minister also oversaw the signing of a Memorandum of Understanding (MoU) between the UKIBC and Delhi British Business Group (BBG) as part of a broader partnership, to strengthen the support network available to British companies seeking to enter the Indian market.
“The MoU between the UKIBC and the British Business Group in Delhi will enhance collaboration between UKIBC and the BBG in order to provide British businesses looking to enter or expand into the Indian market with an even better support system,” said UKIBC Managing Director Richard McCallum.
Businesses into CSR & Sustainability – highest in India
CSR – definitely on the rise. A survey by Grant Thornton found that 68 per cent of businesses in India now issues CSR and Sustainability information (up from 32 per cent two years ago), either in the financial report or in separate reports, and that a clear majority believes it should be reported. The survey was part of the quarterly Grant Thornton International Business Report.
The Global CSR Index
Globally, the number of businesses reporting CSR and Sustainability is highest in India, followed by Vietnam and the Netherlands (64 per cent), the Philippines (60 per cent) and Mexico (52 per cent). In contrast, Estonia (6 per cent), Poland (12 per cent), New Zealand (16 per cent), Finland (18 per cent) and Australia (19 per cent) have lower levels of business reporting. Globally, 31 per cent of businesses is currently reporting CSR and Sustainability, up from 25 per cent two years ago.
Overall, 89 per cent of Indian businesses believe CSR and Sustainability should be integrated into financial reports — up from 39 per cent two years ago. Support for integration of business information into financial reports is strongest in India, followed by the Philippines (86 per cent), Peru (84 per cent) and Brazil (77 per cent). Support was weakest in Estonia (18 per cent), Sweden (19 per cent), Latvia (26 per cent), Lithuania (37 per cent) and Japan (38 per cent). Globally, 57 per cent of businesses believe CSR and Sustainability should be integrated into financial reports — up from 44 per cent two years ago.
An additional 36 per cent of Indian businesses think it will probably report CSR and Sustainability within the next five years, and another 7 per cent said it was possible. Countries with the greatest interest are Mexico (73 per cent), Turkey (71 per cent), Peru (69 per cent), Brazil (66 per cent), and the Philippines (61 per cent).
Only a small percentage of businesses in Sweden (2 per cent), Hong Kong (6 per cent), Italy (9 per cent), Norway and Germany (12 per cent) plan to report such information. Globally, an additional 12 per cent thinks it will probably report CSR and Sustainability, and another 14 per cent said it was possible.
Forbes India Philanthropy Awards
Recently, as many as 11 people, including members from the influential Nilekani, Bajaj and Godrej families, were honoured for their outstanding contribution towards the good of society at Forbes India Philanthropy Awards 2013.
Rohini Nilekani, founder of Arghyam, and Nandan Nilekani, Infosys co-founder who presently heads the Unique Identification Authority of India, won the second Forbes India Philanthropy Award in Outstanding Philanthropist category for the year 2013.
Tracing the background, the Philanthropy Awards were instituted by Forbes India to recognise and celebrate the efforts of individuals who have given time, money, skill and expertise “to solve some of the most pressing societal issues, to create model institutions and inspire others”.
On the government’s mandate of spending 2 per cent of profits on corporate social responsibility initiatives, Biocon CMD Kiran Mazumdar Shaw said it should be viewed by companies as an opportunity to make social impact.
Among other winners, Ramesh and Swati Ramanathan, founders, Janaagraha, won the Crossover Leader award that recognises a professional who has successfully made the transition from a thriving career in the corporate world to work for the social or not-for-profit sector.
Is CSR all about ‘building trust’?
Why do companies spend millions of dollars on Corporate Social Responsibility – investing in programs to support local communities, giving away products to support people in need, investing in clean technology to lower their environmental footprint, engaging in cause marketing and donating money from sales, engaging their employees in non-profit work? Precisely because taking on responsibility in society, builds trust with key stakeholders. And trust is what is needed to create support from these stakeholders in the reputation economy.
And CSR drives this trust. 42% of reputation is driven by perceptions of Citizenship, Governance, and Workplace – dimensions which fall into the CSR category. So, you can say CSR is the business driver. But, companies are not getting the return on investment (RoI) that they should.
Understanding the real value from CSR
Companies still do not fully understand the real value from CSR, and they need to be more open and transparent about their citizenship, governance and workplace activities. Smarter communication and reputation management are needed if they want to capitalize on their investments. Companies do not take on core issues, and that leaves the impression of “green washing”. But, companies need to raise the bar and make CSR a strategic driver of business to make it work.
Companies are mismanaging their CSR investments, and they do not apply the same rigor on these investments as they do on other core business priorities. They do not link it to their business strategy, but treat it like a separate initiative and investment. Companies need to reassess how to spend their money if they want to improve their return on investment. You do CSR as part of your reputation management strategy to drive business growth, customer loyalty, and employee alignment. Only a few companies get it right. But those who do, see the results.
CSR is a valuable component in building trust and support from stakeholders. But companies need to take this more seriously, if they don’t want to waste their shareholders’ money.
Source: Forbes
