CSR – International Perspective and Indian Laws

1. CSR – International Perspective and Indian Laws For ICAI on 21st June, 2014

2. What is CSR? Corporate Social Responsibility or Corporate Sustainability and Responsibility ? Is it different in India or Globally? Indian Laws – Environment and Social is inclusive in CSR Globally – Environment is exclusive entity (some places) Another and presently only one to cite the claimed difference is Salt Communication – London (http://www.salt-communications.com/blog/2012/10/differences/)

3. Social VS Sustainability 1. Vision Corporate Social Responsibility (CSR) looks backwards, reporting on what a business has done, typically in the last 12 months, to make a contribution to society. Sustainability looks forward, planning the changes a business might make to secure its future (reducing waste, assuring supply chains, developing new markets, building its brand). 2. Targets CSR tends to target opinion formers – politicians, pressure groups, media. Sustainability targets the whole value chain – from suppliers to operations to partners to end-consumers. 3. Business CSR is becoming about compliance. Sustainability is about business. 4. Management CSRgets managed by communications teams. Sustainabilityby operations and marketing. 5. Reward CSR investment is rewarded by politicians. Sustainability investment is rewarded by the City (‘Finally, we provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance’). 6. Drive CSR is driven by the need to protect reputations in developed markets. Sustainability is driven by the need to create opportunities in emerging markets.

4. CSR Focus – Country wise

5. CSR – Across the Globe “Government and businesses have mutual responsibilities; and ... if we fulfil these obligations together, it benefits us all.” — President Barack Obama United States of America

6. Value-Driven approach to CSR. “CSR is presented as being part of the company’s culture, or as an expression of its core values.” Example: “Giving back is a bedrock value at PNC” (PNC, US) • Companies from USA follow code of CSR proactively and more efficiently. The Bureau of Economic and Business Affairs (EB) have initiated various departments to serve CSR purposes – • The Bureau of Democracy, Human Rights and Labour (DRL) offices of International Labor Affairs, Internet Freedom, and Business and Human Rights work with companies, civil society—including unions and NGOs—and governments to implement policies that respect human and labour rights and maximize positive contributions to global development. • The Office to Monitor and Combat Trafficking in Persons (TIP) – works to combat human trafficking and application of Luxor guidelines which ensures no forced labour and slavery. • The Bureau of Energy Resources (ENR) leads the State Department’s work ensuring diplomatic relationships advance U.S. interests in access to secure, reliable, and ever-cleaner sources of energy. • The Bureau of Oceans and International Environmental and Scientific Affairs (OES) advances U.S. policy goals in climate change, science and technology, health, water, environmental protection, biodiversity, oceans and polar issues, fisheries, and space policy. • The Bureau of International Narcotics and Law Enforcement Affairs (INL) promotes anticorruption internationally and supports CSR through fostering clean business practices, engaging the business community in anticorruption efforts, and promoting a level playing field • The Office of the Secretary of State’s Global AIDS Coordinator coordinates U.S. government efforts to combat HIV/AIDS, including through implementing partnerships that combine public and private sector resources to accomplish HIV/AIDS prevention, care, and treatment goals. Other departments: Office of Global Youth Issues (J/GYI), The Bureau of Education and Cultural Affairs (ECA), The Office of the Secretary of State’s Global Partnership Initiatives, The Office of the Secretary of State’s Global Women’s Issues (S/GWI). EB with Foreign Service Institute organized “Promoting a Comprehensive Approach to Corporate Social Responsibility.”https://www.youtube.com/watch?v=cOlzyv5abwE#t=10

7. CSR – Across the Globe Europe "Who wants to produce well in the future, should now produce environmentally friendly," a voluntary basis” ~ Chancellor Angela Merkel

8. Performance Driven Approach to CSR: CSR in Europe is more focused on sustainable methodologies and social investment rather than philanthropic donations. The European Union defines CSR as a system "whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” In January 2009, the Federal Ministry of Labour and Social Affairs set up the National CSR Forum comprised of 44 CSR experts from business, unions, nongovernmental organisations and the political sector. The National CSR Forum was tasked with supporting the German government during the development of the National CSR Strategy. The Federal Cabinet approved the National Strategy for Corporate Social Responsibility in the form of an "Action Plan for CSR" on October 2010. Anchor CSR more firmly in enterprises and public bodies; win over even more small and medium-sized enterprises (SMEs) for CSR; increase the visibility and credibility of CSR; optimise the political framework for CSR and make a contribution toward shaping the social and environmental dimensions of globalisation. On 13.10.2011 Angela Merkel announced a "German Sustainability Code", to insert it with the goal as the basis of assessment of the CSR performance of companies of all sizes in the capital and financial markets.

9. CSR – Across the Globe Russia “We need business to understand its social responsibility, that the main task and objective for a business is not to generate extra income and to become rich and transfer the money abroad, but to look and evaluate what a businessman has done for the country, for the people, on whose account he or she has become so rich.” ~ President Vladimir Putin

10. Government Driven CSR • It is the federal government that formulate CSR policy and the provincial & district governments are implied by their policies. • Most of the companies in Russia contribute & support state-budget projects as a kind of extra voluntary tax and perform their CSR activities. • It is only, The Russian Managers Association Corporate Responsibility Committee that works proactively to promote & define CSR in Russia. • There are 2 noted CSR centric documents which play a vital role in colouring CSR picture in the country: The one closest to the Official CSR policy is the “Ecological Doctrine of the Russian Federation” (2003).The Doctrine sets out recommendations on the conservation of the natural environment. “Corporate Social Responsibility in modern Russia: Theory and practice‟ (by the Federal Council 2005) which provides a review of basic CSR theory and use case studies to demonstrate good practice. • In the SMEs, CSR is practiced in the form of local voluntary philanthropic activity ascribing it as its social engagement.

11. Australia – Stakeholder Driven Approach Follows, ISO 26000. It says: “Social responsibility is the responsibility of an organisation for the impacts of its decisions and activities on society and the environment, through transparent and ethical behaviour that • contributes to sustainable development, including the health and the welfare of society • takes into account the expectations of stakeholders • is in compliance with applicable law and consistent with international norms of behaviour; and • is integrated throughout the organization and practised in its relationships.” • Australia is proactive on loves indices & reporting. It has set up the Age/ Sydney Morning Herald’s Good Reputation Index (GRI) followed with RepuTex’s Social Responsibility Rating an independent research company. These 2 companies rate top 100 Australian companies on the basis of corporate governance, market performance, management and ethics, employee relations, social and environmental impact. • Australia is yet to integrate CSR in its strategic or corporate approach to match the companies objective & goals. The Government of Australia after 2007, hasn’t yet taken much strong step to disseminate CSR across the corporate, and local societal bodies.

12. Indian Laws on CSR

13. Nuances of Indian Laws • The Bill states that GOI would follow a “comply or explain” rule. 2% CSR is mandatory for companies during any fiscal year with: (1)a net worth of rupees 500 crore(about U.S. $90 million) or more; or (2) a turnover of rupees 1,000 crore(about U.S. $180 million) or more; or (3) a net profit of rupees 5 crore(about U.S. $900,000) or more • If the company is unable to spend they have to explain to the government and on the failure of both a penalty between Rs. 50,000 to Rs. 25 Lakhs with an imprisonment of 3 years for the Director would be implied. • The Clause 135 of the Companies Bill, 2012 -CSR Clause requires companies to form a Corporate Social Responsibility Committee (“CSR committee”)within the board of directors that will devise and recommend CSR Policy, and monitor CSR activities, and the amounts spent on such activities, to the rest of the board. • The CSR committee must consist of three or more directors, at least one of which must be an “independent director” (defined in Clause 149(6) of the Companies Bill). The composition of the CSR committee must be disclosed in the annual board report.

14. CSR Committee Role The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee. (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) (c) monitor or ensure monitoring process of activities undertaken under the Corporate Social Responsibility Policy of the company from time to time. (d) Any surplus amount generated from the CSR activities shall not be invested in business.

15. Implementation of CSR The Board of every company referred to in sub-section (1) shall,— 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, and ensure that the activities are under taken. Implementation: 1) Trust/Section 8 company/ Registered NGO with track record of working on dedicated projects for 3 years 2) The modalities of fund utilization, social monitoring and reporting methodologies are clearly defined. 3) The company may collaborate with other companies to execute and implement the CSR projectssuch that the CSR Committees can report independently to its board.

16. Implementation of CSR • CSR activities for the employees may not be considered CSR. • Companies may develop their own strength to execute the project or engage agencies but their cost should be confined to 5% of the total budget. • Political Party contribution is not entitled to be CSR.

17. CSR for Foreign Companies and Pvt LTD • If any Foreign Companies/ MNCs has its branch/project office in India and is operational then they are bound by the CSR Laws of India if they fulfil the section 135 criteria. CSR Committee: CSR Committee for Pvt LTD companies:

18. Application Areas Schedule 7 of Section 135

19. Application Areas

20. CSR Communications • Board Report and Annual report on CSR containing particular specified in Annexure. • In case of foreign companies, the balance sheet filed under sub clause(b) of sub-section 1 of section381 containing Annexure regarding report on CSR. • Display of CSR Policy, activities, monitoring process, compliances, impact report on the website is mandatory.

21. Thank you For further details: Ms. Harsha Mukherjee Co-Founder and CEO CSR Advisors Email id: harsha@csradvisors.net