Corporate Social Responsibility

Corporate Social Responsibility PraveerSuranaFCA, ACS Founder, Drashta CSR Consulting June 21, 2014

Agenda for this session Drashta CSR Consulting

Corporate Social Responsibility Drashta CSR Consulting

3P Approach Drashta CSR Consulting

Meaning • Commitment to its stakeholders to conduct business in an economically, socially and environmentally sustainable manner that is transparent and ethical • Way through which a company achieves a balance of economic, environmental and social imperatives • Concept of CSR goes beyond charity, sponsorships or philanthropy Drashta CSR Consulting

Social Importance • Licence to operate no longer given by Governments alone, but communities that are impacted by a company’s business operations • Bridging “Trust Deficit” • Nuclear Power Plants, major land acquisitions, mining, etc. • Communities as suppliers – Incorporate them in to supply chain • ITC • Communities as consumers – Consumers of products or services • Banks • Communities as suppliers of workforce • Software companies, call centres Drashta CSR Consulting

Economic Importance • Enhances corporate reputation leading to long-term economic benefits • Tata Motors – JLR • Bandhan • Improves top-line and bottom-line through engaging communities • ITC • P&G • Attracting and retaining talent • Hewitt & Associates study looked at 230 workplaces with more than 100,000 employees and found that the more a company actively pursues worthy environmental and social efforts, the more engaged its employees are • Companies with highly engaged employees have three times the operating margin (Towers and Watson) and four times the earnings per share (Gallup) of companies with low engagement Drashta CSR Consulting

Environmental Importance • Meeting the needs of the present without compromising the ability of future generations to meet their own needs • Coca-Cola India achieved a 'net zero balance' with respect to groundwater usage through rainwater harvesting projects, drip irrigation projects, rejuvenating traditional water bodies, etc. • Sustainability required for long term wealth-creation for shareholders • Carbon credits • Eco-friendly construction Drashta CSR Consulting

Evolved concept in developed economies Drashta CSR Consulting

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 Drashta CSR Consulting

Global standards and guidelines (1 of 2) • 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 Drashta CSR Consulting

Global standards and guidelines (2 of 2) • 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 Drashta CSR Consulting

Legal framework internationally Drashta CSR Consulting

CGS Survey, 2013 (1 of 3) • 240 companies participated in the Corporate Giving Standard (CGS) Survey conducted by CECP on 2012 contributions including 60 of the largest 100 companies in the FORTUNE 500 • Total contributions more than USD 20.3 billion (~ Rs. 1,22,000 crore) • Median spending ~ USD 20 million • 59% of companies gave more in 2012 than in 2007 (before recession) • Aggregate giving rose 42% from 2007 to 2012 • 81% of companies have corporate foundation generally funded by them annually Drashta CSR Consulting

CGS Survey, 2013 (2 of 3) Drashta CSR Consulting

CGS Survey, 2013 (3 of 3) Type and Priority of Contribution Drashta CSR Consulting

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 Drashta CSR Consulting

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 Drashta CSR Consulting

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 Drashta CSR Consulting

Initial focus on PSU to set example • “Guidelines on Corporate Social Responsibility for Central Public Sector Enterprises” issued by The Department of Public Enterprises (DPE) in April 2010 • Revised to “Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises” • With effect from April 1, 2013, budgetary allocation required by Central PSU for CSR and Sustainability activities/projects based on Profit after Tax (PAT) in the previous year • PAT in the previous year < Rs. 1000 million: 3% - 5% • PAT in the previous year >= Rs. 1000 million but < Rs. 5000 million: 2% - 3% • PAT in the previous year >= Rs. 5000 million: 1% - 2% Drashta CSR Consulting

National Voluntary Guidelines (NVG) • National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business issued in 2011 with objective of providing a distinctive India-centric approach for small and large Indian businesses to understand the nuances of responsible business • Consist of nine principles • Conduct and govern with ethics, transparency and accountability • Provide goods and services that are safe and contribute to sustainability • Promote the wellbeing of all employees • Respect the interests of, and be responsive toward all stakeholders, • Respect and promote human rights • Respect, protect, and make efforts to restore the environment • Influencing public and regulatory policy in a responsible manner • Support inclusive growth and equitable development • Provide value to customers and consumers in a responsible manner Drashta CSR Consulting

Business Responsibility Reporting (BRR) • SEBI mandated Business Responsibility Reporting ( BRR) based on compliance with NVG in 2012 for top 100 listed entities based on market capitalisation at BSE and NSE • Business Responsibility Reports to form part of Annual Report • Describing environmental, social and governance initiatives in the format suggested in Clause 55 of the equity Listing Agreement • Helps companies monitor, measure, manage and communicate change for sustainable growth • Based on ‘Apply or Explain’ Drashta CSR Consulting

Game changer: Clause 135 • Clause 135 of Companies Act, 2013 and rules framed there-under notified to become effective from April 1, 2014 • Applicable to all companies meeting any of the following financial criteria during any financial year: • Net profit >= Rs. 5 crore • Net worth >= Rs. 500 crore • Turnover >= Rs. 1,000 crore • Estimated to cover over 2,500 companies in India and generate over Rs. 12,000 crore spending in FY2014-15 Drashta CSR Consulting

What is to be done • Constitute a CSR Committee of the Board Drashta CSR Consulting

What CSR Committee needs to do • Formulate and recommend a CSR policy to the Board indicating the *activities as specified in Schedule VII of the Companies Act, 2013 • Recommend the amount of expenditure to be incurred on the activities indicated in the policy • Monitor the CSR policy regularly • Institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken • Issue a responsibility statement every year that implementation and monitoring is in compliance with CSR objectives and Policy Drashta CSR Consulting * Covered separately in this presentation

What Board needs to do • Approve the Corporate Social Responsibility Policy • Disclose the contents of such CSR Policy in its report • Place CSR Policy on the company's website, if any • Ensure that the activities as are included in Policy are undertaken • Ensure that the company spends, in every financial year, >= 2% of the average net profits made during the three immediately preceding financial years, in India in pursuance of its CSR Policy. • If such amount not spent, specify the reasons thereof in its report • Include Annual Report on CSR in the *prescribed manner in its report and publish it on the Company’s website Drashta CSR Consulting * Covered separately in this presentation

What if If the Committee or Board fails in its duties: • Company punishable with fine >= Rs. 50,000 but <=Rs. 25,00,000 • Every officer in default punishable with imprisonment for <= 3 years and/or fine >= Rs. 50,000 but <=Rs. 5,00,000 If the Company subsequently fails to meet financial criteria: • Requirement and compliance under the CSR provision will cease to be applicable to a company which for the three consecutive years falls outside the purview of the threshold requirement of annual turnover or net worth or net profit Drashta CSR Consulting

CSR Policy to include Drashta CSR Consulting

Activities covered in Sch. VII (1 of 2) • Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water • Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently-abled and livelihood enhancement projects • Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backwards groups • Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro-forestry, conservation of natural resources and maintaining quality of soil, air and water • Rural development projects Drashta CSR Consulting

Activities covered in Sch. VII (2 of 2) • Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts • Measures for the benefit of armed forces veterans, war widows and their dependents • Training to promote rural sports, nationally recognised sports, Paralympic sports and Olympic sports • Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women • Contributions or fund provided to technology incubators located within academic institutions which are approved by the Central Government Drashta CSR Consulting

Modalities of carrying out CSR activities • CSR activities shall be undertaken as per stated CSR Policy, as projects or programs or activities, either new or ongoing • Activities in pursuance of normal course of business not covered • Preference to the local area and areas around it where it operates • Activities exclusively for employees/their families not covered • Companies may build CSR capacities of their own personnel as well as those of their Implementing agencies through Institutions with established track record of >= 3 financial years but such expenditure shall be <= 5% of total CSR expenditure in one financial year • Contribution directly or indirectly to any political party shall not be considered as CSR activity Drashta CSR Consulting

Execution alternatives Drashta CSR Consulting

Content of Annual Report on CSR • Brief outline of the CSR policy including overview of projects with a reference to the web-link to the CSR policy and projects • Composition of the CSR Committee • Average net profit of the company for last three financial years • Prescribed CSR expenditure (2% of Average net profit as above) • Total amount to be spent for the financial year • Amount unspent , if any • Activity-wise details of the amount spent during the financial year • Sector / Location / Budget / Direct expenditure / Overheads / Cumulative expenditure / Breakup of amount spent directly and through implementation agency • If the prescribed CSR expenditure not fully spent, provide reasons • Responsibility statement of the CSR Committee that the implementation and monitoring is in compliance with CSR objectives and Policy Drashta CSR Consulting

Perplexed... • Expansion of scope by CSR Rules to include foreign companies • Profit Before Tax • Absence of reference point to permit expansion of Schedule VII • No clarity on tax treatment for undertaking CSR activities • Regulatory fault-line between foreign contribution and CSR regime Drashta CSR Consulting

Incomplete without each other... • Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises issued by the DPE in April 2013: “Since corporate social responsibility and sustainability are so closely entwined, it can be said that corporate social responsibility and sustainability is a company’s commitment to its stakeholders to conduct business in an economically, socially and environmentally sustainable manner that is transparent and ethical.” • Ethical conduct a must for true implementation of CSR Drashta CSR Consulting

Ethics form the core of CSR • National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business issued in 2011 with objective of providing a distinctive India-centric approach for small and large Indian businesses to understand the nuances of responsible business: “Principle 1: Businesses should conduct and govern themselves with Ethics , Transparency and Accountability” Drashta CSR Consulting

Relationship recognized worldwide • OECD CSR Policy Tool: Fair operating practices • UNGC: Work against corruption in all forms • Global Compact Self-Assessment Tool: Anti-corruption included in Management Section Drashta CSR Consulting

Amount spent by Central PSU (Rs.crore) Source: LokSabhaUnstarred Question No. 2881 dated March 14, 2013 Drashta CSR Consulting

Notable work by Companies (1 of 3) • Ashok Leyland • Operates a FunBus in Chennai and New Delhi. This bus, equipped with a hydraulic lift, takes differently abled children and those from orphanages and corporation primary schools on a day’s picnic. The company also runs AIDS awareness and prevention programmes in its Hosur factories for about 3.5 lakh drivers • Axis Bank • The Axis Bank Foundation runs Balwadis which are learning places for children living in large urban slum clusters. It also conducts skill development programmes (PREMA and YuvaParivartan) in motor driving, welding, mobile repairing, tailoring etc, for the youth in backward districts • Bharat Petroleum Corporation • Its rain water harvesting project Boond, in association with the Oil Industries Development Board, selects draught-stricken villages to turn them from “water-scarce” to “water-positive”. Other social programmes include adoption of villages, prevention and care for HIV/AIDS and rural health care • Hindalco Industries • Its CSR activities are concentrated in 692 villages and 12 urban slums, where it reaches out to about 26 lakh people. It has constructed check dams, ponds and bore wells to provide safe drinking water. In education, it awards scholarships to students from the rural schools it support. Its other interests include women empowerment and health care, in which it treats patients in hospitals, runs medical camps and operates rural mobile medical van services Source: LokSabha Members’ Reference Note No. 11 /RN/Ref./2013 Drashta CSR Consulting

Notable work by Companies (2 of 3) • Indian Oil Corporation • It runs the Indian Oil Foundation (IOF), a non-profit trust, which works for the preservation and promotion of the country’s heritage. IOCL also offers 150 sports scholarships every year to promising youngsters. Other initiatives lie in the domains of clean drinking water, education and health care • Infosys • The Infosys Science Foundation, set up in 2009, gives away the annual Infosys Prize to honour outstanding achievements in the fields of science and engineering. The company supports causes in health care, culture and rural development. 100 school teachers in Karnataka, who were suffering from arthritis, underwent free surgery as a part of a week-long programme • Mahindra & Mahindra • Nanhi Kali, a programme run by the KC Mahindra Education Trust, supports education of over 75,000 underprivileged girls. The trust has awarded grants and scholarships to 83,245 students so far. In vocational training, the Mahindra Pride School provides livelihood training to youth from socially and economically disadvantaged communities. M&M also works for causes related to environment, health care, sports and culture Source: LokSabha Members’ Reference Note No. 11 /RN/Ref./2013 Drashta CSR Consulting

Notable work by Companies (3 of 3) • Oil & Natural Gas Corporation • It offers community-based health care services in rural areas through 30 Mobile Medicare Units (MMUs). The ONGC-Eastern Swamp Deer Conservation Project works to protect the rare species of Easter Swamp Deer at the Kaziranga National Park in Assam. ONGC also supports education and women empowerment • Tata Consultancy Services • Its Computer Based Functional Literacy (CBFL) initiative for providing adult literacy has already benefitted 1.2 lakh people. The programme is available in nine Indian languages. Besides adult education, TCS also works in the areas of skill development, health care and agriculture • Tata Steel • It comes out with the Human Development Index (HDI), a composite index of health, education and income levels, to assess the impact of its work in rural areas. Health care is one of its main concerns. The Tata Steel Rural Development Society aims to improve agricultural productivity and raise farmers’ standard of living Source: LokSabha Members’ Reference Note No. 11 /RN/Ref./2013 Drashta CSR Consulting

Big change to come now • Design • Deliver • Disclose Drashta CSR Consulting

Role of CA in CSR - Regulatory • Assisting on the applicability of CSR provisions • Review of CSR policy from tax and regulatory perspective • Analyzing CSR expenditure from tax perspective and evaluating alternative options to maximize the tax benefit • Providing different modalities of carrying out CSR activities and providing pro and cons of each options from tax and regulatory perspective • Assisting in setting up of not-for-profit entity and obtaining necessary approvals • Day-to-day tax and regulatory advisory and compliance services from CSR perspective • Certification of CSR expenditure Drashta CSR Consulting

Role of CA in CSR - Advisory • Review of the CSR activities • Identification of the sectors and the envisaged focus areas and assisting to strategize for CSR policy • Assisting in development of CSR Policy • Assisting in preparation of investment, scaling up and replication plans • Assisting in analyzing Social Return on Investment (SROI) • Due diligence of implementation partners • Assisting in setting up internal controls, monitoring and evaluation systems to implement, assess, document and report the impact of CSR activities • Social Audit • Integrated Reporting <IR> Drashta CSR Consulting

Questions and feedback Drashta CSR Consulting

Thank you PraveerSurana, FCA, ACS Founder, Drashta CSR Consulting (M) 9004363999 (E) praveersurana@gmail.com Drashta CSR Consulting

Corporate Social Responsibility