CSR,Companies Bill 2013

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The Four Phases of CSR Development in India

Thee hist Th histor ory y of CSR CSR in Indi Indiaa ha hass its its four four ph phas ases es whic which h ru run n pa para rall llel el to In Indi dia' a'ss hi hist stor oric ical al development and has resulted in different approaches towards CSR. However the phases are not static and the features of each phase may overlap other phases. The First Phase

In the first phase  charity   charity  and and  philanthropy   philanthropy  were the main drivers of CSR. Culture, religion, family fami ly values and tradition tradition and industrialization had industrialization had an influential effect on CSR. In the pre industrial indus trializati ization on period, period, which lasted till !"#$, wealthy wealthy merchants merchants shared a part of their wealth with the wider society %y way of setting up temples for a religious cause &citation needed . (oreover, these merchants helped the society in getting over phases of famine and epidemics %y providing citation food from their godowns and money and thus securing an integral position in the society. &citation needed 

 )ith the arrival of colonial rule in India from !"#$s onwards, the approach towards CSR

changed.. The industria changed industriall families families of the !*th century such as Tata,  +odre, +odre,  -aa,  -aa, (odi, (odi, -irla, -irla, Singhania were strongly inclined towards economic as well as social considerations. However it has %een o%served that their efforts towards social as well as industrial development were not only driven %y selfless and religious motives %ut also influenced %y caste groups and political o%ectives.&

The Second Phase

In the second phase, during the independence movement movement,, there was increased stress on Indian Industrialists to demonstrate their dedication towards the progress of the society. This was when (ahatma +andhi introduced +andhi introduced the notion of /trusteeship/, according to which the industry leaders had to manage their wealth so as to %enefit the common man. / I / I desire to end capitalism almost, if not quite, quite, as much as the most advanced advanced social socialis ist. t. But our methods methods differ. differ. My theory theory of trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other theories.// This theories. This was +andhi's +andhi's words words which which highli highlight ghtss his argument argument toward towardss his concept concept of /trusteeship/. +andhi's influence put pressure on various Industrialists to act towards %uilding

 

the nation and its socioeconomic development. &0 1ccording to +andhi, Indian companies were supposed to %e the /temples of modern India/. 2nder his influence %usinesses esta%lished trusts for schools and colleges and also helped in setting up training and scientific institutions. The operations of the trusts were largely in line with +andhi's reforms which sought to a%olish untoucha%ility, encourage empowerment of women and rural development. The Third Phase

Thee thir Th third d ph phas asee of CSR CSR 3!*4 3!*4$5" $5"$6 $6 had its its re rela lati tion on to th thee el elem ement ent of / mi7ed economy/, economy/, emerge eme rgence nce of 8u%lic Sector 2nderta9ings 38S2s6 2nderta9ings 38S2s6 and laws relating la%our and environmental standards. :uring this period the private sector was forced to ta9e a %ac9seat. &citation

needed 

  The

 pu%lic sector was seen as the prime mover of development. &citation needed  -ecause of the stringent legal leg al rules rules and regula regulatio tions ns surrou surroundi nding ng the activi activitie tiess of the privat privatee sector sector,, the period period was descri%ed as an /era of command and control/. The policy of industrial licensing, high ta7es and restrictions on the private sector led to corporate malpractices. &citation needed  This led to enactment of legislation regarding corporate governance, la%our and environmental issues. 8S2s were set up  %y the state to ensure suita%le distri%ution of resources 3wealth, food etc.6 to the needy. need y. However the pu%lic sector was effective only to a certain limited e7tent. This led to shift of e7pectation from fro m the pu%lic pu%lic to the privat privatee sector sector and their their active active involv involveme ement nt in the socio socioeco econom nomic ic citation on de deve velo lopm pment ent of the the count country ry %e %ecam camee a% a%so solu lute tely ly neces necessa sary ry.. &citati

needed  needed 

  In !* !*4# 4# In Indi dian an

academ aca demici icians ans,, politi politicia cians ns and %usine %usinessm ssmen en set up a nation national al wor9sh wor9shop op on CSR aimed aimed at reconciliation.&citation needed   They emphasized emphasized upon transparency, transparency, social accounta%ili accounta%ility ty and regular regular sta9eholder dialogues. In spite of such attempts the CSR failed to catch steam. The Fourth Phase

In the fourth phase 3!*"$ until the present6 Indian companies started a%andoning their traditional engagement with CSR and integrated it into a sustaina%le %usiness strategy. In !**$s the first initi initiati ation on toward towardss glo%alization  glo%alization  aan nd econom economic ic li%eralizat li%eralization ion   were were undert underta9en a9en.. Control Controlss and licensing system were partly done away with which gave a %oost to the economy the signs of which whi ch are very evident evident today. today. Increa Increased sed growth growth moment momentum um of the economy economy helped helped Indian Indian &citation citation need needed  ed 

companies grow rapidly and this made them more willing

  and a%le to contri%ute

 

towards social cause. +lo%alization has transformed India into an important destination in terms of product production ion and manufac manufactur turing ing %ases %ases of T;Cs T;Cs are concer concerned ned.. 1s )ester )estern n mar9et mar9etss are  %ecoming more and more concerned a%out and la%our and environmental standards in the developing countries, Indian companies who e7port and produce goods for the developed world need to pay a close attention to compliance with the international standards.

&#

Current State of CSR in India[edit India[edit]]

1 story of of CSR promoted %y 1zim 8remi <oundation in India

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1s discussed a%ove, CSR is not a new concept in India. =ver since their inception, corporates li9e the  Tata +roup, +roup, the  1ditya  1ditya -irla -irla +roup,and +roup,and  Indian >il Corporation, Corporation, to name a few, have  %een involved in serving the community. Through donations and charity events, many other organizations have %een doing their part for the society. The %asic o%ective of CSR in these days is to ma7imize the company's overall impact on the society and sta9eholders. CSR policies,  practices and programs are %eing comprehensively integrated %y an increasing num%er of companies throughout their %usiness operations and processes. 1 growing num%er of corporates feel that CSR is not ust another form of indirect e7pense %ut is important for protecting the goodwill and reputation, defending attac9s and increasing %usiness competitiveness. &4 Companies have specialised CSR teams that formulate policies, strategies and goals for their CSR programs and set aside %udgets to fund them. These programs are often determined %y social philosophy which have clear o%ectives and are well defined and are aligned with the mainsteeam %usiness. The programs are put into practice %y the employees who are crucial to this process. CSR programs ranges from community development to development in education, environment and healthcare etc.&? <or e7ample, a more comprehensive method of development is adopted %y some corporations such such as -harat 8etroleum Corporation @imited, @imited ,  (aruti Suzu9i India @imited @imited,, and  Hindustan   Hindustan  2nilever @imited. @imited. 8rovision of improved medical and sanitation facilities, sanitation facilities, %uilding schools and houses, and empowering the villagers and in process ma9ing them more selfreliant %y providing vocational vocati onal training training   an and d a 9n 9now owle ledge dge of %usin %usines esss op oper erat atio ions ns ar aree th thee fa faci cili liti ties es th that at th thes esee

 

corporations focus on.(any of the companies are helping other peoples %y providing them good standard of living. >n the other hand, the CSR programs programs of corporation corporationss li9e +la7oSmithAline 8harmaceuticalsB  8harmaceuticalsB  focus on the health aspect of the community. They set up health camps in tri%al villages which offer medical chec9ups and treatment and underta9e health awareness programs. Some of the nonprofit organizations which carry out health and education programs in %ac9ward areas are to a certain e7tent funded %y such corporations. 1lso Corporates increasingly oin hands with ;ongovernmental with  ;ongovernmental organizations organizations 3;+>s6  3;+>s6 and use their e7pertise in devising programs which address wider social pro%lems. <or e7ample, a lot of wor9 is %eing underta9en to re%uild the lives of the tsunami affected <oundation, an victims. This is e7clusively underta9en %y S18 India in India in partnership with Hope <oundation,  ;+> that focuses mainly on %ringing a%out improvement in the lives of the poor and needy . The S18 @a%s Center of H>8= in -angalore was started %y this venture which loo9s after the food, clothing, shelter and medical care of street children. CSR has gone through through many phases in India. India. The a%ility a%ility to ma9e a significant significant difference difference in the society and improve the overall uality of life has clearly %een proven %y the corporates. ;ot one  %ut all corporates should try and %ring a%out a change in the current social situation in India in order ord er to have an effect effective ive and lastin lasting g soluti solution on to the social social woes . 8artne 8artnersh rships ips %etween %etween companies, ;+>s and the government should %e facilitated so that a com%ination of their s9ills such as e7pertise, strategic thin9ing, manpower and money to initiate e7tensive social change will put the socioeconomic development of India on a fast trac9. &"

 Proposed Draft Corporate Social Responsibility Rules

 

under Section 1! of the Companies "ct# $%1 Guiding Principle

CSR is the process %y which an organization thin9s a%out and evolves its relationships with sta9eholders for the common good, and demonstrates its commitment in this regard %y adoption of appropriate %usiness processes and strategies. Thus CSR is not charity or mere donations. CSR is a way of conducting %usiness, %y which corporate entities visi%ly contri%ute to the social good. Socially responsi%le companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social o%ectives with the companyBs operations and growth. DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD DDDDDDDDDDDDDDDDDDD In e7ercise of the powers conferred under clause 3o6 and clause 36 of su%section  of Section !0 read with Section !# and su%sections 3!6 and 3E6 of section 04* of the Companies 1ct, E$! the Central +overnment here%y ma9es the following Rules namelyF P"RT I  Short title title and commenceme commencement nt

!. These rules may %e called ca lled the Corporate Social Responsi%ility Rules, E$!. E. They shall come into force on the date of their pu%lication in the official gazette and shall %e applica%le from the financial year E$!0!#. Definition&

. In these Rules, unless the conte7t otherwise reuiresF 3a6 G1ctB means Companies 1ct, E$! 3%6 GCorporate Social Responsi%ilityB means Corporate Social Responsi%ility 3CSR6 as defined in Section !# of the Companies 1ct E$! 3c6 G(inistryB means the (inistry of Corporate 1ffairs E

 

3d6 ‘Net Profit’ for the section !# and these rules shall mean, net profit before ta7 as per %oo9s of accounts and shall not include profits arising from %ranches outside India. 3e6 E CSR spending would %e computed as E of the average net profits made %y the company during every %loc9 of three years. <or the purpose of <irst CSR reporting the ;et 8rofit shall mean average of the annual net profit of the preceding three financi financial al years ending on or %efore ! (arch E$!0. 3f6 Reporting will %e done on an annual %asis commencing from <J E$!0!#.

3g6 Ta7 treatment of CSR spend will %e in accordance with the IT 1ct as may %e notified %y C-:T. 3h6 )ords and e7pressions used in these Rules and not defined herein %ut defined in the 1ct shall have the meaning respectively assigned to them in the 1ct.

P"RT II Operating Provisions of the Rules

!. CSR activities may generally %e conducted as proects or programmes 3either new or ongoing6 e7cluding activities underta9en in pursuance of the normal course of %usiness of a company. The CSR Committee constituted under sec. !#3!6, shall prepare the CSR 8olicy of the company which shall include the followingF a. specify the proects and programmes that are to %e underta9en.  %. prepare a list of CSR proectsKprogrammes which a company plans to underta9e during the im implem plement entati ation on year year , specif specifyi ying ng modali modalitie tiess of e7ecut e7ecution ion in the areasK areasKsec sector torss chosen chosen and implementation schedules for the same. c. CSR proectsKprogrammes of a company may also focus on integrating %usiness models with social and environmental priorities and processes in order to create shared value. d. CSR 8olicy of the company should provide that surplus arising out of the CSR activity will not %e part of %usiness profits of a company. 

 

e. CS !olicy would specify specify that the corpus would include the follow following" ing" a. #$ of the average net profits, %. any income arising therefrom c. surplus arising out of CS activities. E. The CSR Commit Committee tee,, shall shall prepar preparee a transp transpare arent nt monito monitorin ring g mechan mechanism ism for ensuri ensuring ng implementation of the proects K programmes K activities proposed to %e underta9en %y the company. . )here a company has set up an organization which is registered as a Trust or Section " Company Com pany,, or Society Society or <oundatio <oundation n or any other other form of entity entity operatin operating g wi with thin in In Indi dia a to facilitate implementation of its CSR activities in accordance with its stated CSR 8olicy, the following shall applyF a. The contri%uting company would need to specify the proectsKprogrammes to %e underta9en %y such an organization, for utilizing funds provided %y % y it  %. The contri%uting company shall esta%lish a monitoring mechanism to ensure that the allocation is spent for the intended purpose only

0. 1 company may also conductKimplement its CSR programmes through Trusts, Societies, or Section " companies operating in India, which are not set up %y the company itself.

#. Such spends may %e included as part of its prescri%ed CSR spend only if such organizations have an esta%lished trac9 record of at least three years in carrying on activities in related areas.

4. Compan Companies ies may colla% colla%ora orate te or pool pool resour resources ces with with other other compan companies ies to undert underta9e a9e CSR activities and any e7penditure incurred on such colla%orative efforts would ualify for computing the CSR spending. ?. >nly such CSR activities will %e ta9en into consideration as are underta9en within India. ". >nly activities which are not e7clusively for the %enefit of employees of the company or their family mem%ers shall %e considered as CSR activity.

 

Companies 'ill $%1& Corporate Social Responsibility (CSR) Corporate Social Responsibility (CSR)  is now accepted as a means to achieve sustaina%le

development of an organization. Hence, it needs to %e accepted as an organizational o%ective. The Compan Companies ies -ill, -ill, E$!E will ma9e ma9e Indian Indian compani companies es to consci conscious ously ly wor9 wor9 toward towardss that that o%ective, as it reuires a prescri%ed class of companies to spend a portion of their profits on CSR

activities.

-usinesses can no longer limit themselves to using resources to engage in activities that increase their profits. They have to %e socially responsi%le corporate citizens and also contri%ute to the soci social al go good od.. Corp Corpor orat atee Soci Social al Resp Respon onsi si%i %ili lity ty 3CSR 3CSR66 is a% a%ou outt in inte tegr grat atin ing g

ec econ onom omic ic,,

environmental and social o%ectives with a companyBs operations and growth. (any consider CSR philanthropy, %ut that is a limited definition. 1n organization can accomplish sustaina%le development if CSR %ecomes an integral part of its %usiness process.

CSR impacts almost every area of operationsF governance and ethics employee hiring, providing opportunity sta9eholders %enefit sharing and energy usage and environment protection. The Companies -ill, E$!E intends to inculcate the philosophy of CSR among Indian companies.

STIP*+"TI,-S ,F T./ C,0P"-I/S 'I++# $%1$ •

=very company with net worth of Rs #$$ crore or more, or turnover of Rs !,$$$ crore or more or a net profit of Rs # crore or more during any financial year to constitute a CSR Committee of the -oard consisting of three or more directors, of which at least one director shall %e an independent director.



The -oardBs report to disclose the composition of the CSR CS R Committee.



The main functions of the CSR Committee are toF !. <ormul <ormulate ate and recomm recommend end to the %oard, %oard, a CSR policy policy indica indicatin ting g the activity activity or activities to %e underta9en %y the company as specified in Schedule LII of the 1ct E. Recommend Recommend the amount to %e spent on these these activit activities ies and and

 

. (onitor (onitor the the company company's 's CSR policy policy perio periodic dicall ally. y.



1fter 1ft er the CSR Commit Committee tee ma9es ma9es it recomm recommenda endatio tions, ns, -oard -oard of the company company shall shall approve the CSR 8olicy and disclose contents of such policy in its report and also place it on the company's company's we%site. we%site. <urther, details details a%out the policy devel developed oped and implemente implemented d  %y the company on CSR initiatives during the year to %e included in the -oard's report every year.



-oard to ensure that the activities listed in the CSR 8olicy are underta9en %y the company.



-oard to ensure that at least E of average net profits of the company in the three immediately preceding financial years are spent in every financial year on such activity.



8reference 8refe rence to %e given to the local area and areas around the company operates for CSR spending. •

If a company fails to provide or spend such amount, -oard to specify reasons in its report for that failure.



Companies reuired to comply with CSR shall give additional Information %y way of notes to the Statement of 8rofit and @oss a%out the aggregate e7penditure on CSR activities.



Schedule LII of the Companies -ill E$!E prescri%es activities that may %e included %y companies in their CSR policiesF !. =radic =radicati ating ng e7trem e7tremee hunger hunger and pover poverty ty E. 8r 8rom omot otio ion n of edu educa cati tion on . 8romot 8romoting ing gender gender euali euality ty and empow empoweri ering ng women women 0. Reducing Reducing child child mortal mortality ity and and improvin improving g maternal maternal health health

 

#. Com Com%a %ati ting ng hu huma man n immu immuno node defi fici cien ency cy vi viru rus, s, ac acu uir ired ed immu immune ne de defi fici cien ency cy syndrome, malaria and other diseases 4. =nsuri =nsuring ng envir environm onment ental al sustain sustaina%i a%ilit lity y ?. =mploy =mploymen mentt enhancin enhancing g vocation vocational al s9ills s9ills ". Socia Sociall %usin %usines esss proec proects ts *. Contri%utio Contri%ution n to the 8rime 8rime (inister's (inister's ;ational ;ational Relief Relief <und <und or any other other fund set up  %y the Central +overnment or the State +overnments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tri%es, other %ac9ward classes, minorities and women and !$. >ther matters matters as may %e prescri%ed. prescri%ed. /ISTI-2 PR,3ISI,-S&

There

are

no

provisions

in

The

Companies

1ct,

!*#4

on

CSR.

Impact4Industry Response&

)ith CSR spending %ecoming mandatory for prescri%ed class of companies, there is %ound to %e increased engagement of companies with social and development proects. So far, there were only voluntary guidelines for companies to follow.



The rationale for CSR activity is that corporates earn their profit %y e7ploiting different resources of the society, and so a portion of the %enefit derived %y them should %e channeled for the %etterment of society.



Though compulsory CSR spending may seem %urdensome for some class of companies, it will create of a sense of responsi%ility among Corporates, especially when they see  %enefits in the long term.



Children, women, uneducated, and unemployed would %e among the %eneficiaries as CSR activities may %e focused on them.

 

Thee inte Th intent ntio ion n of polic policy y ma9er ma9erss is u uit itee cl clea earr  to re repo port rt %usin %usines esss co comm mmuni unity ty's 's



contri%ution for fulfillment of social, environmental and economic responsi%ilities. )hile contri%ution to the local community is a good o%ective, %usinesses should choose social, environmental and economic activities that contri%ute to society at large. CSR activities will also help improve the image of a company within the society as one that cares for the community.



Significantly, there is no penalty for defaulting on CSR norms. >nly an e7planation is to



 %e given %y the %oard in its report for such noncompliance. So, it seems there is no real coercive factor. •

The +overnment has adopted a /+andhi wad/ with the provision  either contri%ute to society or inform to society why you are not contri%uting.

/5istin6 CSR "ctivities of some companies7 Company

0a8or CSR Initiatives

-ame ITC +imited

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=mpl =m ploy oyees ees ta ta9e 9e up so soci cial al ca caus uses es li li9e 9e edu educa cati tion on,, ru rura rall re reha ha%i %ili lita tati tion on and inclusive growth. energy conservation, water sustaina%ility, afforestation, waste

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management, awareness on car%on footprint. -asic healthcare healthcare facil facilities ities,, suppo supporting rting government rural prim primary ary educat education ion

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treatment, tree plantation, treatment of hazardous waste6, relief and assistance in the event of a natural disaster, and miscellaneous activities such as contri%ution to other social development organizations.

 

/5pected contribution for CSR after the CSR provisions are enforced7 Prof Profit itss3of

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