Thursday, 20 June 2013

India’s Corporate Social Responsibility Bill 2012

- by Sara Khan

Corporate Social Responsibility & Your Brand

University of Cape Town Professor, Ralph Hamann argues that complex social and environmental problems can be addressed if businesses start taking into consideration the impact and sociological context of their various decisions and strategies (African Business Review). Sometimes, a deed performed in the name of Corporate Sustainable Responsibility can directly be related to the nature and brand of the company. There are a lot of environmental and social threats to businesses, today. These threats will continue to grow if steps in the right direction are not taken. At the end of the day, practicing Corporate Social Responsibility will benefit the company itself, if aligned to its goals and mission. Moreover, consumers today understand and value the importance of sustainability and the merits of good governance. 

A study carried out by CSRHub (an organization that provides corporate social responsibility and sustainability ratings for companies), shows that correlation more than doubled in strength between CSR and Brand Strength from 2011. 1000 companies were analyzed for 2012, and the correlation data suggests that 28% percent of Brand Strength is related to CSR Performance (Triplepundit). This is because consumers many times value a company based on the activities it carries out, outside its business’ realm. 

According to the 2013 Cone Communications/Echo Global CSR Study shows that 67% consumers in India are “very likely” to switch brands in favour of those that support a cause. Also, 94% Indian consumers say they would tell their friends and family about a company’s CSR efforts, thus increasing their presence and recognition as a brand. Citizens in emerging markets, such as India embrace CSR enthusiastically and are associating themselves with companies that address social and environmental issues (Holmes Report).

The Companies Bill 2012

In an effort to encourage socially responsible companies, the Companies Bill 2012 has included a CSR annual spending requirement, among many other requirements. The Bill was passed by the Lok Sabha on the December 18, 2012 and is now being considered in the Rajya Sabha. Support for the bill is strong and it is predicted to be passed in the Rajya Sabha by July 2013 (though many believe it may be delayed). The CSR spending requirement would apply to companies registered in India with a net worth in excess of Rs 500 Crore, a turnover of Rs 1,000 Crore or more per year or a net profit of Rs 5 crore or more per year. These companies will be required to spend at least 2% of their entire net profits on CSR activities. They are expected to form a CSR Committee and recommend and monitor a CSR Policy or Initiative. Extensive documentation will be required by those who do not engage in CSR spending. If this Bill passes, India would be the second Asian Country (first, being Indonesia) to impose such a requirement. This portrays a general trend of enhancing domestic laws to promote better corporate practices in the global market.

The Companies Bill 2012, focuses on a lot of areas that Pratham works in:
  • Promoting of Education
  • Eradicating poverty & hunger
  • Employment enhancing vocational skills
  • Social business projects
  • Socio-economic development of Schedules Castes, the Scheduled Tribes, other backward classes, minorities and women

The Mood around the Mandate (Source: Article in Business Standard) 

Sanjay Singh, vice president of public affairs, Tata Group, says that he is happy with the bill and says the government and corporations seem to be at par in regards to CSR. Anirban Roy of SEED (Society for Economic Welfare and Economic Development) says that such a law will ensure that companies can do “good” without fearing anyone.If Warren Buffet and Bill Gates could do it, why can't our industrialists also come together”, Roy asks.  He goes on to say that a lot of these bigger corporations and banks have their own foundations and often carry out philanthropic or CSR activities through them. But smaller and mid-sized companies need the assistance and guidance of NGOs to effectively carry out their CSR activities. Avijit Kumar, the head of Grant-making at CAF India, insists that whether companies set up foundations or not, to achieve this mandate, NGOs will remain the main vehicle for driving community work. NGOs are the “doers” (as he calls them) and their prospects look good.

Unlike his counterparts, Mathew Cherian, the chief executive of Helpage India is not as optimistic. He says that money spent on NGOs by companies does not inspire much hope so far. Based on the CAF findings, it may not go beyond Rs 6,000 cr. which he calls a “pittance”.  Amita Joseph, Treasurer of Business and Community Foundation (a consultancy that helps out companies with CSR activities) too says that the mandate of 2% percent of profits seems too small. Mr Cherian also sees the problem of companies giving these funds to foundations of other companies. NGOs barely figure in the arrangement then.  Amita Joseph insists that companies should to carry out their CSR activities through the 2.5 million Non Governmental Organizations as well as various academic and social institutions.

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