CORPORATE SOCIAL RESPONSIBILITY THE NEW GAME CHANGER

Dr. Bhaskar Chatterjee DG&CEO Indian Institute of Corporate Affairs

Highlights of provisions of the Companies Bill Relating to CSR

SECTION 135
1) Every company having a net worth of rupees five hundred crore or more (100 million $ or more),or a turnover of rupees one thousand crore or more (200 million $ or more) , or a net profit of rupees five crore or more (1 million $ or more) during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director; 2) The Board's report shall disclose the composition of the Corporate Social Responsibility Committee. 2

SECTION 135 {CONTD.}

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; incurred on the activities referred to in clause (a); and

b. recommend the amount of expenditure to be

c.

monitor the Corporate Social Responsibility Policy of the company from time to time.
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SECTION 135 {CONTD.}

4) The Board of every company referred to in sub-section (1) shall,
a) After taking into account the recommendations

made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose the contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and
b) ensure that the activities as are included in

Corporate Social Responsibility Policy of the company are undertaken by the company.

SECTION 135 {CONTD.}

5) The Board of every company referred to in sub-

section (1), shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy.

SECTION 135 {CONTD.}

Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities; Provided that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
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SCHEDULE VII

SCHEDULE VII {CONTD.}

Under Clause (o) of Sub-Section (3) of Section 134

There shall be attached to statements laid before a company in a general meeting, a report by its Board of Directors, which shall include: (o) The details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.
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Sub Section (8) of Section 134

If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees, or with both.
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Section 450
If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restrictions subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.
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Notified Rules on MCA Website

Guiding Principle CSR is the process by which an organization thinks about and evolves its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies;

CSR is not charity or mere donations;

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Notified Rules on MCA Website..{CONTD.}

Guiding Principle CSR is a way of conducting business, by which corporate entities visibly contributing to the social good;

Socially responsible 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 objectives with the companys operations and growth. 13

Notified Rules on MCA Website.{CONTD.}

1. Companies activities may generally be conducted as projects or programmes (either new or ongoing) excluding activities undertaken in pursuance of the normal course of business of a company. The CSR Committee constituted under sec 135(1), shall prepare the CSR Policy of the company which shall : Specify the sectors in which the projects and programmes are to be undertaken;
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Notified Rules on MCA Website..{CONTD.}

Prepare a list of CSR projects/programmes which a company plans to undertake during the implementation year, specifying modalities of execution in the areas/sectors chosen and implementation schedules for the same;

Focus on integrating business models with social and environmental priorities and processes in order to create shared value;
Provide that surpluses arising out of CSR activities will not be part of the business profits of a company.
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Notified Rules on MCA Website..{CONTD.}

2. The CSR Committee shall prepare a transparent monitoring mechanism for ensuring implementation of the projects / programmes / activities proposed to be undertaken by the company.

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Notified Rules on MCA Website..{CONTD.}

3. Where a company has set up an organization

which is registered as a Trust or Section 8 Company, or Society or any other form of entity incorporated in India to facilitate implementation of its CSR activities in accordance with its stated CSR Policy,
a) The contributing company should specify the activities to be undertaken by such an organization utilizing funds provided by it; b) The contributing company shall establish a monitoring mechanism to ensure that the allocation is spent for the intended purpose only. 17

Notified Rules on MCA Website...{CONTD.}

4. A company may also conduct/implement its CSR programmes through Trusts, Societies or Section 8 companies incorporated in India, which are not set up by the company itself;

5. Such spends may be included as part of its prescribed CSR spend only if such organizations have an established track record of at least three years in carrying on activities in related areas.
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Notified Rules on MCA Website..{CONTD.}

6. Companies may collaborate or pool resources with other companies to undertake CSR activities and any expenditure incurred on such collaborative efforts would qualify for computing the CSR spending;

7. Only such CSR activities will be taken into consideration as are undertaken within India.

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Notified Rules on MCA Website..{CONTD.}

8. Only activities which are not exclusively for the benefit of employees of the company or their family members shall be considered as CSR activity; 9. All companies falling under the provision of Section 135 (1) of the Act shall report the details of their CSR initiatives as part of the Directors Report in the Annual Report which should also be available on the companys website.
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What is CSR and what is not? What is CSR? What is not CSR?
It should measurable; be rupee That which is not rupee measurable is not a CSR activity; If it does not benefit the poor & backward sections of the community it is not a CSR activity; Employee benefits will not count as CSR;
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It must bring direct benefits to marginalized , disadvantaged, poor or deprived sections of the community; It should not pre-dominantly benefit employees of the company;

What is CSR and what is not? What is CSR? What is not CSR?
It can be related to the core business or the business model. It can thus deliver shared value; It must not be part of the core business of the company;

Where a shared value project The total value of the project is to be shown as CSR, the itself cannot be shown as CSR; company should quantify the direct rupee benefit accruing to the identified beneficiaries; It must be a sustained activity One-off or intermittent over a period of time; activities will not count as CSR;
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What is CSR?

What is not CSR?

CSR activities must be in the form of Pure philanthropy or projects/programmes. Thus CSR mere donations will not activities should be projectivized ; count as CSR Components of a project are as follows: Need Based Assessment/Baseline Survey/Study Clearly identified time frame Specific annual financial allocation Clearly identified milestones Clearly identified & measurable objectives /goals Robust & periodic review & monitoring Evaluation & Assessment (Where 23 possible, by third party)

What What is not CSR? Whatis isCSR CSR and what is not?
Corporates are expected to fund projects from their own accounts through implementing agencies; Funds/moneys deposited in Central or Government accounts will not count as CSR;

Government Government programmes/initiatives can be programmes/initiatives complemented/supplemented should not be duplicated.

Programmes/projects must be Programmes/projects within India; undertaken outside 24 India will not count as

What What is not CSR? Whatis isCSR CSR and what is not?
It should be independent Activities which are in of compliance with any compliance with any regulation or law; regulation or law will not count as CSR;

Projects/programmes can be taken up as social business projects where the beneficiaries are the poor and marginalised.

Purely commercial/ business projects should not be shown as CSR projects.

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Reporting on CSR Initiatives

1. Provide a brief outline of the companys CSR policy including the statement of intent reflecting the ethos of the company, broad areas of CSR interest and an overview of activities proposed to be undertaken;

2. Indicate the web-link to the CSR Policy. The policy should include the full list of projects/activities/programmes proposed to be undertaken by the company. must be provided.
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Reporting on CSR Initiatives{CONTD.}

3. The composition of CSR Committee

4. Average Net Profit of the company for last 3 financial years

5. Threshold limit (2% of this amount as in 4 above)

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Reporting on CSR Initiatives{CONTD.}

6. Details of CSR activities/projects undertaken during

the year in the following table :

total amount to be spent for the year; amount carried forward from earlier years; Amount spent during the year as below; Amount carried forward for the year.
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Reporting on CSR Initiatives{CONTD.}

7. In case the company has failed to spend the 2% of Average Net Profit (INR) of last 3 financial years, please provide the reasons for not spending the amount;
8. A responsibility statement of the CSR Committee, that the CSR Policy implementation and monitoring thereof is, in letter and spirit, in compliance with CSR Objectives.

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Reporting on CSR Initiatives{CONTD.}

6. Details of CSR activities/projects undertaken during the year in the following table : (contd)
1 . S r N o . CSR project/activi ty identified 2. 3. Sector which project covered 4. in Projects/Prog the rammes is 1. Local areas/othe rs 2. Specify the 5. Amount outlay (budget) project/pr ogramme wise 6. Amount spent on the programm e/project Subheads 1. Direct 7. Cumulative spend upto the reporting period 8. Amount spent Direct through impleme nting agency

state/distri
ct

expendit
ure on projects 2. Over heads

Total 30
* Give details of

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Implementing Agency

Reporting on CSR Initiatives{CONTD.}

Signed

.. (CEO/Managing Director/Director)

(Chairman CSR Committee)

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THE SIZE OF THE CSR SPACE

Around 16,245 companies fall within the purview of Section 135; Around 20,000 crores in total, will be spent by Corporates each year on CSR;

Around 30,000 Directors of Boards will be directly involved.

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WHAT THE CSR ROLL OUT ENTAILS

Need for a large number of CSR professionals (around 30,000 16,000 companiesx2); Need to create an NGO Hub which will, inter alia, empanel credible implementing agencies;

Need to create a shelf of projects from which companies and Implementing Agencies may choose;

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CSR ROLL OUT ENTAILS Contd

Currently there are approx. 3.3 million (33 lakh) regd. NGOs in India;

Probably around ten lakh fully functional - ready to face implementation challenges; Average absorptive capacity of NGOs around 20 lakhs annually; Hence around 1,00,000 NGOs required at the very least to carry forward CSR agenda.
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IICA TO TAKE CSR FORWARD

Beginning June 2014, will start worlds first Professional Course on CSR; Duration 9 months; Methodology: Online
First year: 200 candidates 100 open, 100 sponsored; Will start empanelment of NGOs 3 tier process: Registration, Document Verification; Field level test checks;
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IICA TO TAKE FORWARD CSR Contd

Will create a Shelf of Projects; For this will invite proposals on an open forum;
Anyone or any institution/body can submit; Proposals will be evaluated by IICA; Those considered doable, replicable, scalable, will be shortlisted,

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IICA TO TAKE CSR FORWARD

Those whose projects have been shortlisted, will be asked to make presentation;
Selected projects will be suitable rewarded; Selected projects will be placed on IICA web site for Companies to select from and fund;

More than one Company can pool their resources to fund a project;
IICA would be happy to coordinate this and finalise project funding; IICA would also assist in locating mutually acceptable implementing agency;
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IICA TO TAKE FORWARD CSR Contd

Will create a comprehensive Data Base of Projects undertaken and executed; Will compile all returns filed by companies and prepare data analytics;

Will assist all initiatives in the training and capacity development of Company and NGO personnel.
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THANK YOU

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