Socio Research & Reform Foundation

Friends,

Often there is a debate, particularly amongst the civil society players, whether it is right for corporates to use CSR for brand building. While corporates and policy makers do not see anything wrong in it. Infact some even talk of it as a win-win situation, which could lead to ‘sustainable’ CSR.

Now there is an interesting development and judicial pronouncements could add to this debate. Madras High Court has admitted a PIL for hearing whether tobacco companies should be allowed to build goodwill for their products through CSR activities. The PIL, filed by Tamil Nadu People’s Forum for Tobacco Control, alleges that since CSR activities allow companies to do brand building, tobacco companies will use CSR for earning goodwill and brand building, which they should not be allowed. The PIL suggests that such companies should be asked to deposit their CSR funds with the State / Central Govt. which can be used for specific purposes, such as anti-tobacco drives, health of tobacco affected patients, etc. Same question can be raised tomorrow against companies marketing alcoholic beverages, etc.

I believe the fundamental issue is : What is the basic objective of CSR and are the drivers of CSR in alignment with these objectives ?

Any thoughts which would add to this debate ?
_________________________________
Subhash Mittal
(Secretary)
Socio Research Reform Foundation (NGO)
512 A, Deepshikha Building,
8 Rajendra Place, New Delhi – 110008.
E-mail: smittal@sma.net.in, website: http://www.srr-foundation.org

Further to the last post, which explained activities covered in Schedule VII. In this post, highlights are given of the final CSR Rules.

ENTITIES COVERED

• All companies whether a public company or a private one are covered by CSR, if they satisfy anyone of the criteria on Rs 1000 crore Turnover or Rs 500 crore Networth or Rs 5 crore profit.
• Foreign companies (falling under S.2(42) of Companies Act 2013) covered for their Indian operations (Branch / Project offices).
• Once a company qualifies for CSR, it must continue until and unless it does not qualify for 3 consecutive years. That means once a company comes out of CSR net it still must continue a minimum of 3 years.

BOARD OF DIRECTORS

• To formulate a Board committee consisting of a minimum of 3 Board members, including an Independent Board member. In case of a private company which has 2 directors, only 2 Board member committee may be formed. In case of unlisted and private companies no need of an independent Director.
• To spend a minimum of 2% of last 3 years’ average net profit on CSR activities.

CSR BOARD COMMITTEE

• Committee would formulate a CSR Policy, identifying projects, and amounts to be allocated to the same. It should also provide modalities of execution and implementation schedules. Policy to specify that any surplus / contributions arising from CSR projects would form part of CSR corpus and not be part of business profits.

The Committee must institute a monitoring mechanism for these projects.

ELIGIBLE CSR EXPENDITURE

• Eligible CSR expenditure must be only on projects / programs falling in the list of Schedule VII.
• However it appears that a backdoor has been opened to allow contributions to Corpus as eligible CSR expenditure (see Rule 7).
• Expenditure incurred outside India would not be allowed as CSR.
• Although it is stated that programmes that benefit only employees and their families would not be considered as CSR expenditure, but it is quite possible that scope for exploitation under this clause exist, it would have been better if only could be replaced with largely.
• Contributions to political parties not to be considered as part of CSR.
• Upto 5% of total CSR Expenditure permitted for CSR capacity building of own employees or that of implementing agencies permitted. However it must be undertaken through institutions with 3 year track record.

ACCOUNTABILITY & TRANSPARENCY

• Brief outline of company’s CSR Policy, overview of programs/ projects to be undertaken must be disclosed in the Annual Directors’ Report with a link for details on website.
• Disclosure of composition of CSR Committee
• Average net profit of the company for last three financial years.
• Specify the required amount of CSR expenditure to be spent (2% of average net profits)
• CSR amount actually spent
• CSR amount unspent
• Project-wise Details of the CSR expenditure providing details like, Sector; areas where project implemented, specifying if it is local or otherwise, specify State, District; Budget Outlay; Actual amount spent segregating between direct and overheads; cumulative expenditure; Whether implemented directly or through implementing agencies, giving details of Implementing agencies.
• If CSR expenditure is less than required, reasons have to be given.
• A Responsibility Statement by CSR Committee that implementation and monitoring of CSR Policy is in compliance with CSR objectives and policy of the company.
• This Report has to be signed by Chairman CSR Committee and anyone of CEO/ MD / Director.

OTHER ISSUES

• Net profit is to be calculated on the basis of net profits arrived at in the Company’s audited accounts (i.e. Profit After Tax), however these should not include profits from overseas branches of the company and dividends rec’d from any other company which is also covered by CSR and complying with the same.
• CSR Policy can be implemented in any way company considers appropriate, as long as while implementing with other NGOs, they must have at least 3 years track record in the relevant type of projects.
• May collaborate with other companies CSR programmes.

__________________________________
Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in;

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CSR provisions of new Companies Act have been notified and will become effective 1^st April 2014. Thus all companies who qualify for CSR based on accounts of Mar’14 would be required to comply with CSR provisions. A company once qualifies for CSR would continue at the minimum for three years. CSR activities have been identified in Schedule VII.

Major change effected is that the Ministry had replaced the earlier Schedule VII (Refer http://blog.srr-foundation.org/?p=1505)   with a new one, which is more comprehensive and covers a number of additional issues omitted in earlier version. Given below is each clause of the new schedule VII alongwith comparative analysis with previous Schedule VII.

• Earlier version only covered extreme hunger.
• Malnutrition was not specifically covered earlier, unless it could have been covered under then clause (iv) – reducing child mortality.
• Preventive Health care is much broader than earlier version which only covered HIV/AIDS, Malaria and other diseases. Thus it now even covers activities relating to preventive health and not just curative.
• Earlier version did not cover sanitation and safe drinking water specifically and was open to interpretations if such activities could have been covered under environmental sustainability.

• Now education includes special education for children, women and elderly thus seems to cover all non-formal education, adult literacy, etc.
• A major boost for differently able. All form of education and vocational skills covered for them. However doubts linger on, if any other initiatives for such persons, support for institutions who are researching on such specific diseases, or institutions who research/ provide products to assist such persons, are covered. Only possibility could be the general clause of ‘promoting preventive health care’ under (1) above.
• Employment enhancing vocation skills (which earlier was left as
  such thus giving scope for different interpretations) has now been expanded to cover children, women, elderly and differently-abled.
• It also covers livelihood enhancement projects (thus various
  livelihood projects which was not certain earlier. One could interpret it to cover even microfinance projects.

• This clause which earlier only covered promotion of gender equality
  and empowering women has been expanded to cover setting up homes and hostels for women and orphans.
• One of the major criticism of the earlier version was that along with disability it did not Aged. The clause now specifically allows setting up old age homes day care centres and such other facilities for senior citizens.
• It allows any measure to help reduce inequalities faced by socially and
  economically backward groups (read SC/ST) groups. However it is open to question whether it could include minorities which may be considered socially and economically backwards.

• Earlier clause on ensuring environment sustainability has now been qualified to specify the type of projects likely to be covered under these activities. However the clause seems to cover a large number of areas, including maintaining quality of soil, air and water.

• Following additional areas covered:

Following clause has been modified to exclude funds set-up by the State Govts. Original clause included similar funds set-up by the State Govt. Perhaps this is a reaction of the central Govt to demands made by various state govt. that the CSR funds should be transferred to various state govts.

• A vague sounding social business projects has been omitted.

_____________________________
Socio Research & Reform Foundation
(A Non Government Organisation)
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008

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