Introducing INDIA, SDGs and CSR
With 1.3 billion inhabitants and a record-breaking economic performance, India must now ensure its transition towards sustainable development, reconciling growth with respect for the environment.
More than 2000 companies in India are now on the EcoVadis platform:
Upon the publication of the annual Global CSR Risk and Performance EcoVadis Index, Rajnish Ahuja from the French development agency (AFD) kindly presents us with India. He discusses the country’s recent CSR developments and its CSR requirement for the past 5 years: the annual social or environmental mandatory expenditure assigned to large companies.
India has emerged as one of the leading nations in making CSR mandatory by passing the Companies Act, 2013 and the CSR (Policy) Rules (the Act) on April 1, 2014. This can be seen as an explicit call for businesses to collaborate in solving India’s complex development issues.
Introducing India’s Geography and the “Golden Quadrilateral”
The demographic explosion in India, which started in the early 1950s, has led to a sustained increase in the urban population. It now represents 32.7 percent of the total population with a growth rate of 2.38 percent between 2010 and 2015. The urban Indian population is expected to increase from 377 to 590 million by 2030. It is witnessing one of the fastest economic growth spurts amongst the developing economies.
With a national growth rate of more than 7 percent, Indian cities are major capital contributors to the nation’s economy. The Golden Quadrilateral is a national highway network, connecting the wealthiest cities of India: Mumbai, Delhi, Kolkata, Bengaluru, Chennai, Hyedrabad, Pune, Ahmedabad, Surat and Visakhapatnam.
Mumbai is the financial and commercial capital of the country and contributes more than 6 percent of the nation’s GDP, 10 percent of factory employment, 60 percent of customs duty collection, and 30 percent of income tax collections. The headquarters of a large number of Indian companies, like Reliance Industries, Aditya Birla Group, Tata Group, Larsen & Toubro and Godrej Group, are all located in Mumbai. It’s also where the headquarters for Reserve Bank of India, National Stock Exchange, and Bombay Stock Exchange are found.
The service sector contributes more than 75 percent to Delhi’s economy. Retail, information technology, telecommunications, hospitality, media, banking, energy, construction and real estate are also key sectors which contribute to its economy.
Kolkata houses India’s oldest stock exchange, and the city of Bengaluru is home to many big IT firms that have earned the city its nickname, the ‘Silicon Valley of India’.
Chennai’s economy is driven by the automobile industry, financial services, healthcare, software services and hardware manufacturing. It also houses close to 40 percent of India’s automobile industry which earned Chennai the nickname, the ‘Detroit of India’.
Hyderabad is the joint capital of Telangana and Andhra Pradesh and is also known as the ‘City of Pearls’ because of its famous pearls trading centre. The city contributes one third of India’s bulk drug supply and 16 percent of its biotechnology products which earned the city its title, ‘India’s Pharmaceutical Capital.’
Pune is the second largest city of Maharashtra and is well-known for its automobile industry and educational institutions. The presence of major automobile manufacturers, like Volkswagen, Tata Motors, Mercedes Benz, Renault, and other IT and BPO exporting companies, generates major contributions to the city’s economy.
Ahmedabad is known as ‘Manchester of the East’ for its textile industry which is a major contributor to the economy.
Visakhapatnam is active in software, textiles, drug and pharmaceutical industries.
Surat is well-known for its diamonds and textile industry, and it is the largest diamond cutting and polishing hub in the world. The city accounts for 90 percent of the world’s diamond cutting and polishing exports. Major companies, like ONGC, GAIL, Ambuja Cement, Ultratech Cement and Reliance Industries, have a presence in Surat.
Evolution of CSR in India
CSR is a form of corporate self-regulation at the international level. Over time, it has significantly evolved from being a process of voluntary decision-making to mandatory schemes at regional, national and trans-national levels.
The CSR process in India has passed through four phases that run parallel to India’s historical development:
The First Phase (Before and After 1850s)
The first phase of CSR in India was driven by forces of charity and philanthropy. It was influenced by religion, culture and industrialization. During the pre-industrialization period, which lasted until 1850, wealthy merchants performed social responsibility tasks by helping to combat famine and epidemics, providing food from their godowns, as well as financial support. Post 1850s (i.e., during the colonial rule), the approach towards CSR changed as the big industrial families of the 19th century, such as Tata, Godrej, Bajaj, Modi, etc., started to support society through their own CSR activities.
The Second Phase (1857–1947)
This phase relates to the one during the independence movement, when Mahatma Gandhi introduced the notion of "trusteeship," according to which the industry leaders were supposed to manage their wealth so as to benefit the common man: "I desire to end capitalism almost, if not quite, as much as the most advanced socialist. But our methods differ. My theory of trusteeship is no make-shift, certainly no camouflage. I am confident that it will survive all other theories." According to his idea of trusteeship, Indian companies were supposed to be the "temples of modern India." And the operations of these trusts were largely aligned with Gandhi's reforms which sought to abolish untouchability, to encourage the empowerment of women, and to promote rural development.
The Third Phase (1960–1980)
The third phase of CSR was the period of "mixed economy," during which India witnessed the emergence of Public Sector Undertakings (PSUs) and new laws relating to labour and environmental standards. Unfortunately, during this period, the private sector was not liberalized, and the public sector was seen as the prime mover of development. Laws and regulations surrounding the private sector were very stringent, thus, earning its name as an "era of command and control." In 1965, Indian academics, politicians and businessmen set up a national workshop on CSR aimed at reconciliation. In this workshop, they emphasized transparency, social accountability and regular stakeholder dialogues. Even after, however, such attempts failed to ramp up CSR involvement.
The Fourth Phase (1980–2013)
The fourth phase of evolution was one in which Indian companies started integrating CSR into their sustainable business strategy. It gained momentum in the 1990s, when the first step towards globalization was undertaken by allowing economic liberalization. At the start of this period, controls and licensing systems were done away with in order to boost the economy, the consequences of which are evident today. Therefore, Indian companies that export and produce goods for the developed countries pay heed to the compliance standards in accordance with the international standards.
The Current State of CSR in India (2014 – Present)
Section 135 of the Companies Act: Every qualifying company requires spending of at least two percent of its average net profit for the immediately-preceding three financial years on CSR activities
Objective: To maximize the company's overall impact on society and stakeholders for which the CSR policies, practices and programs are being comprehensively integrated by companies throughout their business operations and processes.
Most of the companies have specialized CSR teams that have been entrusted to formulate policies, strategies and goals for their CSR programs. They’re also tasked with defining and preparing the budgets to fund them. CSR programs range from community and educational development to environment and healthcare. Within this context, corporations are joining hands with non-governmental organizations (NGOs) and using their expertise to devise programs which address wider social problems.
Focus on Corporate Social Responsibility Policy in 2014
Applicability of the Policy:
Section 135 of the Companies Act provides the threshold limit for applicability of the CSR to a Company, i.e.:
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Net worth of the company to be INR 500 crore (62.5 MEUR) or more;
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Turnover of the company to be Rs 1000 crore (125 MEUR) or more;
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Net profit of the company to be Rs 5 crore (0.625) or more
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As per the CSR Rules, the provisions of CSR are not only applicable to Indian companies, but also applicable to branches and project offices of foreign companies in India.
CSR Committee and Policy:
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Every qualifying company requires spending of at least two percent of its average net profit for the immediately-preceding three financial years on CSR activities.
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The qualifying company will be required to constitute a committee (CSR Committee) of the Board of Directors (Board) consisting of three or more directors. The CSR Committee shall formulate and recommend to the Board, a policy which shall indicate the activities to be undertaken (CSR Policy); recommend the amount of expenditure to be incurred on the activities referred and monitor the CSR Policy of the company. The Board shall take into account the recommendations made by the CSR Committee and approve the CSR Policy of the company.
Definition of the Term CSR:
The term CSR has been defined under the CSR Rules which includes but is not limited to:
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Projects or programs relating to activities specified in the Schedule; or
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Projects or programs relating to activities undertaken by the Board in pursuit of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule
This definition of CSR assumes significance as it allows companies to engage in projects or programs relating to activities enlisted under the Schedule. Flexibility is also permitted to the companies by allowing them to choose their preferred CSR engagements that are in conformity with the CSR policy.
Activities Under CSR:
The activities that can be performed by the company to achieve its CSR obligations include:
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Eradication of extreme hunger and poverty
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Promotion of education
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Promoting gender equality and empowering women
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Reducing child mortality and improving maternal health
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Combating human immunodeficiency virus, acquired, immune deficiency syndrome, malaria and other diseases
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Ensuring environmental sustainability
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Employment enhancing vocational skills
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Social business projects
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Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and such other matters as may be prescribed
Local Area:
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Under the Companies Act, preference should be given to local areas and the areas where the company operates
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The company may also choose to associate with two or more companies for fulfilling the CSR activities, provided that they are able to report individually.
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The company can also make the annual report of CSR activities in which they mention the average net profit for the three financial years and also prescribed CSR expenditure, but if the company is unable to spend the minimum required expenditure, the company has to give the reasons in the Board Report for non-compliance so that there are no penal provisions.
CSR and SDGs?
“The main area where I see an opportunity for Indian companies to improve is the expansion of their focus from philanthropy (e.g. donations, charity for external social activities), to leadership in building responsible businesses from within organizations.”
Cheyenne Duz | EcoVadis Senior Sustainability Analyst & Operations Manager
2018 Sectoral Trends for CSR Expenditure on Top 100 Companies :
Source: KPMG India’s CSR Reporting Survey 2018
According to last KPMG annual report “India’s CSR Reporting survey 2018,” health and education continue to receive more traction from companies (61 percent of the expenditure), linked to six SDGs.
32 percent of companies have aligned their CSR projects towards SDGs versus 20 percent in 2017!
CTA : Discover the 2019 INDIA country spotlight report (india blog article n° 2)
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+To check with cheyenne to engage Prasad Modak Executive President, Environmental Management Centre LLP/Director, Ekonnect Knowledge Foundation www.ekonnect.net
(contact came from From: Aloisi de Larderel <jacquelinealoisi@gmail.com>)
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