The Indian Companies Bill 2012 (en route to becoming an Act)
requires companies worth ₹500 Crore (or just over $9M) to spend at least 2%
of their average net profits on Corporate Social Responsibility (CSR), or
report on the reasons why not. This is creating quite a buzz amongst businesses
in India, and a lot of questions too.
The
main question is what exactly does the Indian Government mean by CSR? At the
moment it is not tightly defined – although there are nine principles where
areas like development, human rights and inclusive growth have been
highlighted. The definition will be central to how companies approach this
obligation. If CSR is too bounded to philanthropy it will limit Indian CSR to
writing cheques for good causes with little effect on core business
performance. If it is too wide it will be an open door for Greenwash and
creative accounting.
Several
years ago I sat on a UK Government Steering Committee on accelerating CSR that
had similar challenges, so I feel the pain of people like Dr Bhaskar Chatterjee
from the Indian Institute of Corporate Affairs who
is in the process of setting the boundaries. Based on this experience, plus
Forum for the Future’s work putting CSR and sustainability at the heart of
strategy in numerous multi-national businesses, I offer a few suggestions:
- Ensure that the
definition of CSR is as much (if not more) about how companies
make their money rather than how they spend it. CSR
has to be strategic and linked to business benefit. The Bill’s requirement
for a Corporate Social Responsibility Committee will be a key way for
companies to set out a strong strategy that links to their core business.
It would be brilliant if it incentivised more companies to produce
ambitious plans like the Unilever
Sustainable Living Plan or Kingfisher’s
net positive strategy and to be able to put the time and money spent
doing it down to their 2%. But at the very least it must not demand solely
philanthropic activities totally unrelated to the business as that will
relegate CSR to the fringes for good.
- Promote innovation of new
business solutions as part of CSR. Companies are powerful beasts that are good at
finding new opportunities and solutions. If they can focus their
creativity and finance on finding products that can make profits and
provide a social good then progress will accelerate. Our recent
publication, India: Innovation Nation is full of examples of this
from Mahindra’s
Reva E20 to Hindustan Unilever’s Pureit. I am not suggesting that
companies can account for their whole R&D spend as CSR but suggest
that partnerships with NGOs and not for profits that focus on product,
service and business model innovation are allowed (particularly at the
Base of the Pyramid), as well as seed funding and incubation of
breakthrough ideas and social enterprises.
- Use a
definition that is about companies contributing to a sustainable market
economy – socially, environmentally and economically (see
for example Forum’s
Vision for a sustainable economy 2040). At the recent Delhi
Sustainable Development Summit, Dr Chatterjee said that he saw CSR and
sustainability working side by side. This is right, and because in India
sustainability is seen as environmental and CSR as more social there is a
need to do more to ensure that these are seen a one and the same - focused
on solving challenges like access to healthcare, malnutrition, energy
access or water security. These are all interrelated problems and this is
an opportunity to recognise that.
- Make sure that 2% spend
actually equates to impact. There is a
risk that companies invest in a lot of small projects that, whilst good in
themselves, endlessly reinvent the wheel with little learning or cross
fertilisation. What we need are profound transitions that require shared
efforts across a range of projects, approaches and organisations. If CSR
is actually going to tackle major social challenges then it needs to allow
bigger partnerships that provide sophisticated analyses of the problems
and combine different projects to create scale. This might be the 2%
reflecting involvement in things like the Roundtable on Sustainable Palm
Oil – focused on sustainable sourcing, or recognising involvement in
combined implementation of the mobility system in a city. Transparency for
both civil society partners and business will be an important part of that
- increasing the accountability for both to deliver good outcomes. And auditors
and verifiers need to be looking for impact as well as spend in their
assurance statements.
If done
well, the CSR obligation in the Companies Act will accelerate a new form of
business in India – combining strong financial returns with social good. It is
an opportunity for existing leaders like Infosys and Tata to raise the bar on
what can be achieved through CSR and sustainability. And it is a chance for the
majority to reflect CSR much more actively in how they do business. If the
risks of confusion, mediocrity, manipulation and a side-lining of CSR are
addressed then it could put India at the forefront of business leadership. I
look forward to seeing that come to fruition.
- See more at:
http://www.forumforthefuture.org/blog/how-indian-companies-bill-could-transform-csr-india#sthash.Q6d22hlB.dpuf
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