New Zealand tops social progress index, India lags at 102nd spot

By Reuters Apr 03 2014          

 

New Zealand came first in a global index published on Thursday that ranks countries by social and environmental performance rather than economic output in a drive to make social progress a priority for politicians and businesses.

The Social Progress Index (SPI) rates 132 countries on more than 50 indicators, including health, sanitation, shelter, personal safety, access to information, sustainability, tolerance and inclusion and access to education.

The SPI asks questions such as whether a country can satisfy its people's basic needs and whether it has the infrastructure and capacity to allow its citizens to improve the quality of their lives and reach their full potential.

"The index shows that economic growth does not automatically lead to social progress," Michael Green, executive director of the Social Progress Imperative, a non-profit organisation that publishes the index, told Thomson Reuters Foundation.

"If we are to tackle problems such as poverty and inequality, it shows that measuring economic growth alone is not enough."

New Zealand received high scores for personal rights and freedom, internet access and school enrolment. It was followed in the Top 10 by Switzerland, Iceland, Netherlands, Norway, Sweden, Canada, Finland, Denmark and Australia.

Some of the world's largest economies did not fare so well, with Germany in 12th place, the United Kingdom in 13th, Japan 14th, the United States 16th and France 20th. All of them except Germany scored poorly on environmental sustainability.

The United States also ranked poorly on health and wellness - despite being a top spender on healthcare - and on access to basic knowledge, with just 92% of children in school.

France lagged Slovenia (18th) and Estonia (19th) and had low scores on sustainability and opportunity, especially tolerance and inclusion. Italy was in 29th place, hurt by poor access to advanced education, sustainability and tolerance and inclusion.

The low rankings of China (90th) and India (102nd) showed that their rapid economic growth is not yet being converted into better lives for their citizens, said Green.

Chad ranked last, below Central African Republic, Burundi, Guinea, Sudan, Angola, Niger, Yemen, Pakistan and Nigeria.

MEASURING BEYOND GDP

Even though economic growth and social progress are correlated, especially for poorer countries, the connection is far from automatic, said Harvard Business School professor Michael Porter, one of the index's backers.

"The SPI finds that all economic growth is not equal," he said in a press statement.

Costa Rica and South Africa, for example, have similar levels of gross domestic product (GDP), the most commonly used indicator for economic performance. But the central American nation achieves much greater social progress than South Africa thanks to progressive environmental and healthcare policies.

Social upheavals around the world prompted by citizens' frustration over a lack of opportunities and inequality are also a sign that economic performance alone is not an adequate measure of progress, said Green.

A 2014 survey by Deloitte found that the majority of the almost 7,800 millennials (people born in the 1980s and 1990s) it had surveyed in 28 countries prioritised education, health care, employment and protection from crime above improving their financial situation. They also believe social progress lies not just with governments but also with businesses.

"GDP doesn't necessarily tell you what to do whereas the SPI does give indications where you need to focus attention to make progress," Steve Almond, global chairman of Deloitte, which supports the SPI financially, told Thomson Reuters Foundation

India Only Country With Legislated CSR

Law mandates that all companies, including foreign firms, with a minimum net worth of Rs 500 cr, turnover of Rs 1,000 cr and net profit of at least Rs 5 cr, spend at least 2% of their profit on CSR

IANS  |  New Delhi 

April 3, 2014 Last Updated at 17:50 IST 

  

With the implementation of the new company law from April 1, India has become the only country in the world with legislated corporate social responsibility (CSR) and a spending threshold of up to $2.5 billion (Rs15,000 crore).

 

The new law mandates that all companies, including foreign firms, with a minimum net worth of Rs 500 crore, turnover of Rs1,000 crore and net profit of at least Rs 5 crore, spend at least two percent of their profit on CSR.

 

According to industry estimates, around 8,000 companies will fall into the ambit of the CSR provisions and this would translate into an estimated CSR spend of $1.95 billion to $2.44 billion. With higher economic growth and increase in companies profits, this mandatory spending will go up.

 

"India is the only country that has made legislation for CSR spending," Sai Venkateshwaran, partner and head of accounting advisory services at KPMG India, told IANS.

 

He said the new law would lead to a significant increase in spending by companies on CSR activities.

 

"Many big companies have been actively engaged in the CSR activities, but the number is low. The new law will lead to a significant increase in the numbers," said Venkateshwaran, adding the mandated spending would be in the range of Rs10,000 crore to Rs15,000 crore annually.

 

Sidharth Birla, president of industry body FICCI, said the businesses by and large welcome the new legislation. However, some issues continue to trouble that need to be addressed by the regulator.

 

"This is an evolutionary concept and will gradually evolve over a period of time. Industry is therefore anxious on the implementation of this new provision," Birla told IANS.

 

The new Companies Act 2013 that came into effect from April 1, 2014, replaced six-decade old legislation Companies Act 1956. CSR has been made mandatory under the new regulation and there are provisions of penalties, in case of failure.

 

Venkateshwaran said the industries' concerns about the new legislation were largely related to taxation and limit on activities that fall under the ambit of CSR.

 

Birla also shared a similar view and said: "The biggest concern of Industry is with respect to the impact of CSR contribution from a tax deductibility point of view."

 

"Industry hopes that the ministry of finance will find it fit to ensure CSR spend remains tax-deductible, more so since this spend is an integral cost of responsible business," he said.

 

Under the current income tax law, the CSR spending cannot be treated as expenditure. It will be part of profit and attract taxes.

 

As per the current law, unless expenditure is in the course of the business of the company, the same is disallowed and the question may arise as to whether CSR expenditure is incurred in the course of the business of the company or not. Therefore, the CSR Rules could lead to substantial expenses being disallowed in course of tax assessments.

 

"Unless the Income Tax law is also changed simultaneously, this could lead to years of protracted litigation and disputes," said Birla.

Western Governance Models May Not Work In Asia

MUMBAI: Governance expert Professor Colin Mayer says Japan's experiences in the 20th century are a warning against importing institutional structures and regulations.

As Japan tries once again to reform corporate ownership, and as China and other Asian nations start to establish the institutions that they will need for the promotion of their stock markets, Professor Colin Mayer, Said Business School, University of Oxford, has warned them against trying to impose UK- or US-style institutional structures or governance arrangements.

In a paper to be published by The Review of Financial Studies, The Ownership of Japanese Corporations in the 20th Century, Professor Mayer and his co-authors, Julian Franks, London Business School, and Hideaki Miyajima, Waseda University, argue that the collapse of the banking system and the "lost decade" in Japan at the end of the 20th century show that there are real risks in trying to import institutional structures from one country into another, particularly when their social contexts and financial and legal systems are very different.

"Our research into the striking history of the ownership of Japanese corporations, which features a structural break in the middle of the twentieth century, has yielded important lessons for governance reform in other Asian countries," said Professor Mayer. "Governance reform in these countries should focus on strengthening the role of dominant owners in upholding trust in their societies rather than adopting policies and practices from western economies with completely different ownership, legal and financial systems. The Japanese experience should be a reminder to us of how little we know about institutional and legal design and how cautious we should be in making policy recommendations about it."

In the most comprehensive description to date of Japanese corporate ownership pre-World War II, Mayer et al demonstrate that, in the first half of the 20th century, Japan's flourishing equity markets were characterised by weak legal protection for shareholders, but strong institutional arrangements, particularly through the dominance of the zaibatsu, family-based financial and industrial conglomerates. These "institutions of trust" allowed outside shareholders to have confidence that their interests would be upheld by those responsible for the management of the firms in which they were investing.

When, after the war, the American occupation authorities introduced high formal levels of investor protection and instigated the breakup of the zaibatsu, it initially resulted in even higher levels of dispersion of equity ownership and in particular widespread ownership in the hands of individual investors. But without institutions of trust to represent the interests of the shareholders, and with an increase in debt-for-equity and other similar bank practices, ownership by individuals was gradually replaced by cross-shareholding by banks and corporations. This model of "inside ownership" - ownership by shareholders with more than a purely financial interest in the firm -- dominated post-war Japan, but began to fall apart in in the last quarter of the century, leading to a systemic banking failure and prolonged recession.

"The changes made in Japan in the middle of the century show how difficult it is to import structures from one country to another without a nuanced understanding of the differences between their social and legal contexts," said Professor Mayer. "As countries in Asia are attempting to reform their corporate governance, it would be tempting but risky for them to draw on established models such as those in the UK and US. The latter countries rely heavily on the existence of markets for corporate control and well-developed systems of corporate law and enforcement, which are embryonic at best in most emerging markets. The trust-based mechanism that prevailed in pre-WW2 Japan and is now beginning to re-emerge in 21st century Japan may be a more relevant model for many Asian countries."

However, he pointed out that institutions of trust take time to establish and embed in local arrangements. They are highly country- and context-specific, and laws and rules that function in one country may be inadequate or inappropriate in another. The importance of families in some Asian countries, such as Korea, and the state in others, such as China, means that the sources of trust relationships in these countries are very different.

CSR Efforts In India

CSR Efforts In India Posted: 11 Apr 2014 10:25 AM PDT MUMBAI: India is the only country in the world that seeks to make sure companies do good things, by mandating that 2% of their profit be spent on corporate social responsibility or CSR. But for local arms of multinationals and Indian companies with an overseas stakeholding of more than 50%, philanthropy isn’t proving easy because of an old rule that’s part of the Foreign Contribution Regulation Act (FCRA). They’re finding it hard to set up CSR foundations through which to route such activity because donations from such companies are treated as funds from a “foreign source” and are lobbying for a change in stance. “We have been approached by a few companies facing this problem.   The FCRA rule is a hindrance in the path of MNCs and foreign banks wanting to set up their foundations in India,” said Noshir H Dadrawala, CEO, Centre for Advancement of Philanthropy, which advises on giving. Housing Development Finance Corp., the country’s largest mortggage financier, which has the largest foreign holding among listed companies, and the local arm of a prominent European bank are among the organisations that have faced this issue in the recent past. The FCRA norms, which are more than 30 years old, require the corporate foundation to be registered or have prior permission to receive funds from an MNC. But getting this stamp of approval is incredibly hard because of the longstanding suspicion with which overseas funding for non-business activities is regarded. “One of the first hurdles that any foundation has to cross is the requirement of the organisation being at least three years old to qualify for registration,” Dadrawala said. “The only option available therefore is that each time the company that is deemed as a foreign source wishes to contribute to the foundation it has to seek prior permission of the ministry. Among all the registrations, getting registration under FCRA is the most difficult as all applications from across the country are processed (only) by the central office based in Delhi.” The registration can be denied if the foundation has any foreign citizen on its governing board. Companies want the Ministry of Home Affairs — FCRA comes under its ambit — to soften the stand on the issue. “The very wide definition of ‘foreign source’ under FCRA combined with the mandatory CSR obligation could lead to practical challenges for Indian subsidiaries of foreign companies as well as Indian companies which have substantial foreign ownership,” said Siddharth Shah, partner, Khaitan & Co. “Creation of foundations or charitable organisations for undertaking charity work and for fulfilling CSR obligation would require them to obtain FCRA registration. Not-for-profit recipient organisations (that) may receive any grant or contribution from such foreignowned or controlled entities would also require registration under FCRA,” Shah added. The CSR requirement has been legislated under the Companies Act and industry estimates that it covers about 8,000 entities, translating into a CSR expenditure of $2.4 billion. The Companies Act doesn’t insist that CSR activities be carried out only through a company’s own foundation and can choose to do so on its own or in partnership with NGOs. But most companies prefer to route funds through their own foundations, said a top executive from a pharma MNC. “Channeling CSR funds through the foundation could be a more systematic, controlled, accountable and sustainable way,” Dadrawala said. “Moreover, CSR is not merely donation of money to an NGO or to its own foundation. It has to be project or activity based. A company cannot simply write a CSR report saying that it donated various sums of money to various NGOs and its own foundation. CSR spending must be linked to tangible projects and activities.” Some MNCs have set up Section 25 companies, or non-profits, to route their social investments. For instance, Hindustan Unilever Foundation operates as a subsidiary of the listed Hindustan Unilever. However, companies generally prefer a trust structure as it gives them greater control over funds and properties compared with a non-profit company. A similar issue cropped up recently in relation to political parties not being permitted to accept donations from ‘foreign sources’. A PIL was filed in the Delhi High Court questioning donations made by ‘foreign’ entities to political parties, including Congress, BJP and the Aam Aadmi Party. The entities referred to were Sterlite IndustriesBSE 2.79 % and Sesa Goa, the Indian arms of UK-based Vedanta group. In their counter affidavits, the home ministry, Congress and BJP argued that an Indian subsidiary of a foreign company making donations to a political party was legal if the majority stake in the foreign company was held by an Indian. [Economic Times]

Public-pvt partnership vital for success in CSR

Kolkata, April 9:  

In the Sundarbans, when tigers are trapped for monitoring, they send an SMS. Thanks to WWF India’s change in focus in its work — from tigers to the ecosystem — the model of development has also evolved in the past few years.

Now people of the area run a power station and intend to sell the surplus outside.

Anurag Danda, head of Climate Change Adaptation, WWF India, said at a symposium on CSR here that the paradigm shifts have taken place in the development narrative in India.

He said there could not be a rigid model for delivering corporate social responsibility.

For example, we got corporate sponsorship for erecting lamps in the forest area to keep away tigers from straying into the human habitats during the night.

The event, organised by the Bengal Chamber in collaboration with USAID and the US Consulate General, was designed to create a space where companies and non-government organisations can learn from one another and work together.

USAID, which is seeking innovations to develop, test and scale development success in India, showcased some of its partner organisations at the event.

To foster sustainability, USAID is collaborating with the private sector as implementer and resource partner.

In association with FICCI and the Government of India’s Technology Development Board, USAID is involved in a project that links Indian innovators with seed financing in six major development sectors: maternal and child health, family planning and reproductive health, early grade reading, clean energy, water and agriculture.

This alliance also has the provision of interfacing CSR programmes. ICICI Bank and Foundation, UKAID and ICCo India recently joined the alliance.

Nazib Arif of ITC Ltd said the company’s CSR activity currently reached out to 40,000 villages and 70 lakh people and involved 70 NGOs. In the area of health it collaborates with USAID.

(This article was published on April 9, 2014)

CSR is about looking at problems as opportunities

William D. Eggers

ore »

A file photo of William D. Eggers. Photo: Ramesh Pathania/Mint

 

Corporate social responsibility (CSR) has become a buzzword with the government making it mandatory for companies to spend 2% of their net profit on the social upliftment of people. In an interview, Deloitte ’s William D. Eggers , co-author of The Social revolution: How Business, Government and Social Enterprises Are Teaming Up to Solve Society’s Toughest Problems, said if a company uses CSR activities to also promote its business, it should be applauded and not frowned upon. Edited excerpts:

 

How do you define CSR activities in current times when various governments are coming out with regulations around them?

I think it can be everything from providing pro bono assistance to non-profits and social enterprises to making sure that you don’t have human trafficking, bad labour practices within your supply chain. It is to make sure that you are not spoiling the environment. When you are looking at double, triple bottom line, your social impact, your environmental impact and how can you use your core strengths, one of the examples that come to your mind is (Hindustan) Unilever’s “Project Shakti” in India, where they wanted to move to villages in order to expand their marketplace but at the same time teach people how to use soaps and shampoos so that they could actually reduce chances of diarrhoea.

 

Isn’t it unethical to leverage the CSR activities to strengthen your brand?

If your company is doing a lot to help your environment and that’s part of their core values, I don’t think there is anything unethical about that. This is what we stand for. If you look at Whole Foods supermarket chains, their social mission is doing good for the planet and also providing healthy food, which is locally sourced. This is at the core of what they are all about. So their advertising really emphasizes that because that’s where their soul is. This is something that should be applauded and not viewed as something unethical. Now if a company is trying to use CSR purely as a branding exercise without actually doing anything, then I think that’s a different story.

 

So, what are the areas where you can do good social work and make money out of that as well?

It’s just about everywhere because there are so many unmet needs in India right now, such as in education, water, low-cost healthcare, sanitation, recycling, reducing traffic congestion. It’s about looking at problems as opportunities, which is what social entrepreneurs do. It’s how you create a business model by serving those unmet needs. We have millions of people around the world at the base of the pyramid, who 15 years ago were excluded from the economic system, consumer markets completely because businesses did not believe that they would ever buy anything. But that has started to change.

 

How is it picking up in other emerging markets?

There is no doubt that (with) impact investing funds on social infrastructure, more is happening in India than any other emerging market because India is a bigger marketplace. This has been going on for 10 years out here. So in Brazil, there are over a million NGOs (non-governmental organizations) who are operating in many respects but they are fairly traditional ones. You do now have some impact investing funds like Vox Capital. So we have started to see that develop in other countries, but India has a number of years of headstart over other countries. So I think there is a lot to learn from here.

 

Mint spoke to William D Eggers, research director, public sector industry, Deloitte about CSR activities during current times amidst growing government regulations.

The new CSR rules: Confusion or clarity?

Ramesh K. Vaidyanathan and Pooja Thacker      

Ramesh K. Vaidyanathan and Pooja Thacker .

One of the most applauded aspects of the new Company Law regime is the mandatory social spending requirement. Faced with innumerable economic and social challenges as our country is, our lawmakers could not have ushered in a more revolutionary change through the new law.
The new Companies Act, 2013, has made it mandatory for companies to be socially responsible by introducing the 'corporate social responsibility' (CSR) regime. Section 135 of the new Companies Act, read with the CSR Rules, mandates companies meeting certain criteria to set aside two per cent of their net profits for undertaking and promoting socially beneficial activities and projects in India. The Ministry of Corporate Affairs (MCA) recently issued the CSR Rules, 2014, to implement this legislative mandate, which comes into effect on April 1, 2014.
 What radical change is expected?
Every company with a net worth of at least Rs 500 crore, or a minimum turnover of Rs 1,000 crore, or a minimum net profit of Rs 5 crore, is obligated to constitute a CSR committee dedicated to undertake a mixed spectrum of initiatives, such as promoting education, gender equality, women's empowerment, improving maternal health, or ensuring environmental sustainability. The company's net profit would, however, exclude any profit from its overseas branches or companies, and would also exclude any dividend received from other companies in India. The law does not treat foreign companies differently, and includes foreign companies doing business in India, whether by themselves, or through an agent or even electronically.
The company can choose the social cause or project it wants to support from the list of activities specified in the Act. The CSR committee will then have to frame a CSR policy in accordance with the rules and implement it. The company's board of directors will have to play an active role by participating in the CSR initiative at various stages, including the identification of the activities, approving the policy, and disclosing its contents in the board's report and on the company website.
Surplus funds in respect of the CSR projects cannot form a part of the company profits. The rules specifically exclude contributions or donations made to political parties from CSR activity.
The CSR regime complements the efforts of the government and non-government organisations by requiring companies in India to initiate activities for the economic well-being of the underprivileged and for the environment. Companies can also join hands to undertake CSR projects.
Social and economic initiatives, as a responsibility of the companies, are gaining popularity internationally. The Financial Reporting Council in the United Kingdom is in the process of introducing guidelines for disclosures regarding environmental, social and governance (ESG) issues by a company. The intention is for these to replace the existing 'business review' section of annual reports, and companies would be required to provide complete disclosure about their business activities, including social efforts.
Also, the European Parliament's Legal Affairs Committee approved draft legislation on corporate non-financial reporting, which requires some companies to disclose information about their environmental, social and employee-related impact, as well as their diversity policy.
A more practical and sensible approach to implementing the CSR regime in India is to make efforts to support a good cause in every move made by a company. The principles of social responsibility can be incorporated into the business strategy of the company. The company can make efforts to internally create awareness about ethical business practices and principles.
Charity events sponsored by companies can promote the cause they support, rather than a brand. Employees can be made more aware of alternative uses of office resources, and about saving paper, electricity, water and so on. Employees who believe in contributing to the society should be encouraged to assist the CSR committee in formulating a socially beneficial CSR policy.
Are the rules clear enough?
A bare reading of the new CSR rules may indicate simplicity and reader-friendliness. But close analysis of the fine print leaves ample room for ambiguity at various places.
While the Companies Act prescribes a specific method for computing net profits and the CSR contribution, the CSR rules take a step backwards in carving out exclusions from the net profit so calculated. Most shockingly, one of the exclusions provides that the profits of a branch of an Indian company located outside India cannot be merged into the profits of the parent company for the purpose of computing the two per cent contribution. This exclusion goes against the very mandate of Section 135 and is, to that extent, ultra vires.
Secondly, there appears to be a major contradiction in the rules in respect of the meaning of the words 'corporate social responsibility'.
The Companies Act, 2013, defines CSR activities to mean an identified set of activities set out in the separate schedule to the Act. However, a reading of the definition in the rules indicates that the list of CSR activities provided in the rules (which also includes the schedule activities) is only illustrative and not exhaustive. At the same time, an overall reading of the rules strongly suggests that the scheduled activities alone will be considered for the purpose of CSR. Whether or not social activities falling outside the purview of the schedule form a part of CSR activities still remains doubtful.
Another aspect of ambiguity in the new law that was expected to be corrected through the rules was the 'local area preference'. The Act provides that a company should give preference to the local area in which it operates for CSR spending. How would this work if a company has more than one operational office in the same city, or even otherwise? Is the location of a factory, as opposed to the corporate office, the target of preference?
The CSR rules have rightly excluded contributions directly or indirectly made to a political party from the scope of CSR activity. But, what about contributions made to institutions affiliated with one or more politicians or those located in a constituency represented by a politician who has some form of regulatory supervision or leverage over that company? What about activities/institutions being run under the trusteeship or office of a politician?
Another aspect of the rules that may be abused is the carve-out made in respect of CSR activities undertaken 'only' for the benefit of the employees and their families. Could the intent of the legislation have been to mean activities undertaken 'primarily' to benefit the employees? If a company undertakes a project primarily but not exclusively benefiting its employees, should that be considered CSR activity?
While the new rules are well-meaning, there is definitely room for further clarity and certainty. The last thing anyone wants is a select group of people with vested interests benefiting from this noble legislative initiative.

Ramesh K. Vaidyanathan is Managing Partner, and Pooja Thacker is Associate, at Advaya Legal Mumbai.

 

Career options in CSR

Wednesday, March 26, 2014

 

CSR is considered as philanthropy, but that’s not all, an organisation can accomplish growth with a responsible CSR programme
Corporate social responsibility (CSR) also called corporate scruples, corporate citizenship, social functioning, or sustainable responsible business / responsible business across the sphere  is a form of corporate self-regulation incorporated into a business model. Simply put, CSR is about incorporating economic, environmental and social aims within a company’s operations and development. An organisation can accomplish sustainable growth, if CSR becomes a fundamental part of its business process.

Business companies worldwide, have recognized, that it is essential to imbibe in their core strategic vision, the concept of not just financial returns, but  the important ingredient of social returns. Incorporating social returns is increasingly becoming the most sought after strategy for sustaining competitive advantage. Organisations increasingly realize the importance of sustainability in their business operations and in their long term strategies. CSR professionals, world over, understand how to approach business problems and seek solutions that draw from different disciplines within the organisation.

Scope
The Companies Act, 2013 makes it compulsory for Indian companies to deliberately spend  2% of their profits on CSR activities. This has given a new boost to the field of Corporate Social Responsibility.  The new law mandates corporations with net worth of Rs 500 crore or more, income of Rs 1,000 crore or more, net profit of Rs. 5 crore or more during any financial year to establish a CSR committee of the board, consisting of three or more directors, of which at least one director shall be an independent director.

Within private and government sectors, new employment opportunities are increasing. Professionals are taught to translate corporate strategies into their CSR activities. The chances of making a career will be sought after and CSR/sustainability, coordinators, directors and managers will become the new buzzword in the world of hiring consultants. In India, these activities are managed by different qualified managers who are not specialists in the field. There is a clear requirement for professionals who appreciate the dynamics of government functioning, flagship curriculum, economy models and social condition. Accepting government functioning is particularly significant.

Companies need to work with the government in many key areas which link health and education, even if they want to, they cannot just go to a slum and start some initiative. Mandatory corporate social responsibility is likely to enhance the demand for professionals by  50 per cent in the upcoming years and the industry is likely to see at least 50,000 more job opportunities in this sector.

Skills required for a CSR Professional
This is hard to elucidate due to the various roles and range of disciplines involved. Though the major skills necessary for a successful CSR Professional are: Business skills which include building insight, communication skills, decision making, commercial consciousness, IT, innovation, strategic awareness, leadership, handling complexity and problem solving. People skills like flexibility and understanding, developing others, determining without power, open mind, honesty, political consciousness, self-development and learning, building partnerships, team spirit and questioning, business as usual.

Technical skills include technical know-how, understanding impacts, stakeholder dialogue, internal consultancy, selling the business case, accepting human rights and understanding property.

Job Description
Corporate social responsibility managers are accountable for determining and formulating strategies which strengthen a company’s CSR aims. They carry out research, come up with ideas, develop policies, create comprehensive plans, build relationships with partner organisations, and then apply and synchronize a range of actions and initiatives, which are intended to have a positive contact on local communities.

A corporate social responsibility manager tends to engage prospects of marketing and promotion. Indeed, in this line of work, one can perform as an internal and external spokesperson for company’s CSR policies and projects. People are also accountable for creating awareness of company’s promise to CSR and generating publicity around your organization’s endeavors. Finally, corporate social responsibility managers are also liable for enrolling, handling and training junior staff members.

Eligibility
To enter into this profession, you will require an undergraduate degree in any discipline. However, studying an applicable subject, such as sociology, economics, international development, international studies, human rights, modern languages, marketing, PR, business studies, may boost your prospects of securing an entry-level position. Different types of course are available at Masters Level and as part of MBA courses. Specialized courses like Master of Social Works (MSW) MBA in rural development and Post Graduate Diploma in rural development provided by different Institutes and universities may be the right choice for a career in CSR. 

Salary & Benefits
Starting salaries depend on principal qualifications, skills and experience. Entry-level CSR officers tend to earn about Rs 5 lakh per annum, while a mid level professional with a few years’ of experience can earn around Rs 15 lakh per annum. Senior corporate social responsibility managers can get annual salaries  anywhere between Rs 40-60 lakh.  It can go upto Rs 1 crore for CEOs. CSR teams tend to be quite small, so if you work hard and have plenty of aspirations, you can progress quickly.
Prof. (Dr.) Sanjiv Marwah
The author is the Director of ERA Business School (EBS), Delhi’s Industry anchored B-School (Emerging Management AICTE-CII Survey 2013). He can be reached at director@ebsmail.in

CEO, the change agent to achieve sustainability goals

 

In a highly competitive world, the Top management is not only judged for the sales performances, but also on sustainability and HSE scorecard Rakesh Rao  |  Mumbai

In 2010, Unilever announced its ambitious vision to double its size while reducing its overall environmental footprint and increasing its positive social impact. Corporate world was surprised by the announcement, more by the timing than the objective, as the world was still struggling to deal with the fallout of financial crisis. This sustainability change was credited to Paul Polman who took over the role of CEO of Unilever in January 2009, when most of the developed markets were going through worst ever economic crisis. This shows how top management can play a role of change agent to achieve sustainability goals of the company in trying circumstances.

Not to be left behind, many chemical companies are now focusing on sustainability by adopting best practices in order to improve their health, safety and environment (HSE) performance. In their efforts to achieve sustainability goals, these companies are taking steps to optimally utilise their resources, providing value to customers and stakeholders, delivering solutions for customer needs and enhancing the quality of life of current and future generations.

“The integration of sustainability into our business was a natural step. We serve our communities by creating value through environmental stewardship, corporate social responsibility and economic prosperity. These commitments are an integral part of our drive for sustainability because they help our employees achieve, customers succeed, consumers live better lives, shareholders prosper and communities thrive; everything that helps create a more sustainable world,” said Vipul Shah, Chairman, CEO & President, Dow India.

At the helm of affairs
Sustainability is now a boardroom discussion topic. With support from the top leadership team, the topic forms the starting point of business operations at any chemical company. Naturally, to drive such ambitious goal one needs leaders at the helm, who believes in the concept. Shah believes, the sustainability agenda rests with the top management and plays a very vital role in driving sustainability within the company.

ALSO READ: CSR fostered-innovation can lead a change for the public good

Today, CEOs, MDs, etc are expected to proactively interact with employees to ensure adherence to international safety and sustainability standards. This is especially true for MNCs, where the top executive has to maintain the same global standards across locations, irrespective of the norms/regulations of the countries they operate in.

Bharath R Sesha, President, DSM India, said, “Leaders at all levels of the organisation are expected to show personal commitment to HSE and radiate the importance of safety, health and the environment in executive meetings and internal and external communication. We also have in place clear and transparent systems to measure our HSE performance and excellent training to positively impact HSE behaviour of all our employees.”

In complete control

DSM India's Bharath R Sesha

From being limited to corporate philanthropy, sustainability now is firmly embedded into all the business areas and is one of the important strategic parameters for any business decision. Given the universe the chemical industry operates in, it becomes imperative that manufacturers incorporate processes that are sustainable. Companies could adhere to global initiatives such as Responsible Care (led by Indian Chemical Council in India) to improve their HSE aspects on an ongoing basis. While the awareness on this front has increased in recent times, experts however believe a lot yet remains to be done. This can be achieved only through commitment from top management.

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R Mukundan, Managing Director, Tata Chemicals, opined, “The Responsible Care initiative acts as an enabler for continuous improvement in HSE performance, together with open and transparent communication with stakeholders. The role of top management is vital in ensuring chemical industry appreciates people, planet and profit through same lenses across the supply chain. This will also aid in making the industry more organised, responsive and inclusive.”

While top management play the anchor role in implementation of sustainability and HSE strategies, company has to sensitise its employees to have desired effect. Diane Kelly, Regional President, Dow Corning India, ASEAN, ANZ, said, “Best practices like HSE management systems are driven from the top of the organisation. But effective implementation of these systems is largely dependent on the commitment of people across all levels of the organisation.”

Walk the talk
There is a deep valley of difference between preaching sustainability and practicing it. Hence, top management have to ensure that employees are held accountable for their action, while they are given enough resources and training to achieve their desirable goal. Sesha commented, “We have a simple guiding statement that is communicated to all do it in a ‘HSE responsible way or not at all’, and we hold employees accountable for their HSE performance. All DSM employees ‘Walk the Talk’. For example, you can always identify a DSM employee if he/she asks a colleague, a friend or a business associate to hold the railings when climbing staircases. It’s a simple thing, but the simplicity of this gesture radiates the depth to which DSM has with regards to HSE.”

Today, chemical companies are trying to entrench sustainability and HSE in all work processes, from manufacturing products, to procurement, to supply chain management. Hence, role of top management becomes critical in ensuring that sustainability is embedded into business decision-making so that the company minimising its own footprint while delivering right solutions to the world.

CSR: An equal responsibility of SMEs

SMEs play a critical role in generating millions of jobs, especially at the low-skill level. It is imperative that India works towards making the smaller enterprises CSR compliant.

Samit Jain  |  Mumbai  March 27, 2014 Last Updated at 12:34 IST

Over 8,000 large companies complying to Corporate Social Responsibility (CSR) has been a remarkable policy adoption by the Indian Government. This move has put India in league with countries like Sweden, Mauritius and Norway who have robust policies on CSR for industries. But where India lags behind these countries is that the Companies Act does not successfully bring CSR into the mainstream.
  
 India is a country of SMEs. Schumacher said, “Small is Beautiful”. We need to make the small beautiful in India too. It is imperative that India works towards making the smaller enterprises CSR compliant. Employing close to 40% of India's workforce and contributing 45% to India's manufacturing output, SMEs play a critical role in generating millions of jobs, especially at the low-skill level. The country's 1.3 million SMEs account for 40% of India's total exports. SMEs have a much wider spread, hence a wider reach across communities. We can extrapolate and comfortably say, that the geographical reach through SMEs is vastly higher than through the larger enterprises.

UNIDO on its website on CSR defines Corporate Social Responsibility as a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. The SMEs need to realise that CSR is not just about spending money. It is an ‘attitude’. The excuse of being small will only prevent the SME from becoming world class.

SMEs are equally responsible towards making living conditions better for their employees and their families. What SMEs do not realise is that CSR is the only way through which the company can achieve a balance of economic, environmental and social goals. As we move ahead in the 21^st century – India can achieve its dreams, and turn its burgeoning young population into an asset only if each company big or small takes on responsibility for social, educational and environmental upliftment at large. This will go a long way in creating harmony between workers and the management, while at the same time addressing the expectations of all stakeholders in business.
 

E-waste management, Courtesy: Pluss Polymers

The smaller enterprises need to not always spend in rupee terms for CSR. They have to first educate themselves on CSR. The UN through its UNIDO programmes in developing countries has successfully defined a Triple Bottom Line (TBL) Approach, which has proven to be a successful tool for SMEs in the developing countries to assist them in meeting social and environmental standards without compromising their competitiveness. The TBL approach is used as a framework for measuring and reporting corporate performance against economic, social and environmental performance. SMEs need to realise that profit alone will not drive them to become successful. They have to successfully integrate environment and society with economics.

UNIDO continues to articulate very appropriately that “A properly implemented CSR concept can bring along a variety of competitive advantages, such as enhanced access to capital and markets, increased sales and profits, operational cost savings, improved productivity and quality, efficient human resource base, improved brand image and reputation, enhanced customer loyalty, better decision making and risk management processes”.

At a whopping approximately 48 million, India has the second largest number of SMEs in the world, after China. While SMEs are the predominant form of enterprise in India, it is essential that they also comply to CSR standards and are reportable to the government. The government should consider modifying the Companies Act to ensure at least a reporting by SMEs on what they have done. This will force them to begin to think on those lines.

Forcing, however, undemocratic it may sound, is often a tool to initiate and change thought processes. CSR could for beginning be within their organisation – More often than not, SMEs tend to ignore the environment within the company itself. They could even look at motivating and training employees on health, sanitation, skill development, environment - these would change the immediate environment and benefit their families which in turn benefits the company.

Figure 1

CSR initiatives will begin to result in higher motivation and loyalty among employees. This in turn will lead to better production efficiencies, lower employee turnover, and eventually lower costs for companies. Very soon, organisations will see an increased sales turnover due to the competitive advantage derived from a good CSR policy.

Compliance to CSR will ensure that the bulk of SMEs undertake the following to help produce quality products and derive customer satisfaction, thereby improving the overall environmental and social surrounding of each one of them (refer Figure 1).

Large corporations have significant impact on society and environment. They are concerned about their brand reputation too. Therefore, they invest in CSR. However, it is important to appreciate that social and environmental impacts are interconnected. The two are related and have to be treated as one by everyone, whether an individual, small enterprise or large enterprise. CSR has to evolve into ISR – Individual Social Responsibility - eventually for India to become developed. Hence, it is imperative that SMEs take on this responsibility. It is the government’s responsibility to enable such a revolution, by bringing in the SMEs into the CSR act in a careful and responsible manner. The rules have to be enablers and not irritants for the SMEs.

It is a no brainer that in India SMEs have frequently abdicated their environmental and societal responsibilities. This statement in no way implies that large organisations have become sustainable and are responsible. However, it will be fair to say that more and more large organisations have taken or are taking steps to reduce their environmental impact and in the process giving back to society, which is the very reason for their existence.

To create the sweeping change in education, environment and society that India needs, the returns from focussing on large organisations are diminishing with time. The focus has to shift to enabling SMEs to make an impact on the society and environment. The changes they can bring about, as they have done in manufacturing and contribution to the GDP, in turning India into a developed country through making an impact within their organisation and their immediate neighbourhood is enormous.
 
This, in no way is to imply that large organisations have become ‘sustainable’, or cannot do much to reduce their environmental or societal impacts. However, it is fair to say that a number of large companies have progressively undertaken steps and measures to improve their social and environmental performance.

Pluss Polymers' Samit Jain

It is also well known that the large organisations, being forced to disclose their wider sustainability impacts, have increasingly passed on the burden to the SMEs which form their supply chain. The significant environmental and social impacts of large organisations are hidden in their supply chains! This is because of increasing cost competitiveness. So, the government and auditors really need to get to the root of the problem.

India along with other developing countries is known for unsustainable practices of suppliers of raw materials (eg in electronics manufacturing, electroplating, dyeing or polymer recycling) or the unethical labour practices of production which is outsourced (eg in retail and clothing). These companies do not garner the same scrutiny as their large customers.
 
With a changing global economic landscape and the rising aspirations of the middle class in India, it is high time, SMEs begin to change themselves and factor in an attitudinal change towards the society and environment and do their bit in the progressive change required to turn India to a better place in the near future. SMEs should remember, if the society and environment around them fails, businesses will fail too. They should also consider CSR as minimising negative impact and creating positive impact in what they do every day of the week. If they begin documenting this, CSR will happen not just automatically, but within their existing resources!

CSR Rules: Ambit Of The Act Enlarged?

CSR Rules: Ambit Of The Act Enlarged?
Published on Tue, Mar 25,2014 | 18:15, Updated at Tue, Mar 25 at 19:12Source : Moneycontrol.com

By: Harinderjit Singh, Partner, Price Waterhouse

In Corporate Social Responsibility (CSR), a firm engages in actions that further social (and environmental) good, beyond the obvious interests of the company, its business relationships and that which is required by law. The Ministry of Corporate Affairs, Government of India has formally notified CSR provisions under the Section 135 of Companies Act 2013 (the ‘2013 Act) and the related rules effective from 1st April 2014. To decide the applicability of Section 135, audited accounts of any financial year will be taken into consideration with effect from 1 April 2014. Since the CSR spend amount is based on the average net profit of the last three years, companies can plan its CSR expenditure well in advance. The Companies Act, 2013 follows an ‘apply or explain’ approach. As per the provisions of section 135, a company with turnover of INR 1000 crore or more or a net-worth of INR 500 crore or more or net profit of INR 5 crore or more in any financial year shall constitute a CSR Committee and would be required to spend at least 2% of their average net profits of the past three years on CSR activities. If for any reason a company is unable to do so, they would be required to explain the reason for that. An annual report on CSR activities must be included in the Board Report of a company spending on CSR. The Schedule VII (the Schedule) of the 2013 Act states certain new activities that could be classified as CSR activities.. It elaborates in respect of certain existing activities and the scope of certain others has been enhanced. Still, the Schedule is restrictive in nature in terms of choice of the company. Many existing CSR programmes have to realign their activities with the newly amended Schedule VII. The Government should have permitted the companies to have their choice of CSR activities. The contribution of any State setup funds, social business projects has been removed. Further, it seems that the concept of shared value proposition has been ruled out, for instance, a company cannot choose a project which also support their business object. If a water purifier company do CSR in the area of providing safe drinking water and run a campaign to create awareness regarding safe drinking water, this will have a shared value proposition. Such company also derived some value for its future business prospects. It would have been better, if this shared value concept would have been recognised in the rules.The ambit of the Act does not specifically cover foreign companies, but Rules clearly includes foreign companies having its branch or project office in India. As per Section 135(1), CSR apply to every “company” who qualify as per mentioned thresholds criteria. As per Section 2(20) “company” means a company incorporated under this Act or under any previous company law. It seems that by this reading, we cannot infer that every “company” also includes foreign company. However, as per CSR Rule 3 (1) every “company” including its holding or subsidiary, and a foreign company defined under clause (42) of section 2 of the Act having its branch office or project office in India, which fulfils the criteria specified in sub-section (I) of section 135 of the Act shall comply with the provisions of section 135 of the Act and these rules. Section 2 (42) defines “foreign company” means any company or body corporate incorporated outside India which has a place of business in India; and conducts any business activity in India in any other manner. By the combined reading of above provisions of the section and rules together, it can be said that CSR provisions are also applicable to Foreign Companies having branch office or project office in India. However, the legal question is, can rule making power under Section 469, relax (exemption for Pvt. Companies from independent director requirement in CSR committee) or enhance the scope (CSR provisions applicable to Foreign Companies) of the provision of Section 135?The net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance the provision of clause (a) of sub-section (1) of section 381 and section 198 of the section. And, the CSR spend must be reported as an annexure in the balance sheet. CSR Committee of a foreign company shall comprise of at least two persons of which one person shall be as specified under section 380(1)(d) of the Act and another person shall be nominated by the foreign company.Further, CSR activities have to be carried out in India only to be qualified as CSR spend under the Companies Act 2013. Foreign companies having a branch office or project office in India are required to undertake CSR activities need to take approvals under the Foreign Contribution Regulation Act 2010 (FCRA). Such approvals under FCRA are administered by Ministry of Home Affairs. This CSR spend requirement will also trigger an amendment in the Foreign Exchange Management (FEMA) Regulations, as Indian branch of a foreign company can undertake only eight specific activities and CSR isn’t being part of those one of the specific activities, requires Reserve Bank of India (RBI) approval. Also worth noting is that Foreign Direct Investment (FDI) isn’t permitted in case of a trust or societies.Further the Rules are silent over the tax treatment. There is no clarification on the tax treatment of the CSR expenditure in the Rules. The request for clarification by the industry was based on the interpretation that if CSR is not “normal course of business”, such expenses may not be tax deductible expense.There is a provision in the CSR rule which says that companies may build on CSR capacities from their own personnel, subject to a maximum limit of 5% of the total CSR expenditure of the company in a financial year. It is not clear as to whether the time-value of the company’s personnel for CSR activities is allowed under this 5% limit.CSR is very novel concept and having a statutory provision regarding CSR in the law is very unique in the world. The Rules has been very prescriptive in nature, it spell out clearly as what is included as CSR and what will not be considered as CSR. The provision related to independent directors not being applicable to private company is a welcome change and relief to the private companies. The Rules allowing pooling of resources enabling companies to enhance their spend capacity to take bigger CSR project is a good idea. The recent notification under the Act along with ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Businesses’ released in 2011, this development is already being considered one of the most forward looking and futurist framework in recent times to help businesses become more responsible.

With inputs from Gajendra P Singh, Associate Director -Price Waterhouse

CSR / Sustainability - Do new leaders have sustainable answers?

Do new leaders have sustainable answers

Top companies have a vital role in stimulating growth, but it must be inclusive

Last September, at the UN Global Compact Leaders’ summit in New York, we published the global findings of our study of 1,000 CEOs’ attitudes towards sustainability. Since then we have discussed the findings in Davos, in January, and published specific findings in February in both China and India — with the Global Compact Network India.

Reflecting on the discussions, we have noticed a distinct change in tone throughout: from one of crisis and survival in the recent past, to a determination to tackle issues of sustainable growth and to look forward, albeit with a cautious optimism.

It is fair to say that this determination has been particularly evident in Indian business leaders.

Communities, the key

With a rising fiscal deficit and slowing GDP in India, the challenge of sustainable growth has put the spotlight back on business. We know that leading companies have a critical role to play in stimulating growth, but also that this growth must be inclusive. It is no surprise then that 63 per cent of Indian CEOs see communities as their most important stakeholders in the next five years.

The message from Indian business leaders seems to be that philanthropy is good, but it is not enough and not the same as driving sustainable core business. Indeed, only 16 per cent of Indian CEOs feel that consumer demand is motivating them to take action on sustainability at the moment (a stark contrast to the ‘global’ average of 47 per cent). But this may change.

Around half of the CEOs said that consumers would become a major stakeholder within five years. Again, that’s less than the global average (64 per cent) but it’s still a big growth.

The study also demonstrated that business leaders are frustrated at the pace and scale of change on sustainability. Of the 32 Indian CEOs we spoke to, only 22 per cent felt that the global economy was on track to meet the demands of a growing population. Although 66 per cent felt that sustainability would be ‘very important’ to their future business success, only 44 per cent believed that business as a whole is making sufficient efforts to address sustainability challenges. Many describe a recurring ‘pilot paralysis’, and the parallel danger of overly celebrating these undoubtedly powerful examples as if the change was already happening at scale.

Whether it be at the UNGC summit, at Davos or at publication launches around the world, the same questions seem to be on CEOs’ minds: How can we get beyond pilot projects and incremental change? How can we work together to recognise and reward sustainability leaders? And what would that look like in the most important emerging economies such as India?

Finding answers

Our study, comprising contributions from more than 1,000 CEOs worldwide, demonstrates that some companies — the ‘Transformational Leaders’ — are beginning to find answers to these questions. Not just societal benefits, these leaders are outperforming their peers on measures of traditional economic and sustainability leadership.

On profitability, for example, these leaders on average outperform 59 per cent of their respective sectors, and 65 per cent of their sectors on total shareholder returns, over three- and seven-year time horizons.

At the same time, on average, they reduced absolute carbon emissions by 13 per cent from 2008 to 2012, while reducing carbon intensity of revenues more than four times faster than their peers.

Already in India, we can see signs of leaders exploring new opportunities while delivering social and environmental value to local communities.

A good example of the power of partnerships is a joint venture among Bharti Airtel, IFFCO and Star Global to provide a ‘Kisan Sanchar’ service, allowing the operators to extend coverage into rural markets, while providing information on weather, prices and farming techniques to farmers. Similarly, Unilever’s ‘Shakti Ammas’, ITC’s e-choupal, and the Tata ‘Swach’ water filter, are stellar examples of sustainable innovation.

Distribution losses cut

Likewise, Tata Power’s roll-out of smart grids at its Delhi network has significantly reduced distribution losses, as well as showcased a pathway towards the low carbon Indian economy of the future. We are also seeing an increasing focus on demand side measures, but with the global carbon price collapse, some of these investments could be precarious without the right incentives and markets.

As many as 63 per cent of Indian CEOs already see difficulties in operating environments as the most significant barrier to sustainability implementation and nearly all of them (97 per cent) want governments and policymakers to provide market signals that support green growth.

In the innovations of these leaders, we can see the seeds of a new approach to sustainability. But few, if any, of these transformational leaders are seeing their impact add up to speed and scale required for aligning markets with sustainable development.

Nonetheless, there are important lessons here for Indian business leaders on where future opportunities and competitive advantage in driving both business results and sustainability will lie on an Indian and global stage.

Peter Lacy is Managing Director, Strategy and Sustainability Services in Asia Pacific, based in Shanghai. Pranshu Gupta is a Senior Analyst in Accenture Sustainability Services, based in Delhi.

(This article was published on April 1, 2014)

Utilise CSR for social change and brand-building

 

 

 

 

 

 

 

 

 

 

 

Mar 31, 2014, 05.47AM IST

 

(Starting tomorrow, an estimated…)

  Ravi Venkatesan Starting tomorrow, an  estimated 16,000 companies will finally have to start discharging their corporate social responsibility (CSR) as per the new Companies Act, 2013. If most companies actually comply with the requirement of spending 2% of their profits on CSR, an estimated Rs20,000 crore and substantial expertise will flow to the social sector.

This tidal wave is both an opportunity and a challenge. Clearly, the funding will be of immense help given the ocean of needs in India. However, there is also a high risk of money being misspent and stolen. India has nearly three million NGOs. However, many are fraudulent and even many genuine NGOs do not have the capacity to absorb substantial funds.

On the flip side, the vast majority of companies, even otherwise-sophisticated and well-intentioned ones with a long tradition of philanthropy, do not have much of a clue about how to put their money and talent to good use. They often confuse CSR with charity and end up practicing "chequebook philanthropy" — which is simply writing cheques for random requests without any real strategy and, therefore, with very little sustainable impact. Unfortunately, many other companies are busy finding all the loopholes that will enable them to evade their responsibility.

Given this backdrop, how do you approach CSR sensibly?
First, it's important to realise that CSR isn't just about compliance with a new Act. It is strategic. Done well, CSR contributes to building corporate reputation and trust. This is critical because trust in businesses is very low, and people are disgusted with corrupt business practices and crony capitalism.
CSR is also a fantastic way of engaging employees. There is a growing desire among educated people to "give back" to society, and a company's social initiatives are an excellent outlet for this desire.

Test Run
Working on tough social challenges is also a good way of rounding out rising leaders, and companies that develop a reputation for doing well and doing good are able to better attract talent. Finally, CSR projects can be an important source of innovation.
Microsoft's work in digital literacy has not only helped nearly 40 million children, it has also inspired product innovations such as Multipoint Server that enables many children to concurrently share a single PC.

Similarly, Hindustan Unilever's work in rural markets has resulted in the Shaktiamma rural distribution model that today drives 10% or more of the company's revenues.

Second, it is critical to have the right leadership for your CSR work. The new Act specifies that a company must set up a board committee to oversee CSR with at least one independent director on it.
This is mandatory, but insufficient. You also need to appoint a credible leader who will help shape your CSR strategy, evangelise this to employees, build external partnerships and communicate the impact being created. This cannot be accomplished by a junior manager tucked away deep in the HR department. It has to be a capable leader, well regarded in the organisation and with ready access to the CEO and senior leaders of the company.

 

It is equally important to pick the areas of focus for your CSR work. Investing in vocational training or literacy in communities around the company's facilities is an obvious area.

Picking areas adjacent to your core business has great merit because these have the greatest potential to sustain. So, if you are Nestle or ITC, initiatives that help farmers is natural.

However, there are a number of desperately underfunded and important areas that are important to consider, for instance, support for performing arts or support for NGOs that are working on human rights or governance. This is a uniquely opportune time to imaginatively create a portfolio of areas where you want to have impact.

Cheque Writer to Investor
The most important thing, though, is to graduate from chequebook philanthropy to impact investing. Your company is going to be spending 2% of its pretax profits. This is a big deal and needs to be approached with the rigour of a venture capitalist. You need to have a disciplined approach with clear criteria for making grants to the most deserving non-profits.

Structural Strength
Mutual expectations and impact metrics must be documented in a simple but stringent MoU. There must be a good process for involving employees to work with each grantee to help build capacity in specific areas like finance, IT or marketing.

Finally, there must be a disciplined annual review of each grantee as well as the whole portfolio that drives necessary course correction.

Instead of seeing CSR as an onerous imposition and a 2% tax, see it instead as a 2% investment in building corporate reputation, employee engagement and innovation. Real CSR not only renews the implicit licence to operate given by society to your company, it helps create a functioning society that
we can all live in.

The writer, former chairman of Microsoft India, is chairman of Social Venture Partners India

 

 

 

Feedba

CSR - How commexes can bring social, economic changes

by..... Nilanjan Ghosh

 

1

Their potential in aiding cluster development is immense

March 20, 2014:  

 

Michael Porter and Mark Kramers’ magnum opus “Creating Shared Value” (CSV) is different from corporate social responsibility (CSR).

 

CSR programmes essentially emerge as necessary expense for a firm in a market economy to improve its reputation. CSV, on the other hand, reflects on the interconnectivity between societal and economic progress, and according to Porter and Kramer, “… has the power to unleash the next wave of global growth”. CSV postulates that competitiveness of a firm and the social development indicators are interdependent.

 

According to Porter and Kramer, the market economy can unleash the next upsurge of global growth only when societal concerns enter into core strategic decision-making of firms. There are three key ways in which firms can create shared value opportunities: by reconceiving products and markets; by redefining productivity in the value chain; and by enabling local cluster development.

With this premise, one needs to look at the core business of commodity exchanges. The principal objectives for which commodity exchanges have been set up in India are hedging and price discovery. While hedging is a micro-level function of the exchange, price discovery is a macro-level function, both of which, if performed properly points to inextricable entrenchment of the commodity exchange in the business of creating shared value.

 

Reconceiving Products
Firms can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation. Commodity exchanges in India are doing that, though not truly to the full potential. Exchanges have been proactive in re-conceiving products such as mini- and micro-contracts thereby enabling small traders and SMEs’ access to cost-effective risk management. Services such as Exchange of Futures for Physicals (EFPs) have also been conceptualised. The potential in this domain is huge, but existing regulations act as limiting factors for further innovation, as only plain vanilla futures can be traded in the Indian commexes, and products such as options, indices, and other exotic products are not allowed.

 

Redefining productivity 
While performing their desired macro-level and micro-level functions, in certain commodities, the commodity exchange has opened new vistas in the form of separate marketing channels. The emergence of efficient marketing channel has unlocked significant value in mentha oil, benefitting mentha farmers, processors, exporters, and consumers. The profoundness of this impact can be made out from the emergence of India as the major exporter of processed mentha crystals, displacing China. Mentha oil futures allowed processors to manage raw material risk – price, quantity and quality risks – all of which enabled Indian exporters to provide better price and delivery commitments to international buyers. Such a facility helped them consolidate at a time when Chinese exporters were defaulting on export commitments. Moreover, the high export prices of processed mentha crystals have been transmitted as high farm-gate prices of mentha oil due to the competitive structure of the trade channel, which has ultimately benefitted farmers.

Cluster Development

While documented evidence on this ground is less, there is no doubt that the potential for the comexes for cluster development is immense. It needs to be appreciated that the electronic platform makes the business operate at national levels, rather than local levels. Local cluster development, therefore, need not be thought of as merely having local suppliers or developing local infrastructure. Rather, cluster development needs to be viewed through the prism of community development. The gold ecosystem, by itself, has benefited substantially from gold futures by the process of price discovery/ dissemination and hedging, but the most critical driver of this ecosystem development is technology. Through the business model itself, there has been ecosystem development in the form of warehousing, testing, assaying, etc. According to an estimate of 2011, the commodity exchange business has given rise to employment of around 1.5 million through ecosystem development.

 

The movement from here
 That a development of an institution like the commodity exchange brings with itself social, economic, physical, and philosophical changes was best exemplified by the history of evolution of the Chicago Board of Trade in US. While development of CBOT led to the various demands for infrastructure development, the development of enabling infrastructure also helped CBOT emerging as the prime trading forum. The importance of CBOT thus emerges from the changes in the institutional practices not only in the domain of agricultural marketing, but from the impacts that it created at the socio-politico-economic stratum of human existence. Can we see Indian exchanges moving towards that direction?

 

(Nilanjan Ghosh is Chief Economist at MCX (I) Limited. Views are personal.)