Planning, monitoring and assessing the impact of CSR projects

Planning, Monitoring and Assessing
the impact of CSR Projects

ENHANCING BOARD PERFORMANCE
November 16th 2013, Kolkata
1

Does business have any...

Social Responsibility at all?
2

“The business of business is to
make money for its shareholders”
- Milton Friedman*, Economist

* American economist and writer who taught at the University of Chicago for
more than three decades. He was a recipient of the 1976 Nobel Prize in
Economics. As a leader of the Chicago school of economics, he profoundly
influenced the research agenda of the economics profession. The
Economist described him as "the most influential economist of the second half of
the 20th century...possibly of all of it”.
3

However, not everyone agrees with Friedman..
“Every single pressing social and global issue of our time is
a business opportunity”.
“Management is a matter of world affairs”.
- Peter Drucker*
*Writer, professor, management consultant, hailed by Business Week as “the man who invented
management”. Drucker’s 39 books, along with his countless scholarly and popular articles, predicted
many of the major developments of the late 20th century.

4

CSR has a triple bottom line focus
• Traditionally, companies measuring their
success by traditional method: the good old
fashioned FINANCIAL bottom line
• CSR has two additional bottom line focus;
– SOCIAL bottom line
– ENVIRONMENTAL bottom line

• Annual report includes or has addendum:
Social Report
5

The Triple Bottom Line*

Environmental

Triple Bottom Line

* A term coined by John Elkington, founder of Sustainability, a think tank and consultancy that works with

businesses through markets in the pursuit of economic, social and environmental sustainability.

6

CSR has started impacting company performance……
Vedanta Resources, the mining company routinely
criticized for its performance on human rights, the
environment and safety, has been attacked by a top
City investor for allowing its poor sustainability record
to depress its share price. At its annual meeting in
central London on Thursday, which also heard from
human right campaigners including the former model
Bianca Jagger and Peter Frankental from Amnesty
International, Stephanie Maier, head of corporate
responsibility at Aviva Investors, said Vedanta's

shares had underperformed mining peers
by 29% since 2010
She added that, while the miner had made improvements, its independent directors were too weak to
push through significant change. "This cultural change should be driven by the board, and an
appropriately skilled and experienced board is therefore crucial. We are

disappointed, therefore, to see another director [Deepak Parekh, who joined the
board last month] appointed without a credible track record in mining or
sustainability issues and we withhold support for all non-executive directors as we do
not consider that there is sufficiently robust and independent challenge and oversight at board level.

- Simon Goodley, The Guardian Thursday 1 August 2013

7

In India…CSR is now a mandatory requirement
• Corporate Social Responsibility (CSR) has, for the first

time, been recognized under Company Law.
• Clause 135 (under Chapter IX – Accounts of Companies) of
the Companies Act, 2013 deals with Corporate Social

Responsibility.
• Clause 135 contains 5 sub-clauses with one Explanation.
• Schedule VII of the Companies Act, 2013 lists out the CSR

activities.
8

Companies Act 2013 and CSR
What will be the role of the Board of Directors with respect to CSR?
•

Review the recommendations made by the CSR Committee

•

Approve the CSR Policy for the company

•

Disclose contents of the Policy in the company's report/website

• Shall ensure that the company spends in every financial year, at
least two per cent of the average net profits
How much will a company be required to spend on CSR?

• At least 2% of its average net profit made during the three
immediately preceding financial years
9

What does your company need to disclose in the Annual Report with
respect to its CSR activities?

The Boards financial report under sub-section (3) of section 134,
shall disclose the composition of CSR committee, CSR policy and
initiatives
Amount of expenditure incurred on Corporate Social Responsibility
activities

Valid reasons in case of failure to spend the earmarked CSR budget
10

What are the activities that your company can undertake as approved CSR activity?

According to Schedule VII, Activities – as a Project Mode, which may be included by
companies in their Corporate Social Responsibility Policies are:
1.
2.
3.
4.
5.
6.

7.
8.
9.

Eradicating hunger and poverty
Promotion of education
Promoting gender equality and empowering women
Health - reducing child mortality, improving maternal health, combating HIV,
AIDS, malaria
Employment enhancing vocational skills
Contribution to PM's 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
Ensuring environmental sustainability
Social business projects
Such other matters as may be prescribed

11
The specified activities are based on the Millenium Development Goals adopted by the UN General Assembly

What happens if my company’s current initiative is not in the list?
The list in schedule VIII to the Companies Act 2013 while specifying activities
under CSR states- ‘activities which may be included by companies in their
Corporate Social Responsibility Policies’.
The listed activities are largely as specified in UN Millennium Development
Goals.
So the list does not appear to be not binding but suggestive in nature.

12

CSR and India Inc.
According to industry estimates, the mandatory CSR
rules would apply to close to 9,000-10,000

companies.
"This money would not come to the government of India. It is the companies'
money and they can spend as per the decision taken by the CSR committee of
their board. But they must report the same," Pilot said. "Our assessment is that

if every company that is qualified for doing the CSR does so, then
Rs 15,000-20,000 crore would be spent in a year in various projects
such as environment, skill development, water, sanitation etc. We have left the
canvas very wide as we thought it would not be proper to make it restrictive."
Source: http://businesstoday.intoday.in/story/sachin-pilot-on-corporate-social-responsibility-companies-act/1/198487.html
13

CSR and India Inc.

Source: Business Standard, November 4, 2013

14

CSR and India Inc.
•

Most companies in India engage with local communities near their area of
operations, and the beneficiaries of CSR activities are generally the local
population.

•

Most firms have adopted the same sectors for CSR (e.g., healthcare, or
education), and then they spend CSR budgets on a project to project basis -doing
some health camps, adopting a village, building a road, maintaining a facility, and
so on.

•

Such project to project variations in CSR initiatives is seemingly devoid of a
strategy , and also shows a lack of synergy with business operations.

An attempt to align the business strategy with CSR strategy will help firms to leverage
their CSR expenditures . A directional change in perspective of Indian corporations is
required in the planning and strategizing of their CSR operations .
Source: Singh, Ramendra & Agarwal,Sharad (2013);Corporate Social Responsibility for Social Impact:
Approach to Measure Social Impact using CSR Impact Index, WPS 729/2013,Working Paper Series, IIM
15
Calcutta

Stages in the evolution of corporate CSR
SR

Each stage provides more direct and concrete benefit to the corporation’s CSR strategy its
mission.
16

Strategic CSR
Strategic corporate responsibility is a
business strategy that is integrated with core
business objectives & core competencies to
create business value and positive social
change, and is embedded in day to day
business operations.

17

Responsible Banking from YES BANK – an example of
integrating and mainstreaming CSR

18

Measuring value creation from ESG (CSR) activities

Source : Mc Kinsey study findings, 2009
ESG : Environment, Social and Corporate Governance

19


20


21


22

Measuring outcome is key to a successful CSR program…

“What gets measured, gets done.”
“… the general tendency in many companies is to
evaluate performance primarily on the basis of cost
and efficiency. There are many more criteria to
judge…”

Peter Drucker (1909 – 2005)

23

CSR reporting standards
‘Sustainability Guidelines’ developed by
the Global Reporting Initiative
(www.globalreporting.org)

SA800 certification developed by
the international human rights
organisation Social
Accountability International.
(www.sa-intl.org)
24

CSR reporting standards.....contd.
The Green Globe programme for
‘benchmarking, certification and
performance improvement’, based on
Agenda 21 proposals from the 1992 Rio
Earth Summit
(www.greenglobe.org)
ISO 14000 international environmental
management standards

(www.14000.org)
25

CSR reporting standards.....contd.
The United Nations Global Compact
(UNGC) framework and mechanism
designed to encourage businesses to
adopt CSR policies
(www.unglobalcompact.org)
The FTSE 4 Good Index –
measures the performance of
companies who meet globally
recognised CSR standards.
(www.ftse.com/Indices/FTSE4Goo
d_Index_Series)
26

…however defining the outcome is not an easy task !
135 (4) The Board of every company referred to in subsection (1) shall,—
(a) after taking into account the recommendations
made by the Corporate Social Responsibility
committee, approve the Corporate Social
Responsibility Policy for the company and disclose
contents of such Policy in its report and also place it
on the company's website, if any, in such manner as
may be prescribed; and
(b) ensure that the activities as are included in
Corporate Social Responsibility Policy of the company
are undertaken by the company.
27

Framework for evaluating CSR Projects

from: Singh, Ramendra & Agarwal,Sharad (2013);Corporate Social Responsibility for Social Impact: Approach
to Measure Social Impact using CSR Impact Index, WPS 729/2013,Working Paper Series, IIM Calcutta
28

Measuring returns from CSR projects
• Social impact index= Net improvement in quality of life, and number of
lives affected due to the nature of the CSR activity and based on the needs
of the Targeted Beneficiary ( in terms of increase in awareness in
social, economic, health, environment, education, political, and other
areas of life etc)
• Economic impact index= Net improvement in
incomes, wealth, savings, and assets, and number of lives affected, due to
the nature of the CSR activity, and based on the needs of the Targeted
Beneficiary( in terms of economic value created, income-generating assets
created etc).
• ROI = (Net Social Value created for TB +Net Economic Value created for
TB)/Financial Investment of the firm.
ROI be calculated by external auditing firms every 6 months after the
beginning of the project, until at least after 5 years of the completion of the
activities to ensure that the impact is sustainable, and was not short-lived.
from: Singh, Ramendra & Agarwal,Sharad (2013);Corporate Social Responsibility for Social
Impact: Approach to Measure Social Impact using CSR Impact Index, WPS 729/2013,Working
Paper Series, IIM Calcutta

29

Please visit my Author’s page at
http://ssrn.com/author=1714442 for
access to my papers and research on
Corporate Governance with specific
reference to India.
Comments and views are welcome at
spande@nihilent.com
30

CSR & the Companies Act, 2013

32

Clause 135 of the Companies Act,2013
135. (1) Every company having net worth of rupees five

hundred crore or more, or turnover of rupees one
thousand crore or more or a net profit of rupees
five crore or more during any financial year shall

constitute a Corporate Social Responsibility Committee of
the Board consisting of three or more directors, out

of which at least one director shall be an
independent director.

135(2) The Board's report under sub-section (3) of section
134 shall disclose the composition of the Corporate Social
Responsibility Committee
33

135 (3) The Corporate Social Responsibility
Committee shall,—
(a) formulate and recommend to the Board, a
Corporate Social Responsibility Policy which shall
indicate the activities to be undertaken by the
company as specified in Schedule VII;
(b) recommend the amount of expenditure to be
incurred on the activities referred to in clause (a);
and
(c) monitor the Corporate Social Responsibility
Policy of the company from time to time.
34

135(5) The Board of every company referred to
in sub-section (1), shall ensure that the
company spends, in every financial year, at
least two per cent. of the average net profits
of the company made during the three
immediately preceding financial years, in
pursuance of its Corporate Social
Responsibility Policy:
35

Provided that the company shall give preference to the local
area and areas around it where it operates, for spending
the amount earmarked for Corporate Social Responsibility
activities:
Provided further that if the company fails to spend such
amount, the Board shall, in its report made under clause
(o) of sub-section (3) of section 134, specify the
reasons for not spending the amount.
Explanation.—For the purposes of this section “average net
profit” shall be calculated in accordance with the provisions
of section 198.

36

Planning, monitoring and assessing the impact of CSR projects

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