Strategic CSR

Whatever I dig from Earth, may that have quick growth again.
O Purifier, may we not injure your vitals or your heart
-Atharva Veda
XII
Sarvo lokah Hitam
-Rig Veda (1-
8)
The King has to submerge his personality into the
development of his subjects
-Arthasashtra, Chankya

Bahujana sukhaya, Bahujana hityacha

-Arthasashtra, Chankya
 3

Strategic CSR
Now What in God’s name is this

Sub-category of Corporate Social

Responsibility (CSR)
Incorporates both ethical CSRand altruistic CSR by performing
activities that are advantageous to the community, as well as
providing profit through goodwill.
A well-known example of this is Toyota's development of the
hybrid electric/gasoline car Prius. As environmental concerns have
increased, Toyota stole a march on major competitors such as
General Motors and Ford by creating a series of innovative car
models that have both produced competitive advantage and
environmental benefits.
Similarly, Mexican construction company, Urbis, builds houses for
disadvantaged buyers using different payment options such as
flexible mortgages made through payroll deductions. The social
impact is clearly around helping the disadvantaged afford decent
homes whilst, at the same time, Urbis has business benefits.
 4

Company Act 2013

An Insight into CSR

What if they can’t Spend

If the company fails to spend this
Setting Up amount on CSR, the board must
Set up a CSR board disclose why in its annual report
(the act does not provide any
committee, which must
guidance on what constitutes
consist of at least three
acceptable reasons for which a
directors, one of whom must
company may avoid spending 2
be independent.
percent on CSR)
How much to spend
Company spends “at least 2
percent of the average net
profits of the company made
during the three immediately
preceding financial years” on
“CSR” activities

Any company that is incorporated in According to Indian Institute of

India, whether it is domestic or a Corporate Affairs, a minimum of
subsidiary of a foreign company 6,000 Indian companies will be
• net worth of Rs. 5 billion or more required to undertake CSR
• turnover of Rs. 10 billion or projects and CSR commitments
more from companies can amount to
as much as 20,000 crore INR
• net profit of Rs. 50 million or
more
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Interpreting CSR
Deep Dive into the Act

Activities
gender equality, combating human immunodeficiency virus, ensuring environmental sustainability,
social business project and employment enhancing vocational skills vocational skills development
A
CSR as activities that promote poverty reduction, education, health, environmental sustainability,

Options O
Companies can choose which area to invest in, or contribute the amount to central or state government
funds earmarked for socioeconomic development P
Preference
The CSR Committee shall also prepare the CSR Policy in which it includes the projects and program. The act
specify that companies “shall give preference to the local area and areas around where it operates.”
 6

What Activities
These are neither mutually exclusive nor collectively exhaustive ;)

Education
• Promotion of Education E
• Creating Infrastructure
Environment
E •
•
Environmental Sustainability
Sanitation and Hygiene

Health
• Reducing Child Mortality and
improving maternal health H
• Combating HIV-AIDS, Malaria and
other diseases
Others
O • Employment Enhancing Vocational
Skills
Society • Contribution to Prime Minister’s
relief fund and other funds

•
• Social Business Projects
Gender Equality and Women
S
Empowerment
 7

Key Points of the Act

1 Surplus arising out of CSR activities will have to be reinvested into CSR
initiatives, and this will be over and above the 2% figure

The company can implement its CSR activities through the following methods:
• Directly on its own

2
• Through its own non-profit foundation set- up so as to facilitate this initiative
• Through independently registered non-profit organizations that have a
record of at least three years in similar such related activities
• Collaborating or pooling their resources with other companies

3 Only CSR activities undertaken in India will be taken into consideration

4 Activities meant exclusively for employees and their families will not qualify
 8

Impact of the Act

Public companies are

Average CSR expenditure Indian Firms are spending
spending more on CSR
in India has gone up more than foreign firms than Private companies
 9

Benefits of CSR
Employer Branding
Several human resource studies have Communities as Suppliers
shown that companies that encourage and 2 3 There are certain innovative CSR initiatives
enable employees to participate in CSR emerging, wherein companies have invested in
activities are better at attracting, retaining enhancing community livelihood by incorporating
and motivating them. them into their supply chain. This has benefitted
communities and increased their income levels,
while providing these companies with an
additional and secure supply chain

Avoiding community unrest:

CSR initiatives in local communities by Enhancing Corporate
environmentally polluting companies also 1 Reputation
help in avoiding protest movements and 4 Expenditure on CSR
future governmental regulations. The
‘license to operate’ is no longer given by increases firms’ profitability by
governments alone, but communities building goodwill and a
that are impacted by a company’s positive image in the eyes of
business operations consumers, suppliers and the
government.
 10

Relationship between CSR & Profitability

Corporate groups have criticized the mandatory clause in the Act, as it will
decrease the profitability of firms.

However, this doesn’t seem to be the case.

Not only is there a positive correlation between profit and CSR, the probability of
higher spending on CSR increases as the firm becomes bigger.

Smaller firms with lesser resources at their disposal are less likely to adopt
strategic CSR. They usually adopt philanthropy and community development
activities such as schools for kids of employees, donations to religious
organizations etc. Larger companies, on the other hand, indulge in strategic CSR
activities that are closely linked to the company’s business goals and have higher
payoffs.

Strategic CSR

Community Development

Charity
 11

Pattern of CSR by Major Sectors in 2013

Health Education Community Development/Rural Development Environment
60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%
Oil & Gas Automobile Consumer Iron & Steel Banking & Power Infrastructure Cement Paper &Pulp Pharmaceutical
Durables Financial
Services

Source: Analysis of CSR Expenditure In India, http://www.epw.in/web-exclusives/analysis-corporate-social-responsibility-expenditure-india.html

• Contrary to developed countries where CSR activities are undertaken mainly in the area of environment, in India it is mainly undertaken in the social sector.
• Most firms undertake CSR expenditure for the welfare of rural communities, especially around their areas of operation.
• A possible reason could be to generate goodwill amongst people in the neighborhood and become familiar with the area and its needs, which in turn would
minimize costs of providing services.
 12

Sector-wise CSR
Community Development

Oil and Gas: PSUs have been found to spend the most on development of • Power Sector: In the power sector, firms spend predominantly on community
townships and community, with a special focus on education. and rural development.
• They undertake community development in and around their • They undertake development measures for communities which stay close to
areas of operation. their plants through foundation and trusts.
• This may be because the communities living close to their area of • They emphasize on the provision of educational facilities and skill
operation are most affected by negative production externalities. development programs.
• For example, the Indian Oil Corporation runs mobile medical units • For example, Jindal Steel carries out its CSR activities through its own
in Mathura and has setup a nurse training institute in Digboi, trusts, which lead to saving of transaction costs and creation of goodwill in
Assam. It has also spent a lot on the school education of children the local area. Public sector units like NHPC and NTPC focus on
who live near their plants and in their townships. rehabilitation and resettlement of the communities displaced by construction
projects.
 Sector-wise CSR
Environmental Sustainability

Automobile Sector: Most of the companies in the automobile sector spend Cement Industry: Cement industry is another highly polluting industry.
mostly on environmental sustainability, • Shree Cements which was given a very low rating by the CSE Green
• Mahindra and Mahindra focuses more on environment by Rating program has focused more on sustainability.
committing to reduce greenhouse gas emissions.
• It has adopted the “triple bottom line” approach, where the focus is on
• It has introduced various sustainability measures in its plants like profit maximization, employee welfare and environmental
xeriscaping, green buildings and water efficient plants. sustainability.
• This can be attributed to the fact that the automobile sector is one of • In its sustainability report, it has focused on climate change and
the most polluting industries in India. reduction of greenhouse gases during production.
• Some like Tata Motors focus on education and skill development as • Grasim Cements, which has a comparatively higher rating, has
well.
focused more on community development and rural development.
 14

Sector-wise CSR
Healthcare and Education

• Banking Sector: Companies in the banking sector spend mainly • Consumer Durables: In the consumer durables and fast moving consumer
on priority sector areas. goods industry, companies focus on healthcare and education.
• They count the 40% mandatory priority sector lending as a part of • The Godrej group supports environmental sustainability by supporting
their CSR activities. conservation of mangrove forests and undertakes philanthropic activities in
• However, banks such as Jammu and Kashmir Bank undertake the health and education sector.
activities other than priority sector lending also. • They conduct blood donation camps, conduct cleft lip surgeries with Smile
• They support schools and provide funds for meeting educational Train, a NGO.
expenses. Studies have shown that banks spend more on • Similarly, Hindustan Unilever (HUL) focuses on improving health and
education and environment in order to strengthen their image and well-being and reducing the environmental impact of its production
increase consumer satisfaction. activities.
 15

ITC e-Choupal
Communities as suppliers

There are certain innovative CSR initiatives emerging, wherein companies have invested in enhancing community livelihood
by incorporating them into their supply chain. This has benefitted communities and increased their income levels, while
providing these companies with an additional and secure supply chain
 16

CSR Disparity Among States

• Economic activity in a state depends on 2 factors: • Just seven states—Maharashtra, New Delhi,
per capita income and headquarters of largest Karnataka, Tamil Nadu, Haryana, West Bengal, and
companies Gujarat—are home to 87 percent of ET250
• The top 10 states have an average per capita income companies
of $2,073, well over double the per capita income of • Eradicating hunger, poverty, malnutrition,
the bottom 10 states—$944 promoting health care, including preventive
• States such as Bihar, Assam, Jammu, Kashmir, and health care and sanitation; and making
others on the lower end will likely receive a much available safe drinking water are six of the
lower infusion of corporate CSR distributions as social issues highlighted in the Companies Act
fewer companies have operations there for a company’s CSR activities
• In the 10 states with the highest per capita
income levels, about 1.2 percent of children are
severely malnourished while for the bottom 10,
its 3.6 percent
• Poverty rates is 12.3 percent for the wealthier
ones as compared to poorer states
• Infant mortality rate is 30 against 46.5 for
wealthier states against non wealthy ones
 17

Size and Economic Vibrancy of States

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 18

CSR Expenditure of India’s Largest Private-sector

Companies

2013-14 CSR Spending (USD Millions) CSR spending as Percentage of Net Profits
140 6

120 5
100
4
80
3
60
2
40

20 1

0 0
Reliance Tata MotorsTata Steel Hindalco Bharti Airtel L&T TCS ICICI Mahindra & Sesa Adani Infosys JSW Steel HDFC
Industries Mahindra Sterlite Enterprises Bank
 19

CSR Expenditure of India’s Largest Public-sector

Companies

2013-14 CSR Spending (USD Millions) CSR spending as Percentage of Net Profits
60 1.8
1.6
50
1.4
40 1.2
1
30
0.8
20 0.6
0.4
10
0.2
0 0
IOCL BPCL HPCL SBI ONGC
 20

Mismatch

Mismatch prevails between regions with high levels of The world is moving to a
economic activity, and those areas with the most critical dematerialized form of commerce.
social development needs, such as public health, With the rise in electronic
disease prevalence, gender equality, poverty, infant commerce, some of the world’s
mortality levels, and other important indicators largest companies today and in
the future will have an even
Companies tend to spend in the areas where they have smaller operational footprint viz.
they have operations; yet many of India’s most serious Flipkart, Amazon
social and health problems are located far away from
key industrial centers

Companies may not have “operations” in an area that is

critical to their growth, thereby limiting the benefit of
brand exposure through doing CSR programs in that
other region
 21

Role of SMEs

• Serve independently and also as ancillary to larger units

• Employ nearly 40% of India’s workforce and contribute around 45% to India’s
manufacturing output
• CSR clause in the Companies Act, 2013 covers companies that have a net profit of
five crore INR and above, it is expected many SMEs will
• Roadblocks in delivering values for SMEs in CSR
• Fluctuations in profits affecting their capability
• Limited human resources resulting in lack of professional approach
 22

Collboration Model

• Pooling resources with other SMEs in the cluster and create joint CSR programs managed
by a single entity
• A common organization catering to a number of companies will take care of impact
assessment studies, setting up of a CSR department etc and thus reduce the operational
cost
• Long term programs have greater impact than short term ones. Profit fluctuations may
hinder long term schemes. In collaborations, other partners can give larger share in case
there is variation in allocation.
• A common entity with participants from different clusters will help assess a greater number
of community issues
 23

Process of an SME

• First, they create an alliance of interested SMEs

• Involvement of the cluster association will ensure that the local priorities are given due consideration while developing CSR
programmes
• In case a sufficient number of SMEs in a cluster do not wish to participate or are not required under the Companies Act, 2013 to
spend on CSR activities, the boundary may be extended to other clusters, though this increases complexity
• In such a case, the alliance should form a steering committee with representatives from each SME to democratically decide the
issues.
• The next steps involved in the due diligence of implementation or the concept development partner are:
• Project development ,Operationalizing institutional mechanism ,Contracting ,Budgeting and payments ,Monitoring ,Impact
measurement ,Reporting and communication
• In cases where the total CSR funds are insufficient to cover the cost of collaboration, SMEs can also contribute to the Prime
Minister’s National Relief Fund or any other fund set up by the central government or the state governments as per activity ix of the
Schedule VII of the Companies Act, 2013.
 24

Nestlé – Creating shared value

Milk Economy of Moga

The Indian subsidiary of FMCG conglomerate Nestlé, believes in giving back to the
society because of which they have such strong CSR activity culture. They call it
creating shared value.

• Today Moga, a small town in Punjab produces 1.3 million liters of milk everyday.
This volume is very huge in comparison to the volumes produced before Nestlé
came to Punjab.
• In 1961 when Nestlé started its operations at the Moga factory, their were only 180
farmers who were willing to supply milk.
• Nestlé team went door to door educating people and teaching them ways to
increase the Milk production.
• Over the years Nestlé investments in providing technical assistance to improve
heard management, farm productivity and farm economics have continued to
increase.
• Nestlé tries to help farmers by providing
• Financial assistance
• Farmer training and education
 25

TATA Steel
Gopalpur Industrial Park & SEZ

A detailed inspection was done by a team of experts around the TATA STEEL plant site assessing the needs
of all the internal and external stakeholders at Gopalpur to create a CSR activity plan.
TATA Steel has taken steps in areas of
• Healthcare
• Education and Employability
• Livelihood
• Infrastructure development
• Sports and cultural integration
Project Gopalpur has contributed towards increasing growth and progress in the rural society and touched
life of millions
In order to raise awareness of preventive healthcare and treatment of common
ailments TATA STEEL is running 3 highly equipped medical vans. Catering to 29
Mobile Medical Units people of neighboring villages providing doorstep treatment along with free medicine. A
total of 47474 people have been benefitted by this effort till 2013.
Tata Steel is setting up a 500 bed ‘Tata Media Hospital’ at Sitallapalli under Luhajhar
Tata Memorial Hospital
panchayat.
Huge health camps are being organized by TATA STEEL in collaboration with TATA
steel rural development society in order to provide free medical assistance to the
Mega Health Camps
neighboring villages. Free medical assistance by specialist doctors from medicine,
obstetrics and other field is being provided at these camps along with medicine.
Banaspatye Shanti
Osadhaye Shanti
Prithvi Shanti