Relevance of Sustainability

&
Changing Paradigm of
Corporate Social Responsibility in India
IIFT | New Delhi
16th Jan 2015

Agenda
1
Drivers for CSR in India

Current Economic Scenario

Social Compliance

2 CSR PROVISIONS
in Companies Bill

an example in Apparel Sector

The Way Forward 4

Social Compliances

Social Compliances- Evolution & Present context

* Rising competition and increased cost of manufacturing have forced companies

outsourcing their production and manufacturing operations globally.
* It has lead to a situation where unfair / unethical ways / hazardous ways of
production are being used.
* Quality of products is of utmost importance in market place. At the same time
due to growing consumer awareness / consciousness it has become very
important to ensure that the products are produced ethically.
* Therefore it remains the responsibility of these companies to ensure that their
vendor and supplier workplaces provide an environment of safety, health,
respect, and integrity.
* Ignoring this responsibility can result in labour law violations, unethical practices,
and other such incidents which directly impact brand reputation and stock
performance. To avoid this scenario, many companies are establishing "social
compliance" policies, standards, and Codes of Conduct.

Standards are mostly based on

* UN Declaration of Human Rights

* Conventions of the ILO
* International human rights norms and
* National laws - Labour and others.

Standards - Scope
* Child Labor
* Working conditions - Health & Safety, Discrimination,
Working hours, Gender Equity, Wages and benefits,
Forced Labor, Employee Grievance handling proceedure
* Environment- protection and minimization of impact of
the organization.
* Others

Some common STANDARDS

* SA 8000
* BSCI

SA 8000 requirements
*1. Child Labour
*2. Forced or Compulsory Labour
*3. Health and Safety
*4. Freedom of Association & Right to
*5. Collective Bargaining
*5. Discrimination
*6. Disciplinary Practices
*7. Working Hours
*8. Remuneration
*9. Management System

Drivers for CSR

* Top 100 companies on Indian Stock Exchange has

mandatory requirement on CSR activities
* Indian MNCs listings on foreign bourses needs
reporting and compliance
* Supply Chain of the foreign brands in India needs to
comply with CSR requirements as mandated by
buyers

Drivers for CSR

* Public sector companies have mandatory CSR spends

requirements
* Those corporates which will be covered by s 135 of
companies bill have compulsory 2% of Net Prot
spend on CSR projects
* Top corporates brands which need to showcase their
commitment to social responsibility as claim to be
responsible corporates

Example from India Apparel industry


Jalandhar, April 2012
Shital Fibers: Toll in Jalandhar Factory Accident Rises to 23:
April 22 (IANS): The death toll in the blanket factory collapse in
Jalandhar has risen to 23. A majority of those killed in the 4 storey
factory collapse were migrant workers from Bihar and Uttar Pradesh.

: Primark's fashion
sweatshops that pay children just
60p a day!
Daily Mail 23rd June 2008

* Low-cost clothes come at a high price for young children toiling in the store's Indian
sweatshops. An investigation revealed that children as young as 9 were working in
squalid conditions, sewing tiny beads and sequins onto cheap t-shirts by candle-light.

* The revelations were highly embarrassing for a company that has always claimed it is
possible to sell T-shirts for as little as 2 without compromising its ethics.

Jalandhar, September, 2012

Date: September 22, 2012

by Ben Doherty

Poor children made to stitch Sports Balls

in Sweatshops

THE footballs used in are stitched by India's poorest children who work
in appalling, dangerous and illegal conditions for as little as seven cents
a ball.Two of Australia's most well-known football brands, Sherrin and
Canterbury, have operations in India that use banned child labour.

Dhaka, December, 2010

Bangladesh Factory Fire Kills at
Least 20

DHAKA, Bangladesh A fire at a 10 story garment factory north of Dhaka, the capital,
killed at least 20 people and injured dozens others.
About 5,000 people worked in the building producing pants for customers in the United
States and Europe,
Earlier, three people were killed in labor protests because some factories had not carried
out a government-mandated 80 percent increase in the minimum wage, to 3,000 taka a
month or about $43.

Fires can be very

deadly because some factory owners lock exits to prevent
workers from leaving their machines.
Piles of clothes in garment factories are easily combustible.

Gap Caught in Child Labour

Scandal

* October 30, 2007:

* An investigation by the UK's Observer has revealed Gap clothing being
manufactured by children as young as eight. Gap's Indian vendors
subcontracted a portion of its orders to child sweatshops.
* The children working in that factory have since been rescued from a life
of slavery by Indian authorities.

Karachi, September, 2012

Karachi Sept 12: The death toll stands at 289, making it the largest number of
casualties in a single industrial incident in Pakistan's history. Attention is
turning to lax labour laws and the culture of corruption that allows regulations
to be flouted. Workers were said to be unable to escape because the doors
were locked. It is thought that this was to prevent them from leaving their
shifts early. Allegedly, there was no emergency exit, with other doors blocked
by piles of finished clothes.

Dacca, Nov 24, 2012

Fire at Bangladeshs 8-storey
Tazreen factory kills 112 people!
Terrified
women
leaping to
their deaths.
Locked exits
trapping
workers.
Piles of
clothing
blocking
stairwells to
safety

OVERCROWDING, LOCKED FIRE

DOORS NOT UNCOMMON IN
BANGLADESHI FACTORIES
Bangladesh has about 4,500
garment factories and is the world's
biggest exporter of clothing after
China, with garments making up 80
percent of its $24 billion annual
exports.
Working conditions in Bangladeshi
factories are notoriously poor, with
little enforcement of safety laws.
Overcrowding and locked re doors
are not uncommon.

Washington, October, 2012

US lists 21 Indian items for using Child Labor
The US Labor Department has issued a
list of 21 India-made products that use
child or forced labor. Made-in-India
garments and embellished textiles
are among the top products in the
list with the department saying that
there is "evidence of labor abuses in a
variety of different forms of textile
embellishment, beyond the production
of zari."

India Apparel Industry Several International

Standards & Certications but NO Indian Standard

vBusiness Social Compliance Initiative (BSCI) - EU

vEthical Trade Initiative (ETI) - UK
vFair Labour Association (FLA) - USA
vFair Wear Foundation (FWF) EU
vChina Social Compliance 9000
vSocial Accountability 8000 (SA 8000) - USA
vWorldwide Responsible Apparel Production (WRAP) USA

*Missing: A home-developed home-relevant

Indian Standard

CSR Equation

* Reputational Capital + Human Capital +

Social Capital + Financial Capital + Physical
Capital turned into products and services
which please the customers = Sustainable
Prots

Doing Good leads to doing Well in business

CSR Equation

* Reputational Capital comes from acting ethically
* Human Capital comes from inspiring your
employees to achieve levels of high performance
* Social Capital comes from good company
management, intelligent leadership stewardship
values
* Financial Capital comes from trust that your
business will deliver as expected and as promised
* Physical Capital (Land, Building, Plant and
Machinery) comes from Financial Capital

CSR Journey of India

NaConal
Voluntary
Guidelines on
CSR (MCA in

Corporate
governance for Dec09
listed companies emphasized the
Philanthropy (Part

of religious belief
system, which
corpora<ons followed)

role of business in
(Clause 49 of the
lis<ng agreement achieving business
sustainability)
introduced in
2000-01, emphasis
on transparency &
Corp. Gov.)

BR reporCng
for top 100
listed
companies

(Mandatory based
on market cap.
March 31 2012, it
is public
disclosure of steps
around ESG)

SecCon 135 of
New
Companies
Bill

COMPARISON OF ISO:26000 & NVGS

Parameters

ISO 26000

Draft National Voluntary Guidelines for the

Social, Environmental and Economic
Responsibilities of Business

Index

6 Clauses

6 Chapters

Principle

Core Elements

Dened within each Principle and vary in

with each nos

Focus

1. All Kind of organizations 1. Special Chapter on MSME

2. Business Responsibility Reporting
Framework

Reference

Ref to 133 standards

No reference as such

Integration

A very important clause

Not detailed as such

CSR New Companies Bill 2012

CSR PROVISIONS
C l a u s e 1 3 5 ( u n d e r
Chapter IX Accounts of
C o m p a n i e s ) o f t h e
Companies Bill 2012
deals with Corporate
Social Responsibility.

Companies Bill 2012

Clause 135 contains 5 sub-

clauses

Clause 135

This is the rst time where a legal provision is

introduced for Corporate Social
Responsibility.

Schedule VII of the

Companies Bill 2012 lists
out the CSR activities

CLAUSE 135 (1)

CSR Committee
Every company having

* net worth of rupees ve hundred crore or more or
* turnover of rupees one thousand crore or more or
* net prot of Rupees ve crore (625k euros) or more

during any nancial 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.
Thus, apart from audit committee and such other committees, a new committee
called CSR Committee proposed.

CLAUSE 135 (2)

Disclosure of CSR Committee Constitution

in the Boards Report


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

CLAUSE 135 (3)

Functions of CSR Committee
* 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 specied 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.

CLAUSE 135 (4)

Role of the Board

* The Board of every company referred to in sub-section (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.

CLAUSE 135 ( 5)
CSR Expenditure / Mandatory CSR Spending

* The Board of every company referred to in sub-section (1), shall

ensure that the company spends, in every nancial year, at least two
per cent. of the average net prots of the company made during the
three immediately preceding nancial years, in pursuance of its
Corporate Social Responsibility Policy:
* 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.

COMPLIANCE

* INABILITY TO SPEND AND TO GIVE COGENT REASON FOR THIS
AMOUNTS TO DEFAULT OF COMPANIES ACT AND WILL HAVE
LEGAL CONSEQUENCES
* U/S 134(8), IF THERE IS VIOLATION OF S.134(3)(O), THEN THE
COMPANY WILL BE FINED BETWEEN 50K TO 2500K AND
THE OFFICER IN CHARGE WILL ALSO BE FINED BETWEEN 50K
AND 500K AND ALSO WILL BE IMPRISONED UPTO THREE YEARS



SWOT Analysis of the Companies Bill

STRENGTHS

Structured frame work fo CSR created in the bill

Bill will help in image enhancement and brand building

Bill will harmonise relations between various stake holders

Bill will enhance conict/ risk management
Committee of Directors to implement & monitor CSR will give due respect to it
Schedule VII gives enough freedom to choose projects
All controls vested in the board
India is 1st country to have mandatory CSR spend , will enhance overseas image

WEAKNESSES

The schedule VII is broad based, details on what will be covered and what will not,

is missing

Even smaller companies will need committee of 3 directors

There are no specic principles of CSR as it is still evolving

Skill gaps in the companies to understand and implement CSR projects

Lot of inputs on what & how to do and CSR and what to report. Enough confusions
and inspections fatigue

Scope of litigations will increase

OPPORTUNITIES

Moving away from philonthophy to strategic CSR

Competitive advantage
Treat CSR spend as social invest rather than cost centre
Expanding business volume by becoming a responsible co.
Work on bottom of the pyramid market by developing value products for this
segment, it is win win for both
Gaining social respect and media attention
Creating brand value
Increased business by joining supply chain for big corporations as responsible
partner


THREATS

CSR may fall under RTI trap indirectly

Legal action by regulators

Disinvestment by overseas investors

Pressure from NGOs/ Politicians/authorities
Bad exposes from media gps. / activists
Manipulations/ misrepresentations
Lack of expertise in the organisations on CSR policy formulations and
implementations

Two schools of thought

* CSR spend should be in areas unrelated to business and in line

with social agenda of the Govt.

* CSR spend should be linked to business and work towards

creating resource conserving products and sustainable
development.

* Schedule vii meets the aspirations of both the

groups

The Way Forward !!

Way forward
* Companies will have to formalise their processes
around CSR
* Form the committee
* Make formal CSR policy
* Choose the causes judiciously and align with the
schedule vii

Way forward
* Structure the programmes better
* Device matrix to measure the impacts of spending
* Bring in professional who understands the imperatives
and can articulate the vision of management
* Select partners carefully to ensure that CSR spend is
relevant and achieves desired outcome

Way forward
* The time of cheque book philonthrophy is over
* CSR will now become part of core strategy of the
company.

Contact Details

Rajit Pal Singh

Managing Director Reach Potential Consultants Pvt. Ltd
Ph - +91 9871156360
Email : [email protected]
www.reachpotential.in