Regulations and principles hard-coded in the Companies Bill 2012 encourages businesses to group social, environmental and economic responsibility.
Co-authored by: Mo Polamar and Joya Chakravarty
The Companies Bill, 2013 finally received Presidential assent on August 29, 2013, landmark legislation has clauses on mergers, auditors, appointment of company directors. The act also called as the 2% bill allows for National Company Law Tribunal National Company Law Appellate Tribunal to fast-track company law cases and to enables the process of corporate structuring. This bill replaces a 6-decade-old archaic bill.
According to the law companies having a net worth of Rs.500 crore or more, or a turnover of Rs.1, 000 crore or more or a net profit of Rs.5 crore or more, during any financial year must spend 2% or more of its net profit on activities that are defined as Corporate Social Responsibility.
If the corporates take to the “2 percent clause” enthusiastically, and with responsibility we are looking at a world that is headed towards equity and justice. Primarily, the Bill seeks to direct profit to social and environmental causes bringing about inclusive development, It is high time.
Corporate Sustainability Responsibility.
It is hard to speak about social responsibility without referring to the environment as well. Since Climate Change is an accepted phenomenon coupling social and environmental responsibility becomes inevitable. This can be viewed as a fortunate development because environmental issues need urgent attention and this provision allows for it. Corporates must seize this opportunity and deal with social and environmental issues at once. The first step to this is to replace “social” with “sustainability” in the acronym CSR. The accepted definition for sustainability is that it is an intersection between economic considerations, social commitments and environmental responsibility.
“Shared value” instead of a “Giver/ Receiver” relationship.
Many companies look at CSR as a specialized activity and a diversion to their core activity. It is unfortunate that it is viewed in this manner because it creates a “Giver/ Receiver” sentiment allowing a hierarchy to form and therefore corruption of values.
This bill not so subtly leads the corporate to view social responsibility as a “Shared value” proposition. This means the bill intends to create a closed loop with social development and economic growth.
Profit center instead of a Cost center
For a successful implementation of this provision in a corporate the first and important step is to dare to view CSR as a profit center. Social benefit is a rather difficult concept to convert to numbers but when coupled with the environment, numbers can be allowed to appear and this is how.
There is embedded economy in every part of the business cycle. Efficient procurement, lean and green logistics and responsible manufacturing lead to increase in profit margin. By adapting to emerging waste management technologies additional revenues can be found adding to revenue growth. The above responsibility can be diverted to the existing CSR division, which must build capacity to handle itself as a profit center. There are a number of case studies that support this above approach.
Need for Industry federations.
In order to efficiently practice Sustainability it is advised to form a chapter in the existing industry federations. The chapter’s focus will be to keep an informed watch for relevant developments in the external and internal landscape and to funnel the learning through appropriate mediums.
This chapter will raise awareness in a continued basis about sustainability to all corporate within the federations thereby creating a shared service to drive costs, to bring in efficiency and commonality in the practice. The result of a aware federation will automatically and simply lead to other collaborations that will eventually lead to resource conservation and therefore increase in operating margin.
This approach will allow corporates to choose their timing of entry thereby creating a coalition of willing and avoids the rocky and uncertain path of building consensus between everyone.
The BSE-GREENEX is an index that is been live for more than a year and when one tracks the index there emerges a trend. The market organically rewards companies that are practicing sustainability. Investors are bound to start looking at the green market indices in the various stock exchanges - if they haven’t started doing so already, in the near future.
Simple and straight interpretation of the bill.
1. The bill was made for India, as a response to the realities of the Indian conditions only.
2. There are 800,000 registered companies India. Only 2% of these companies amounting to 16,000 will fall under the ambit of the current bill.
3. The annual money estimated to be channelized as a result of the bill is less than 1/5th of a typical dept. in the govt. of India - the rural development dept. of GOI has an annual budget of rs 70 -80 thousand crores.
4. So, it is not about the quantum of money being channelized into social and environmental activities as a result of the bill, it is about leveraging the efficiency of the corporate sector in getting the maximum "bang for the buck".
5. The bill drives the companies towards building effective partnerships with NGO's for monitoring and implementation.
6. The 'mandatory' tag on the bill is misleading - since it is the 'reporting', and not the 'spending; that is mandatory, 'Comply or explain' might be a better epithet.
companies can decide to opt out of the CSR spending as long as they give a reason for doing so. The govt. will not check the credibility of the explanation, but it would be made available to the stakeholders of the company and the society at large through publication in various public domains. The bill enjoins upon companies to set up a CSR committee, CSR policy, and publication of the CSR policy in public domain and list of proposed activities linked to the policy
7. The above activities cannot just be one-off, standalone activities, put part of specific projects that extend over a period of time with definite budget allocation and monitoring mechanisms in place.
8. The rules for the clause 135 - expected to be no more than 12 - 14 - are under the process of being drafted.