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 Voluntary CSR guidelines in India

The CSR provisions of the 2013 Act will apply only to a limited set of companies. However, since CSR can also be a strategic tool for businessmen, it is prudent to discuss other developments in the country in this area. Companies which are not covered under the provisions of the 2013 Act may also opt for some CSR initiatives which are within their financial and operational capabilities. For the purpose of their guidance, other instruments pertaining to CSR (all of which are non-binding) are described below:

In India the government has made some effort through issuing guidelines to mobilize resources from the corporate sector towards socially beneficial initiatives. The first set of non-binding guidelines were issued in 2009, encouraging the private sector to set out a CSR policy. This was followed up in 2011 by a more detailed set of policies (discussed after the Ten Point Charter).

The Ten Point Charter
In a modern, democratic society, business must realize its wider social responsibility. The time has come for the better-off sections of our society to understand the need to make our growth process more inclusive? to eschew conspicuous consumption, to save more and waste less, to care for those who are less privileged, to be role models of probity, moderation and charity. Indian industry must, therefore, rise to the challenge of making our growth processes both efficient and inclusive. If those who are better off do not act in a more socially responsible manner, our growth process may be at risk, our polity may become anarchic and our society may get further divided. I invite corporate India to be a partner in making ours a more humane and just society. We need a new Partnership for Inclusive Growth based on what I describe as a Ten Point Social Charter.

One: have healthy respect for your workers and invest in their welfare. Unless workers feel they are cared for at work, we can never evolve a national consensus in favour of much-needed more flexible labour laws aimed at ensuring that our firms remain globally competitive.

Two: corporate social responsibility must not be defined by tax planning strategies alone. Rather, it should be defined within the framework of a corporate philosophy which factors the needs of the community and the regions in which a corporate entity functions. This is part of our cultural heritage. Mahatma Gandhi called it trusteeship.

Three: industry must be proactive in offering employment to the less privileged, at all levels of the job ladder. The representation companies give to SC/STs, OBCs, minorities and women in their workforce must increase. I am, therefore, encouraged by CII's Report on Affirmative Action. I commend your example, and hope it shall be widely emulated. You must show sensitivity to those who are physically less-abled, in providing a workplace conducive to their employment. You must employ retired members of our gallant Armed Forces.

Four: resist excessive remuneration to promoters and senior executives and discourage conspicuous consumption. In a country with extreme poverty, industry needs to be moderate in its emolument levels. Rising income and wealth inequalities can lead to social unrest. The electronic media carries the lifestyles of the rich and famous into every village and every slum. Media often highlights the vulgar display of their wealth. Ostentatious expenditure on weddings and other family events, for example, plants resentment in the minds of the have-nots.

Five: invest in people and in their skills. Offer scholarships to promising young people. High rates of growth mean nothing for those who are unable to find employment. We must invest in skill-building and education to make our youth employable. Here too, I appreciate the CII's initiative in upgrading ITIs. This is a very good beginning, as I said, but there is more to be done.

Six: desist from non-competitive behaviour. The operation of cartels by groups of companies to keep prices high must end. It is unacceptable to obstruct the forces of competition from having freer play. Even profit maximisation should be within the bounds of decency and greed. The private sector should show some self-restraint in this regard.

Seven: invest in environment-friendly technologies. India's growth must be enhanced and, yet, our ecology must be safeguarded for our future generations. Our track record in resource use is good, but must improve further. As a country of a billion plus people, with a scarcity of natural resources on a per capita basis, we cannot afford the wasteful lifestyles of the Western world. Conspicuous consumption must be reduced not just because it is socially undesirable at our level of development, but also because it is environmentally unsustainable.

Eight: promote enterprise and innovation, within your firms and outside. If our industry has to make the leap to the next stage of development, it must be far more innovative and enterprising. The success story of the last two decades has been the emergence of a large number of first-generation enterprises. As industry aims to master increasingly complex technologies and becomes organisationally more complex, it must try to maintain its competitive edge by investing in R&D and innovation and promotion of enterprise.

Nine: fight corruption at all levels. The cancer of corruption is eating into the vitals of our body politic. For every recipient of a bribe there is a benefactor and beneficiary. Corruption need not be the grease that oils the wheels of progress. There are many successful companies today that have refused to yield to this temptation. I commend them, and I urge others to follow.

Ten: promote socially responsible media and finance socially responsible advertising. Through your advertisement budgets and your investments in media, you can encourage socially responsible media to grow and flourish. You can promote socially relevant messages and causes.

This is not an exhaustive list. You may wish to add to it, and adopt your own Social Charter for inclusive growth. The objective would be to encourage a culture of caring, sharing and belonging. We must end forever the debate whether our country's march of progress has benefited India and not Bharat. India is Bharat.

CSR Guidelines
The Ministry of Corporate Affairs (MCA) released CSR Voluntary Guidelines, 2009 to promote CSR in India. Minister Salman Khurshid stated the following in its forward:

"We have seen the business sector generating wealth and value for the shareholders in the last sixty years, but simultaneously we also have the problems of poverty, unemployment, illiteracy, malnutrition, etc. facing the nation.

The corporate growth is sometimes seen as widening the gap between the India and Bharat through its income – skewing capability. This gap needs to be bridged. While the Government undertakes extensive developmental initiatives through a series of sectoral programmes, the business sector also needs to take the responsibility of exhibiting socially responsible business practices that ensures the distribution of wealth and well-being of the communities in which the business operates."

The minister acknowledged that there is a wide variety of practices, ranging from inactive philanthropy to the incorporation of the stakeholders' interest in the business model, in Indian business sector for discharging social responsibility. He emphasized that a suitable mechanism is required to make effective CSR a reality, for which the Government, corporate sector and the communities need to partner together. In light of this, the ministry set out the voluntary guidelines.
These guidelines are non-binding on businesses. The preamble of the guidelines state that:

"While it is expected that more and more companies would make sincere efforts to consider compliance with these Guidelines, there may be genuine reasons for some companies in not being able to adopt them completely. In such a case, it is expected that such companies may inform their stakeholders about the guidelines which the companies have not been able to follow either fully or partially."

Issues that the CSR policy of a business should address (as per CSR guidelines)
Fundamental Principle: Each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals. The policy should be framed with the participation of various levels of executives and should be approved by the Board.

The CSR Policy should normally cover following core elements:

1. Care for all Stakeholders: 
The companies should respect the interests of, and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large etc. and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur. 

2. Ethical functioning: 
Their governance systems should be underpinned Ethics, Transparency and Accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive.

3. Respect for Workers' Rights and Welfare: 
Companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis. They should uphold the freedom of association and the effective recognition of the right to collective bargaining of labour, have an effective grievance redressal system, should not employ child or forced labour and provide and maintain equality of opportunities without any discrimination on any grounds in recruitment and during employment.

4. Respect for Human Rights: 
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party.

5. Respect for Environment: 
Companies should take measures to check and prevent pollution; recycle, manage and reduce waste, should manage natural resources in a sustainable manner and ensure optimal use of resources like land and water, should proactively respond to the challenges of climate change by adopting cleaner production methods, promoting efficient use of energy and environment friendly technologies.

6. Activities for Social and Inclusive Development: 
Depending upon their core competency and business interest, companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include: education, skill building for livelihood of people, health, cultural and social welfare etc., particularly targeting at disadvantaged sections of society.

The CSR policy also provides the following implementation guidelines:

1. The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organizational mechanism and responsibilities, time schedules and monitoring.  Companies may partner with local authorities, business associations and civil society/non-government organizations.

They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development. They may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected projects/activities from time to time.

2. Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter.

3. To share experiences and network with other organizations the company should engage with well-established and recognized programmes/platforms which encourage responsible business practices and CSR activities. This would help companies to improve on their CSR strategies and effectively project the image of being socially responsible.

4. The companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports, and other communication media.

National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of BusinessIn 2011, further revised guidelines were issued in form of National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, which stated the following in its forward that the guidelines were inspired by a "increasing concern amongst all stakeholders,  who are demanding that businesses of all types and sizes need to function with fairness and responsibility. Specifically, this calls for businesses being thoroughly aware and conscious of their social, environmental and economic responsibilities, and balance these different considerations in an ethical manner." These new guidelines were stated to be a more comprehensive set of guidelines based on the feedback from stakeholders received after the 2009 guidelines were issued.

The Guidelines are designed to be used by all businesses including MSMEs and small businesses irrespective of size, sector or location and therefore touch on the fundamental aspects of business. The guideline states that "It is expected that all businesses in India, including multi-national companies that operate in the country, would consciously work towards following the Guidelines. The Guidelines also provide a framework for responsible business action for Indian MNCs planning to invest or already operating in other parts of the world. Businesses are encouraged to move beyond the recommended minimum provisions articulated in the document."

The guidelines also state that all the Principles set out in the guidelines are equally important and non-divisible – this implies that if a business endeavors to function responsibly, it would have to adopt each of the nine principles in their entirety rather than picking and choosing what might suit them.

The Preface of the guidelines state that the guidelines are not prescriptive in nature, but are based on practices and precepts that take into account the realities of Indian business and society as well as global trends and best practices adapted to the Indian context. It urges businesses to embrace the β€œtriple bottom-line” approach whereby its financial performance can be harmonized with the expectations of society, the environment and the many stakeholders it interfaces with in a sustainable manner.

The preface also claims that the adoption of these National Voluntary Guidelines will improve the ability of businesses to enhance their competitive strengths, improve their reputations, increase their ability to attract and retain talent and manage their relations with investors and society at large.

The Guidelines have been articulated in the form of nine Principles. Each principle has certain attendant core elements needed to actualize that principle. To assist implementation, a section on developing Management Systems and Processes for responsible business, and Indicators that businesses can adopt to self-steer and regulate their journey towards becoming sustainable and responsible businesses have been added.

The Processes focus on changes in leadership and the leadership structure in the organization, the integration of the Principle and Core Elements into the objectives and purpose of the organization and ensuring that engagement with stakeholders happens on a consistent, continuous basis.

We strongly recommend that you go through the guidelines which we are uploading separately as a downloadable PDF document. The most relevant chapters are Chapter 2 on Principles and Core Elements, Chapter 3 on Implementation Processes, Chapter 4 on adoption of the guidelines by MSME (micro, small and medium enterprises) companies and Chapter 5 on Business Responsibility Reporting Framework.

The checklist under the heading of suggested framework provided in Chapter 5 (of the guidelines) is a useful tool for most entrepreneurs. Click here to download the guidelines. We strongly recommend that you go through the suggested framework and create a report for this purpose for your business or assist other businesses to come up with a Business Responsibility Report. There is also great scope of providing consultancy services to businesses and companies on CSR and Business Responsibility Reporting. 


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