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Indian Government Commits to CSR with Companies Act

RP Siegel | Monday December 16th, 2013 | 0 Comments

India trafficI just returned from India last week. Between the unbreathable air in Delhi, due to the multiplicity of smokestacks and tailpipes belching black smoke, and the mountains of trash littering the roadsides, it’s clear that this is a country with a long road ahead of it, when it comes to finding a way to exist sustainably on this planet. Yes, there are some signs of progress, albeit small ones. Solar hot water systems are prevalent. Some towns have outlawed the use of plastic shopping bags. Woven cloth bags are available as an alternative.

A larger step was taken by the Indian government this year, in the form of the Companies Act, 2013. This legislation requires companies to take action, make investments, and report against a number of metrics related to Corporate Social Responsibility (CSR). Last week, PwC India released a Handbook on Corporate Social Responsibility in India, providing guidelines to help industry to comply with the regulation. The guide was developed for the Confederation of Indian Industry (CII). While CSR does not in itself address the environmental issues mentioned above, it does set the companies and the country on a path to eventually deal with them.

Clause 135 of the Companies Act, 2013, which was passed on 29 August 2013 is applicable to companies with an annual turnover of 1,000 crore INR  ($161 million) and more, or a net worth of 500 crore INR ($80 million) and more, or a net profit as low as five crore INR ($800,000) and more. This will, in some cases extend to small and medium sized enterprises (SME).

The Act encourages companies to spend at least 2 percent of their average net profit over the previous three years on CSR activities. Among the eligible activities included in the act are:

  • Promotion of education
  • Eradication of extreme hunger and poverty
  • Gender equity and empowerment of women
  • Combating HIV/Aids, malaria and other diseases
  • Environmental sustainability
  • Reducing  child mortality and improving maternal health

In India, of course, there are pressing socio-economic issues including a dizzying level of economic inequality and the remnants of a caste system, that, while publicly disavowed, undoubtedly still lives on quietly in the hearts and minds of many. While these issues of poverty and inequality are not directly addressed by the CSR actions, they will likely be impacted by the promulgation of more open policies.

The act spells out specific actions for the board of directors including the formation of a CSR committee. The board must also approve the CSR policy and oversee its implementation. It also must monitor the 2 percent spend. If the spend level is not achieved, the board must explain why.

The CSR committee must contain three or more directors with at least one independent director. They are responsible for formulating the policy and recommending it to the board, as well as developing and monitoring the activities and expenditures.

Impact measures will incorporate existing tools such as the London Benchmarking Group (LBG) model, Social return on investments (SROI Network), Global impact investing network (GIIN), Accountability’s – AA 1000 Standards from the Institute of Social and Ethical Accountability, the ISO 26000 social responsibility standard,  as well as public consultation guidelines from the Government of India.

Reporting guidelines are including in Clause 135. They include a Securities and Exchange Board of India (SEBI) directive on Environmental and Social Corporate Governance (ESG) disclosure (if applicable), RBI guidelines on CSR, sustainable development and non-financial reporting.

All of this represents an important step, encouraging companies across a broad spectrum of Indian industry to fall into line with the many companies around the world that have committed to this path.

 

Photo by RP Siegel

RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining romp that is currently being adapted for the big screen. Now available on Kindle.

Follow RP Siegel on Twitter.

 


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