India uses policy levers to accelerate CSR

Although it is a relatively new phenomenon in developed countries, the concept of corporate social responsibility, or CSR, is not new to India. It has been part of the country’s business tradition for decades. Indeed, in India, its roots lie in the ancient Vedas, Upanishads, Smiritis and Dharmas. Hindu scriptures that extol virtues of sacrifice, coexistence and wellbeing for all stakeholders.

Yet, despite the long and unique history of CSR in India, its practice is still largely viewed as “giving back”. It’s comparatively rare to encounter CSR as an enabling strategy that drives business value while addressing wider social and environmental issues.

The move to wider ethical and sustainable business practices has been slow to happen. In fact, beyond the first tier of large Indian corporations, internal CSR capacity and understanding is weak.

But, despite its late start, CSR in India today is undergoing a rapid transformation. New government guidelines and regulations, as well as international practices, are fuelling the movement. Here are just a few of the more salient ones:

Introduced in March 2010, The Guidelines for Corporate Social Responsibility for Central Public Sector Enterprises (CPSEs) provide a detailed approach to planning, implementation, research, documentation, advocacy, promotion and development of CSR projects and activities. They place a particular emphasis on measuring and monitoring impact; specify the percentage of profit-after-tax to be allocated and the need for baselines and assessments for CSR projects; ask state enterprises to work in partnership with civil society and institutions; and require independent third party evaluations.

Finally, annual assessments take stock of performance and are included in each enterprise’s annual performance review.

In March 2011, the Ministry of Corporate Affairs released the National Voluntary Guidelines on Social Environmental and Economic Responsibilities of Business, an updated version of guidelines first introduced in 2009. Aimed at private sector corporations, the guidelines take into account insights from various international and national good practices, norms and frameworks and provide a distinctively ‘Indian’ approach. The Guidelines have been articulated in the form of nine Principles with associated Core Elements to put into practice.

The Securities and Exchange Board of India has also mandated the top 100 companies, by market capitalisation, to report certain critical information as part of their business responsibility. This includes how much the company is spending on CSR as a percentage of its net profit, the number of stakeholders’ complaints received and resolved, details of any pending case filed by stakeholder against any unfair trade practice and irresponsible advertising or anti-competitive behaviour adopted by the company.

However, the one piece of legislation that has got India Inc. talking the most is the new India Companies’ Bill passed on December 19, 2012. It requires all private companies with a net worth of USD$100M or more (or turnover of USD$200M or more within a given fiscal year) to report on whether and how they are spending two percent of their net profits after tax on CSR activities. The Bill identifies which companies will be required to comply with the guidelines and how to calculate the two percent based on a rolling three-year average.

Even so, many questions remain unanswered, including internal accountability for implementation, eligibility for approved third party evaluators and clarity on what kinds of investments will be considered eligible.

As well, there is much debate as to whether regulations are the best way to encourage corporations to embrace responsibility for social and environmental performance in the first place. One of the biggest issues with a prescriptive, regulatory approach is that it perpetuates a more ‘siloed’ model of CSR. It does not necessarily encourage ways to deeply embed it into a corporation’s broader business strategies.

Regardless of the broad spectrum of opinions on the Indian government’s efforts to fuel CSR, one thing is clear. Given the rapid growth in India and the monumental social and environmental issues facing the country, CSR will continue to play a central role in the country’s development. Which path it ultimately takes is anyone’s guess, but we’ll all be watching closely.

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