Aim of corporate social responsibility

all about corporate social responsibility and best examples of corporate social responsibility
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PatrickWood,United Kingdom,Researcher
Published Date:16-07-2017
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www.pwc.in Handbook on Corporate Social Responsibility in India though the latter can also make a valuable lists out the CSR activities, suggests What is CSR? contribution to poverty reduction, will communities to be the focal point. On the The global context directly enhance the reputation of a company other hand, by discussing a company’s and strengthen its brand, the concept of CSR relationship to its stakeholders and While there may be no single universally clearly goes beyond that.” integrating CSR into its core operations, accepted definition of CSR, each definition the draft rules suggest that CSR needs that currently exists underpins the impact From the above definitions, it is clear that: to go beyond communities and beyond that businesses have on society at large and • The CSR approach is holistic and the concept of philanthropy. It will be the societal expectations of them. Although integrated with the core business strategy interesting to observe the ways in which this the roots of CSR lie in philanthropic for addressing social and environmental will translate into action at the ground level, activities (such as donations, charity, impacts of businesses. and how the understanding of CSR is set to relief work, etc.) of corporations, globally, undergo a change. the concept of CSR has evolved and now • CSR needs to address the well-being encompasses all related concepts such as of all stakeholders and not just the CSR and sustainability triple bottom line, corporate citizenship, company’s shareholders. Sustainability (corporate sustainability) philanthropy, strategic philanthropy, shared • Philanthropic activities are only a part of is derived from the concept of sustainable value, corporate sustainability and business CSR, which otherwise constitutes a much development which is defined by the responsibility. This is evident in some of the larger set of activities entailing strategic Brundtland Commission as “development definitions presented below: business benefits. that meets the needs of the present without 1 The EC defines CSR as “ the responsibility of compromising the ability of future generations CSR in India enterprises for their impacts on society”. To 4 to meet their own needs” . Corporate completely meet their social responsibility, CSR in India has traditionally been sustainability essentially refers to the role enterprises “should have in place a process seen as a philanthropic activity. And in that companies can play in meeting the to integrate social, environmental, ethical keeping with the Indian tradition, it was agenda of sustainable development and human rights and consumer concerns into an activity that was performed but not entails a balanced approach to economic their business operations and core strategy in deliberated. As a result, there is limited progress, social progress and environmental close collaboration with their stakeholders” documentation on specific activities related stewardship. to this concept. However, what was clearly 2 The WBCSD defines CSR as “the continuing CSR in India tends to focus on what is evident that much of this had a national commitment by business to contribute to done with profits after they are made. On character encapsulated within it, whether economic development while improving the the other hand, sustainability is about it was endowing institutions to actively quality of life of the workforce and their factoring the social and environmental participating in India’s freedom movement, families as well as of the community and impacts of conducting business, that is, and embedded in the idea of trusteeship. society at large.” how profits are made. Hence, much of the As some observers have pointed out, the 3 According to the UNIDO , “Corporate Indian practice of CSR is an important practice of CSR in India still remains within social responsibility is a management component of sustainability or responsible the philanthropic space, but has moved from concept whereby companies integrate business, which is a larger idea, a fact institutional building (educational, research social and environmental concerns in that is evident from various sustainability and cultural) to community development their business operations and interactions frameworks. An interesting case in point through various projects. Also, with global with their stakeholders. CSR is generally is the NVGs for social, environmental influences and with communities becoming understood as being the way through which and economic responsibilities of business more active and demanding, there appears a company achieves a balance of economic, issued by the Ministry of Corporate Affairs to be a discernible trend, that while CSR environmental and social imperatives in June 2011. Principle eight relating to remains largely restricted to community (Triple-Bottom-Line Approach), while at inclusive development encompasses most development, it is getting more strategic in the same time addressing the expectations of the aspects covered by the CSR clause nature (that is, getting linked with business) of shareholders and stakeholders. In this of the Companies Act, 2013. However, the than philanthropic, and a large number of sense it is important to draw a distinction remaining eight principles relate to other companies are reporting the activities they between CSR, which can be a strategic aspects of the business. The UN Global are undertaking in this space in their official business management concept, and charity, Compact, a widely used sustainability websites, annual reports, sustainability sponsorships or philanthropy. Even framework has 10 principles covering reports and even publishing CSR reports. social, environmental, human rights and governance issues, and what is described as The Companies Act, 2013 has introduced CSR is implicit rather than explicit in these the idea of CSR to the forefront and 1 http://ec.europa.eu/enterprise/policies/sustainable- principles. business/corporate-social-responsibility/index_ through its disclose-or-explain mandate, en.htm is promoting greater transparency and 2 http://www.wbcsd.org/work-program/business- disclosure. Schedule VII of the Act, which role/previous-work/corporate-social-responsibility. aspx 3 http://www.unido.org/what-we-do/trade/csr/what- is-csr.htmlpp1g1/0/ 4 Brundtland Commission’s Report, 1987 Handbook on Corporate Social Responsibility in India 7Globally, the notion of CSR and Benefits of a robust CSR sustainability seems to be converging, as programme is evident from the various definitions of As the business environment gets CSR put forth by global organisations. The increasingly complex and stakeholders genesis of this convergence can be observed become vocal about their expectations, from the preamble to the recently released good CSR practices can only bring in greater draft rules relating to the CSR clause within benefits, some of which are as follows: the Companies Act, 2013 which talks about stakeholders and integrating it with • Communities provide the licence to the social, environmental and economic operate: Apart from internal drivers objectives, all of which constitute the such as values and ethos, some of the key idea of a triple bottom line approach. It stakeholders that influence corporate is also acknowledged in the Guidelines behaviour include governments (through on Corporate Social Responsibility and laws and regulations), investors and Sustainability for Central Public Sector customers. In India, a fourth and 5 Enterprises issued by the DPE in April 2013 . increasingly important stakeholder is The new guidelines, which have replaced the community, and many companies two existing separate guidelines on CSR have started realising that the ‘licence and sustainable development, issued in to operate’ is no longer given by 2010 and 2011 respectively, mentions the governments alone, but communities following: that are impacted by a company’s business operations. Thus, a robust CSR “Since corporate social responsibility and programme that meets the aspirations sustainability are so closely entwined, it can of these communities not only provides be said that corporate social responsibility them with the licence to operate, but and sustainability is a company’s commitment also to maintain the licence, thereby to its stakeholders to conduct business in an precluding the ‘trust deficit’. economically, socially and environmentally sustainable manner that is transparent and • Attracting and retaining employees: ethical.” Several human resource studies have linked a company’s ability to attract, Why is the CSR clause of the retain and motivate employees with their CSR commitments. Interventions new Companies Act, 2013 so that encourage and enable employees critical for SMEs? to participate are shown to increase employee morale and a sense of By requiring companies, with a belonging to the company. minimum net profit of 5 crore INR, • Communities as suppliers: There to spend on CSR activities, the are certain innovative CSR initiatives Companies Act, 2013 is likely to bring emerging, wherein companies have in many SMEs into the CSR fold. This invested in enhancing community will usher in a fresh set of challenges livelihood by incorporating them into to a sector that is increasingly their supply chain. This has benefitted being asked by its B2B customers communities and increased their income levels, while providing these companies to comply with environmental and with an additional and secure supply social standards, while remaining chain. competitive in terms of price and quality. Thus, SMEs will have to • Enhancing corporate reputation: quickly learn to be compliant with The traditional benefit of generating goodwill, creating a positive image and these diverse set of requirements and branding benefits continue to exist for it is hoped that this handbook will companies that operate effective CSR facilitate their ability to comply with programmes. This allows companies the CSR clause of the Companies Act, to position themselves as responsible 2013. corporate citizens. 5 Guidelines on Corporate Social Responsibility and Sustainability for Central Public Sector Enterprises -http://www.recindia.nic.in/download/DPE_Guide- lines_CSR_Sust.pdf 8 PwCGlobal principles and guidelines The UN Guiding Principles on Business and Institute of Social and Ethical Account- Human Rights ability: AccountAbility’s AA1000 series of A comprehensive guidance for companies standards The UN guiding principles provide assistance pertaining to CSR is available in the form to states and businesses to fulfil their existing This is a series of standards which enable or- of several globally recognised guidelines, obligations towards respecting and protecting ganisations to become accountable, responsible frameworks, principles and tools, some of human rights and fundamental freedoms and and sustainable. It consists of the (i) AA1000 which are discussed below. It must be noted comply with the existing laws. These principles accountability principles (AP) standard (ii) that most of these guidelines relate to the act as global standards for addressing the risk AA1000 assurance standard (AS) (iii) AA1000 larger concept of sustainability or business of human rights violation related to business stakeholder engagement (SE) standard. Since responsibility, in keeping with the fact that activity. In circumstances when these laws these standards have been formulated through these concepts are closely aligned globally are breached or the guidance is not adhered a multi-stakeholder consultation process, they with the notion of CSR. to, suitable remedies have also been recom- ensure that those impacted (that is, enter- mended. The primary focus is on the protec- prises, governments and civil societies) stand UNGC tion of human rights by both, the state and the to gain. The Vodafone Group Plc has adopted business enterprises, and the principles broadly the AA1000AP standard by focussing on three UNGC is world’s largest corporate citizenship outline the manner in which the framework can broad areas: (i) inclusivity (stakeholder en- initiative with the objective to mainstream the be implemented. gagement to develop and implement a strategic adoption of sustainable and socially responsible approach to sustainability) (ii) materiality policies by businesses around the world. The 10 For more details refer the website of Office of (assess the management effort required for principles of the UN Global Compact have been 7 the High Commissioner for Human Rights each material issue and determine the content derived from various UN conventions such as ILO’s tripartite declaration of principles on of sustainability reports) (iii) responsiveness the Universal Declaration of Human Rights, multinational enterprises and social policy (respond with solutions to material issues and ILO’s Declaration on Fundamental Principles challenges). and Rights at Work, the Rio Declaration on This is another voluntary declaration whose environment and development, and the UN adoption by governments, employers and mul- For more details refer the website of Account- Convention Against Corruption. These prin- tinational organisations is encouraged, with the 10 Ability ciples cover four broad areas: intention of further ensuring labour and social Social Accountability International (SAI): SA standards. This is particularly for organisations • Human rights (support and respect the 8000 Standard that operate across multiple countries. Focus is protection of international human rights on core labour standards such as (i) freedom of This is one of the world’s first auditable social and ensure that business is not complicit association and the right to collective bargain- certification standard. It is based on ILO, UN with human rights abuses) ing (prohibition of discrimination, bonded and and national law conventions, and adopts • Labour rights (uphold the freedom of as- forced labour) (ii) industrial relations (no trade a management system approach in order to sociation and effective recognition of the union restrictions, regular discussions between ensure that companies that adopt this approach right to collective bargaining, elimination management and labour, and the provision of also comply with it. This standard ensures the of all forms of forced and compulsory a forum to lodge complaints in case of labour protection of basic human rights of workers. labour, effective abolition of child labour standard violation) (iii) employment opportu- The nine basic elements of this standard in- and elimination of description in respect nities (creation of job security, improved living clude (i) child labour (ii) forced and compul- of employment and occupation) and working conditions and ensuring that sory labour (iii) health and safety (iv) freedom wages are on par with those of other enter- of association and the right to collective • Environment (support a precautionary prises in the same country). bargaining (v) discrimination (vi) disciplinary approach to environmental challenges, practices (vii) working hours (viii) remunera- 8 undertake initiatives to promote greater For more details refer the website of ILO tion (ix) management systems. According to environmental responsibility and encour- OECD Guidelines: Multinational enterprises SAAS, there are 695 facilities in India that have age the development of environmental been accredited with this standard. Out of friendly technology) OECD Guidelines for multinational enterprises these, Aditya Birla Chemicals (India) Limited, elaborate on the principles and standards for • Governance (work against corruption in Bhilai Steel Plant Steel Authority of India responsible business conduct for multinational all forms, including bribery and extor- Limited, Birla tyres, Dr Reddy’s Laboratories corporations. These guidelines were recently tion). Limited and Reliance Infrastructure Limited updated in 2011. They cover areas such as 6 figure prominently in the list of certified facili - For more details refer the website of UNGC employment, human rights, environment, ties within India. information disclosure, combating bribery, 11 consumer interests, science and technology, For more details refer the website of SAI competition and taxation. They contain defined standards for socially and environmentally responsible corporate behaviour, and also pro- vide procedures for resolving disputes between corporations and communities or individuals adversely impacted by business activities. 9 For more details refer the website of OECD 6 www.unglobalcompact.org/ 7 http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf 8 http://www.ilo.org/empent/Publications/WCMS_094386/langen/index.htm 9 http://oecdwatch.org/about-oecd/guidelines 10 http://www.accountability.org/standards/ 11 http://www.sa-intl.org/index.cfm?fuseaction=Page.ViewPage&PageID=937 Handbook on Corporate Social Responsibility in India 9ISO 26000: Social responsibility The SROI Network National Voluntary Guidelines on Social, Environmental and Economic Responsibili- This is a guidance tool provided by the ISO The SROI Network is a framework based on ties of Business which enables organisations to understand the social generally accepted accounting principles meaning and significance of social responsi - (SGAAP) that can be used to help manage and These guidelines rolled-out by the Ministry bility. It is important to note that this is not a understand the social, economic and environ- of Corporate Affairs in India, were developed certification but only a guiding tool. Hence, or - mental outcomes created by an organisation or through an extensive consultative process with ganisations which comply with these standards a person. In order to increase the social value or the objective of providing a distinctive India- are self-certified. It covers six core areas of impact of a task, SROI helps in understanding, centric approach for Indian businesses to un- social responsibility, including (i) human rights managing and communicating the social value derstand the nuances of responsible business, (ii) labour practices (iii) environment (iv) fair that a particular task creates in a clear and applicable to large and small businesses alike. operating practices (v) consumer issues (vi) consistent way with customers, beneficiaries They are easy to comprehend and implement, community involvement and development. and funders. It also helps in managing risks and and encourage businesses to adopt the triple This ensures a holistic approach to the concept identifying opportunities and raise finances. bottom line approach. These guidelines consist of social responsibility and sustainable develop- It flags potential improvements to services, of nine principles which relate to ethics and ment. information systems and the way to govern the transparency, product life cycle sustainability, businesses. By forecasting the value a company employee well-being, stakeholder engagement, 12 For more details refer the website of ISO expects to create using SROI, one can identify human rights, environmental stewardship, OECD CSR policy tool the areas where changes are required and a responsible policy advocacy, inclusive develop- comparison of performance against forecasts ment and consumer well-being. Each principle The OECD CSR policy tool aims to help will help create additional value. consists of core elements that further articulate companies gain insight into their current CSR the purpose and sense of each principle. It activities, assess its value and determine other 15 For more details refer the website of SROI also provides an approach for adopting these CSR activities that can be employed. This policy The LBG model guidelines. tool is based on the OECD Guidelines and the ISO26000 implementation guidelines. The re- Companies across the world adopt LBG’s 17 For more details refer the website of MCA sult of the policy tool is a complete CSR policy, measurement model in order to assess the real including an action plan with tasks, responsi- value and impact of their community invest- bilities and a communication strategy plan. ment to both, the business and society. This model helps companies to understand the total 13 For more details refer the website of OECD amount of cash, time and in-kind invested with- Global Compact Self-Assessment Tool in the community, and enables them to under- stand the geographic spread of their commu- The Global Compact Self Assessment Tool is an nity support and the kind of themes supported easy-to-use guide designed for use by compa- such as education, health and arts and culture. nies of all sizes and across sectors committed Through this model, companies can track the to upholding the social and environmental manner in which their community programme standards within their respective operations. supports wider business goals such as building The tool consists of 45 questions with a set of employee morale or creating reputational three to nine indicators for each question. It advantages. Also, it helps to measure the differ- consists of a ‘management section’ and four ence their programmes make to the community other sections, including human rights, labour, at large. Under this model, member companies environment and anti-corruption that relate to share data and best practices which in turn help the principles of the UN Global Compact. The in the benchmarking process. tool is in line with the UN Guiding Principles 16 on Business and Human Rights. For a small For more details refer the website of LBG company, this tool acts as a measure of the company’s performance in all areas of the UN Global Compact and how well these issues are managed. For a large organisation, this tool helps to continuously improve existing policies and systems, engage subsidiaries, suppliers or other stakeholders, and improves internal and external reporting. For more details refer the website of Global 14 Compact Self-Assessment Tool 12 http://www.iso.org/iso/home/standards/iso26000.htm 13 http://www.oecdguidelines.nl/get-started/creating-a-csr-policy/ 14 http://www.globalcompactselfassessment.org/aboutthistool 15 http://www.thesroinetwork.org/117-home/all-regions/167-why-should-i-use-sroi10 16 http://www.lbg-online.net/about-lbg.aspx 17 http://www.mca.gov.in/Ministry/latestnews/National_Voluntary_Guidelines_2011_12jul2011.pdf 10 PwCClause 135, Companies Act, 2013 Handbook on Corporate Social Responsibility in India 11fiscal year 2014-15 onwards, also require The Act lists out a set of activities eligible The Companies Act, 2013 companies to set-up a CSR committee under CSR. Companies may implement In India, the concept of CSR is governed consisting of their board members, these activities taking into account the local by clause 135 of the Companies Act, 2013, including at least one independent director. conditions after seeking board approval. which was passed by both Houses of the The indicative activities which can be The Act encourages companies to spend at Parliament, and had received the assent undertaken by a company under CSR have least 2% of their average net profit in the of the President of India on 29 August been specified under Schedule VII of the previous three years on CSR activities. The 2013. The CSR provisions within the Act Act. ministry’s draft rules, that have been put is applicable to companies with an annual up for public comment, define net profit The draft rules (as of September 2013) turnover of 1,000 crore INR and more, or a as the profit before tax as per the books of provide a number of clarifications and while net worth of 500 crore INR and more, or a accounts, excluding profits arising from these are awaiting public comment before net profit of five crore INR and more. The branches outside India. notification, some the highlights are as new rules, which will be applicable from the follows: • Surplus arising out of CSR activities will List of activities under Schedule VII have to be reinvested into CSR initiatives, and this will be over and above the 2% figure • The company can implement its CSR Promotion of activities through the following methods: education - Directly on its own - Through its own non-profit foundation set- up so as to facilitate Eradication of extreme this initiative hunger and poverty - Through independently registered non-profit organisations that have a record of at least three years in similar Gender equity and such related activities women empowerment - Collaborating or pooling their resources with other companies Combating Reducing child • Only CSR activities undertaken in India HIV-AIDS, mortality and will be taken into consideration malaria and other improving maternal diseases • Activities meant exclusively for health employees and their families will not Contribution to qualify Prime Minister’s • A format for the board report on CSR Social relief fund and other has been provided which includes business such state and Environmental projects amongst others, activity-wise , reasons central funds sustainability for spends under 2% of the average net profits of the previous three years and Employment a responsibility statement that the CSR enhancing policy, implementation and monitoring And such vocational process is in compliance with the CSR other matters skills as may be objectives, in letter and in spirit. This has prescribed to be signed by either the CEO, or the MD or a director of the company Governance Clause 135 of the Act lays down the 12 PwCguidelines to be followed by companies activities, including the expenditure, the Reporting while developing their CSR programme. type of activities, roles and responsibilities The new Act requires that the board of the of various stakeholders and a monitoring The CSR committee will be responsible company shall, after taking into account mechanism for such activities. The CSR for preparing a detailed plan on CSR the recommendations made by the CSR committee can also ensure that all the kinds committee, approve the CSR policy for of income accrued to the company by way of the company and disclose its contents in CSR activities should be credited back to the their report and also publish the details community or CSR corpus. on the company’s official website, if any, in such manner as may be prescribed. If the company fails to spend the prescribed amount, the board, in its report, shall specify the reasons. Role of the board and the CSR committee Business responsibility reporting Net worth 500 Crore INR The other reporting requirement Turnover 1000 Crore INR Net profit 5 Crore INR mandated by the government of India, including CSR is by the SEBI which issued a circular on 13 August 2012 mandating the top 100 listed companies to report their ESG initiatives. These are to be reported Role of the board CSR committee in the form of a BRR as a part of the annual report. SEBI has provided a template for filing the BRR. Business responsibility reporting is in line with Form a CSR commiittee Three or more directors with at least one the NVG published by the Ministry independent director of Corporate Affairs in July 2011. Approve the CSR policy Formulate and recommend a CSR Provisions have also been made in Ensure implementation of the activties policy to the board the listing agreement to incorporate under CSR the submission of BRR by the relevant Recommend activities and the amount companies. The listing agreement Ensure 2% spend of expenditure to be incurred also provides the format of the BRR. Disclose reasons for not spending the Monitor the CSR policy from time to The BRR requires companies to report amount (if applicable) time their performance on the nine NVG principles. Other listed companies have also been encouraged by SEBI to voluntarily disclose information on their ESG performance in the BRR format. Handbook on Corporate Social Responsibility in India 13CSR: Planning and strategising 14 PwCThis is an excellent starting point for any • repetitive processes such as the CSR: Planning and annual CSR policy, due diligence of company new to CSR. In case a company strategising the implementation partner, project already practices CSR, this committee The first step towards formalising CSR development, project approval, should be set up at the earliest so that it contracting, budgeting and payments, projects in a corporate structure is the can guide the alignment of the company’s monitoring, impact measurement and constitution of a CSR committee as per the activities with the requirements of the Act. reporting and communication specifications in the Companies Act, 2013, For effective implementation, the CSR clause 135. A set of such enabling processes, their committee must also oversee the systematic inter-relationships and the sequence in development of a set of processes and Background which they need to be developed have been guidelines for CSR to deliver its proposed identified below: Clause 135 of the Companies Act, 2013 value to the company, including: requires a CSR committee to be constituted • one-time processes such as developing by the board of directors. They will be the CSR strategy and operationalising responsible for preparing a detailed plan the institutional mechanism of the CSR activities including, decisions regarding the expenditure, the type of CSR processes activities to be undertaken, roles and responsibilities of the concerned individuals and a monitoring and reporting mechanism. The CSR committee will also be required to 1 ensure that all the income accrued to the Developing a CSR strategy Operationalising the + company by way of CSR activities is credited and policy institutional mechanism back to the CSR corpus. Companies Act, 2013, Clause 135: CSR committee requirements • A CSR committee of the board should Due diligence of the Project development 2 be constituted. It should consist of at + implementation partner least three directors out of whom at least one is an independent director. This composition will be disclosed in the board’s report as per sub-section (3) of section 134. Finalising the • The CSR committee shall: 3 Project approval arrangenment with the + - formulate and recommend a CSR implementing agency policy to the board, indicating the activities as specified in Schedule Project implementation VII of the Act - recommend the amount of expenditure to be incurred on the Progress monitoring 4 activities indicated in the policy and reporting - monitor the CSR policy regularly Report consolidation Impact measurement + and communication 5 Handbook on Corporate Social Responsibility in India 15While developing these processes, no • CSR policy refers to what the company Geography: The Companies Act, 2013 expects to achieve over the next year. standard set of recommendations exist for encourages companies to target their CSR This is aligned with the requirements of all companies. However, an overview of the interventions in their local region. While the Companies Act, 2013 . required details, the activities required to be this is an obvious choice for companies that completed for each of these processes along • Programme refers to a sector or an are in manufacturing, those in the services issue that the company proposes to with some additional guidance on critical sector (like banking and telecom) with a address through its CSR. This can, issues has been provided below: wider footprint have no concentrated local for instance, be ‘education of the girl region. Companies must decide whether Step one: Developing a CSR child’ or ‘agriculture development’. their CSR activities will be focused on a Programmes will be clearly outlined in strategy and policy few geographies (this can be around their the company’s CSR strategy. plants or in specific backward districts) or Purpose • Programme goals will be achieved whether they will prefer to particularly work The Companies Act, 2013 requires every through a series of individual projects anywhere in India. and, a project refers to a set of company to put out its CSR policy in the Sector and issue: Sector refers to the interventions, typically in a specific public domain. The guidance provided development area that the company wishes geography and addressing a specific in the Act and the draft rules on what stakeholder group, with a definite set of to focus on; typically, health, education, constitutes a CSR policy are that it should: goals, beginning and end and a budget livelihood, environment, and so on. • exclude normal business activities of attached to it. Issue refers to a specific aspect of a sector the company for example, primary education in the • Each project in turn will consist of • contain a list of the CSR projects or a number of activities. All of which education sector, skills development or programmes which the company contribute towards the project goals. social enterprise in the livelihoods sector. plans to undertake during the It is important for a company to determine Frameworking CSR strategy implementation year which sector and issues it will focus on to An effective CSR strategy should articulate: ensure significant positive impact. Also, While specifying the annual report the reporting format in draft rules of the requirements, the draft rules go on to say is • who it wishes to address i e the target Companies Act, 2013 requires that the that the company must provide: group company report against the sector making it • a brief outline of its CSR policy, • where it wishes to work i e the all the more important. including ‘the statement of intent geography reflecting the ethos of the company, Process • what sectors or issues it wishes to broad areas of CSR interest and an address overview of activities to be undertaken’ Objective: Developing the CSR strategy and A brief understanding of these terms is policy. • a web link to the CSR policy including outlined below: ‘the full list of projects, activities Process owners: The CSR committee and programmes proposed to be Target group: While development and Inputs: undertaken by the company’ welfare programmes in India address all the • Guidance from the board citizens, the focus is on the disadvantaged, Since most of the development requires marginalised and excluded. Marginalisation • Companies Act requirements long-term commitments and their impact in India is primarily on the basis of gender, often takes a while to accrue, a good CSR • Corporate business strategy, plan and disability, ethnicity and location. This leads practice requires that a company that is supply chain to social and physical exclusion of such serious about its CSR should develop a • Development priorities: both, national groups from all kinds of development. long-term (three to five years) vision and and wherever the company has Engaging the marginalised in India is strategy which is reviewed annually and the business interests further complicated due to language and activities and budgets are planned on an Output(s): the CSR policy document and an literacy variances, information asymmetry, annual basis. The latter will comply with the indication of sectors and issues, geographies infrastructure constraints, geographical CSR policy requirements of the Companies and a profile of the beneficiaries. challenges and cultural barriers to name Act, 2013. a few. The CSR strategy should ideally To avoid confusion regarding terms like indicate which of these marginalised groups policy, strategy, project and programme, a it proposes to target. brief explanation has been provided here: • CSR strategy refers to what the company expects to achieve in the next three to five years and incorporates the vision, mission and goals on a broader level. It also entails how it plans to achieve these in terms of organisation and approach. 16 PwCActivities• Determining the implementation Step two: Operationalising the mechanism: • Reviewing the past as well as the institutional mechanism current CSR activities and examining - grant-making or direct Purpose their alignment with Schedule VII of implementation the Companies Act, 2013. In order for a corporate to gain the greatest - institutional mechanism: in-house leverage and a strategic advantage through • Studying the publicly available department, corporate foundation, information on national and local the investment of intellectual and financial partnerships with other NGOs development priorities. resources, they are required to select their • Annually developing a CSR policy in implementation mechanism. In terms of • Meeting development experts in the line with the Companies Act, 2013 rules implementation mechanism, a company has government as well as the NGOs to that defines programmes, geographies understand priorities and identifying several options, which are permitted under and budgets for the following financial potential areas of intervention. the CSR draft rules: year, aligned with the strategy and • Conducting internal meetings with ensuring that the 2% requirement of • Self-execution through: business leaders to establish the funds allocation is met - an in-house CSR department relevance of potential CSR activities to • Establish methods for monitoring and the company’s core business. - a company foundation with execution reporting capabilities • Studying the good CSR practices Tools, technical guidance and of other companies and their • Making grants to an independent achievements. standards to be used: implementation partner (which has a track record of at least three years). • Developing a CSR strategy that defines • The 10 principles of the UN global for the next three to five years, what compact • The grants can be made: the company’s CSR activities will cover • UN guiding principles on business - directly by an in-house CSR in terms of: and human rights department - vision and mission • ILO tri-partite declaration of - through the company’s grant-making - sectors and issues principles on multinational foundation enterprises and social policy - geographies: states and districts The factors that a company needs to • OECD CSR policy tool - beneficiaries consider while deciding between in-house execution and grant-making (whether • Global compact self assessment - KPIs by the department or the company • Clause 135, Companies Act, 2013 foundation) are as follows: Decision criteria Grant making Self execution Availability and access to Preferred when there is an easy availability and Preferred when there is a lack of availability and implementation partner access to the implementation partners (in the target access to the implementation partners (in the geography working on identified sector and issue) who target geography working on identified sector and can work towards the objective that the company wants issue) who can work towards the objective that the them to pursue. company wants them to pursue. Customisation The flexibility of customising a CSR project to suit the The flexibility of customising a CSR project to suit company needs is low to medium. the company needs is high. Cost of implementation Implementation partners are more likely to have lower Overheads are usually higher and economic costs due to their concentrated focus in pursuing efficiencies lower (at least during inception and development activities, cumulative time spent on growth phases). Higher fixed costs are involved. the field, cost of human resources deployed and in general operational efficiencies. Fixed costs are usually averaged down as the implementation partners usually try to tap multiple sources of funding including government assistance. Control Low to medium levels of control over day to day High levels of control over day to day activities, activities, efficiencies and outputs. efficiencies and outputs. Building expertise Project management know-how is sufficient and in- Project management know-how is required along depth domain knowledge of development issues is not with in-depth domain knowledge of development expected. issues. Handbook on Corporate Social Responsibility in India 17It must be noted that whatever Process Step three: Due diligence of the implementation mechanism the company implementation partner Objective: Establishing a legal entity and chooses, it must have a basic CSR aligning the accounting, tax, finance, Purpose department in place to support the CSR administration, HR and IT systems to deliver committee. The role and structure of the Due diligence refers to the process a the commitments made in the CSR policy. department will be determined by the CSR company undertakes to determine the Process owners: The CSR committee committee. risks as well as the benefits of working with a potential implementation partner. Inputs: The CSR strategy Selecting legal structure of the This process has to be sufficiently robust to company foundation Output(s): ensure that a company’s implementation • creation of a separate legal entity or a Many companies have set up their own partners have the reputation, competence CSR department for CSR activities foundations (a term used loosely to describe and integrity to deliver effective a non-profit entity promoted by a company) • other institutional mechanisms programmes on the ground. to implement their CSR activities. The to align the accounting, finance, It begins as soon as the discussions with administration, HR and IT systems with advantages that they see in this are: the implementation partner suggest that CSR activities • It enables leveraging of funds from there is prima facie interest of both parties other sources i e the government Activities: to enter into a partnership. A detailed schemes and other foundations. • Selecting the organisation model for due-diligence is essential for large and Typically, profit organisations are not the CSR implementation: in-house long partnerships but may be brief for a eligible for such funds. versus outsourced and its legal entity relatively small or opportunistic partnership 19 • Since the skills, job titles, career paths (trust, society, Section 8 company , opportunity. and cost structures required for the in-house department, etc) The due diligence process consists of five execution of CSR projects are quite • Identifying the implementation model primary areas for investigation: different from a company’s operations, (grant making, direct project execution, a separate foundation enables the • competence of the implementation etc) company to keep these distinct. partner • Formalising the job description, Under the draft CSR rules, an entity • identity the roles and responsibilities and that a company sets up to facilitate the the reporting relationships for the • management implementation of its CSR activities is to CSR team (whether in-house or in a • accountability be registered in India as a trust, society, foundation) 18 or a non-profit company under section 8 • transparency and financial capability • Integrating budgeting, procurement, of the Companies Act, 2013. Non-profit payments and reporting for CSR with These have been outlined below: organisations in India are: the existing finance, administration and IT systems • self-governed by a board of trustees or a managing committee or a governing • Analysing accounting systems and council, comprising individuals who chart of accounts and make required generally serve in a fiduciary capacity changes to record all expenses appropriately. Establish a method of • intended to benefit others outside the allocation for the expenses (or assets membership of the organisation created) that are partly for the CSR • prohibited from distributing a and partly for business or employee monetary residual to its members use. A detailed comparative analysis of the Tools, technical guidance and three choices of non-profit legal structures standards to be used: is attached in Appendix 1: Comparative analysis of the three choices for legal • To be tailored as per corporate entity. requirements 18,19 The non-profit organization formerly known as Section 25 companies are now called Section 8 companies after the introduction of Companies Act, 2013. 18 PwCIssue Sub-issue Description Geography Capacity, expertise and the number of years of experience with the geography under consideration Competence of the implementation Sector Capacity, expertise and the number of years of experience with the sector under consideration partner Issue Capacity, expertise and the number of years of experience with the issue under consideration History of existence The number of years the implementation partner has been in existence Legal identity The organisation is registered either as a trust, a society or Section 8 company, a charitable company, a co-operative society or is unregistered Identity Affiliations The desired level of affiliation with governments, local administration and international bodies Litigations Any ongoing litigation Composition of the board Number of members, advisors, term of members and advisors and board renewal procedures Profile of the board Bios of the members on the board, their number of years and depth of experience and relevant members and advisors achievements Diversity in expertise The expertise available at the disposal of the board for development activities Board meetings Regularity of meetings, attendance records and recent topics of discussion Management Vision, mission and The management outlines its vision, mission and strategy in its operational plans or other documents. strategy These plans are communicated to all relevant employees Experience of the The management personnel responsible for the day-to-day activities have the necessary depth of management experience and skill set to manage the current and the future growth plans. Conflict of interest Any conflict of interest between the board members, the advisors or the management personnel with the company. There is no conflict of interest with the local governments. Transparency Transparency Awareness of the disclosure and the transparency requirements for all stakeholders (including regulators and funders) like periodic reporting, external audits and ratings Financial statements Availability of audited financial statements Adequacy of reserves A formalised and institutionalised system for keeping reserves for times of financial need Financial capability Section 12A registration Status of Section 12A registration 80G registration Status of 80G registration. FC(R)A registration Status of the registration with the Foreign Contribution (Regulation) Act 2010. A more detailed due-diligence can also • studying the books of accounts and the Step four: Project development auditor’s report undertake the evaluation of the following Purpose five issues: Output(s): The CSR strategy of a company will be • organisation structure • a due diligence report implemented through a series of projects • operations, systems and processes Activities: which will have definite beginnings, ends, • human resource expected outputs and outcomes as well as • Establishing a due diligence criteria budgets associated with it. These projects • financial capability to evaluate the implementation or may be of a short duration (a few months) concept development agency including • risk management its incorporation, permits and licenses, or multi-year. systems, processes, public image, CII and Credibility Alliance’s guidelines for A company may choose to implement management, team deployment, identifying NGO partners are mentioned in projects through its in-house teams or track record, financial soundness, Appendix 4. in partnership with other agencies or a competence level, presence in desired combination of both. Whatever path it Process geography, compatibility with company CSR policy and any conflicts of interest. takes, it is important for the project to be Objective: Selecting the implementation developed clearly with distinct baselines, • Establishing a due diligence criteria partner. defined activities, ‘monitorable’ targets and for evaluation and empanelment of Process owners: The CSR department or budgets. In the case of multi-year projects, private funders for partnership and Company Foundation joint projects. it is important to include a provision to undertake annual reviews which can form Inputs: • Evaluating the partnership the basis to revise the project. opportunities for its risks and benefits. • the CSR strategy and policy Tools, technical guidance and • discussions with communities, board, standards to be used: staff, other funders, local government officials, local leaders or influencers, • To be tailored as per corporate auditors requirements. Handbook on Corporate Social Responsibility in India 19• Detailing the project: the objectives, Inputs: Process the beneficiaries and the impact on • a project proposal Objective: Developing a feasible project the beneficiaries, the assumptions, proposal. • a due diligence report the expected outputs and outcomes, detailed activities, potential to Process owners: The implementation Output(s): An approved project proposal influence public policy and practice. agency (the CSR department, company including a monitoring process and • Identifying the indicators of success foundation or the NGO partner) reporting and responsibility for this. with the means of verification and Inputs: Activities: establish the baseline for each. This can be commissioned as a separate study • the CSR policy • Determining the delegation of power or can even be included in the needs for the project approval. • institutional mechanisms assessment stage. • Establishing an evaluation framework • information from the government • Estimating the budget and how it will for the appraisal of the project concepts sources, previous studies done in the be funded specifying the community and implementing agencies that ensure area, etc contributions, leveraging of the complete alignment with the CSR • information on programs targeting government schemes and contributions policy. similar geographies and beneficiary from the other donors. • Establishing tests for the theory of groups or strategies • Indicating the monitoring and change; whether the concept will be • monitoring impact measurement evaluation methodologies for impact able to deliver the intended results. measurement. reports from any earlier projects Establishing tests for the value for money, economy, effectiveness and Output(s): Tools, technical guidance and efficiency. A project proposal that details: standards to be used: • Reviewing risks and mitigation • a project context including the roles of • Social return on investments (SROI), measures. other development actors the SROI network • Identifying resource availability • key needs of the target beneficiaries and any specific organisational • Global impact investing network requirements and constraints. (GIIN) • project goals, KPIs, baselines and expected end lines • Laying down organisational supervision • ISO 26000: social responsibility and oversight requirements. • project milestones for progress monitoring purposes Step five: Project approval Tools, technical guidance and • activities and timelines to achieve the Purpose standards to be used: stated project goals • To be tailored as per corporate Every project, whether developed by the • budgets along with the basis for requirements. in-house team or an external agency, must estimation be formally examined and approved. This • risks and mitigation strategies Step six: Finalising the is to ensure that each project is in line with • progress reporting: content, frequency the CSR strategy and policy, the monitoring arrangement with the indicators are clearly defined and relevant implementing agency Activities: and there is an adequate budget available. • Developing a framework to identify Purpose Projects that go on for longer durations key stakeholder groups including the or demand a larger amount of resources While working with an external agency, local community, the local government must be scrutinised more carefully than the it is very important to enter into a formal or bodies, academia and research others. institutions, investors, etc. arrangement which is referred to here as a Memorandum of Understanding or The CSR committee is ultimately the • Conducting a needs assessment (if MoU. It defines the roles, responsibilities, one responsible for every project. It can, required) to assess development deliverables, commitments and priorities. The methodology for this can however, choose to delegate authority to consequences in case of any breach. This is be participatory processes, surveys or a a project approval committee consisting combination of the two. essentially a formal acknowledgement that of company staff and outside experts with all the partners have voluntarily consented clearly defined roles and responsibilities. • Studying and adopting good practices to work together to achieve an agreed to address similar challenges based on Process outcome that requires each one to play their prior experiences or lessons available from other practitioners and develop respective roles. Objective: Approve the project based on the approach. the CSR policy objectives, principles and The term MoU is used more generically guidelines. here to refer to the arrangements between partners which can range from a formal, Process owners: The CSR committee or the legally enforceable contract on the one hand delegated project approval committee. to a simple exchange of written documents 20 PwCTo ensure objectivity, it is critical that the on the other. However, what is important Process monitoring is done by someone other for the company to keep in mind is that Objective: Agree upon and sign the MoU than the people directly engaged in the it is entering into an arrangement with a with the partner. project implementation. In cases where partner, not a supplier and there is a greater Process owners: The CSR department or the implementation is done by a partner or sense of mutuality in this relationship. company foundation corporate foundation, this role can either be It may also be noted that the MoU is outsourced or played by the company’s CSR relevant only if the project is being Inputs: department. In case the CSR department implemented by a legal entity other than • an approved project proposal itself is implementing a project, then the company’s own CSR department. It monitoring should either be outsourced to • a due diligence report must also be executed if the project is being a third party or the department structure implemented by the company foundation if Output(s): MoU with the implementing should include an independent monitoring it is a separate legal entity. agency including the disbursement cell. This decision should be taken by the schedule. CSR committee. Disbursement scheduling Activities: For a project to deliver the desired results, Process • Developing template MoUs based it should have sufficient funds to carry out Objective: Monitoring progress, distilling on the context. Specify the outputs the planned activities. At the same time, lessons and forming the basis for reporting. and outcomes, the approach and having excess funds in the bank account methodology, the KPIs, key parameters is not prudent financial management. Process owners: The CSR committee to be monitored and reported, the Thus, the scheduling of disbursements is mode of communication, contract Inputs: important both for the company (to plan its management team, scope of change • The approved project proposal cash flows from the CSR budget) and the in management procedures, dispute implementing agency and hence needs to be or conflict resolution mechanisms, • Previous monitoring reports detailed in the MOU. inspection and audit requirements, Output(s): contract closeout requirements, time- A good practice suggests that the scheduling lines, milestones and deliverables, • Determining mid-course corrections of disbursements should be linked with budgets, process of invoicing and • Recommendations for future project the activities planned for the each period; release of payments, etc designs this can be a quarter, six months or a • Establishing a process for negotiation • Project monitoring reports to the CSR year depending upon the administrative of the MoU with the implementing committee convenience and budget sizes. Thus, the agency. project budget needs to be broken up Activities: • Negotiating, agreeing upon and signing accordingly and the funds required for the the MoU• Determining the monitoring schedule subsequent period should be made available for each project based on the approved in advance. Tools, technical guidance and project proposal. standards to be used: Actual disbursements have to then be linked • Obtaining all relevant progress reports to the progress on the ground. The MoU • To be tailored as per corporate from the project, studying them and should also specify the conditions that the requirements. making a note of the gaps. implementing agency should fulfil and the • Holding discussions with the documentation it should provide in support Step seven: Progress monitoring implementation team on reasons for of a disbursement request. Typically, these slippages (if any) and agreeing on a and reporting include the status of: corrective action. This may be done Purpose through a field visit or remotely, based • activities originally planned in the on what has been agreed in the MoU. period Routine progress monitoring serves the • Holding discussions with the • changes and the reasons thereof following three important purposes: implementation team regarding what • It highlights any slippages and helps to • planned and required funds for the lessons are emerging and how they can determine a corrective action that must period be applied within the project as well as be taken if need be. • utilised funds and bank balances outside. • It provides an excellent opportunity • net funds required for learning: what worked and what Tools, technical guidance and did not. This can then be immediately standards to be used: applied to other projects. • To be tailored as per corporate • This is an essential part of the directors’ requirements. report as per the CSR clause of the Companies Act, 2013 Handbook on Corporate Social Responsibility in India 21Activities: Act, 2013. The report has to conform to Step eight: Impact measurement the requirements of CSR rules under the • Identifying methods for conducting Purpose Companies Act, 2013 in terms of form the impact assessment and outcome and content as non-compliance attracts Impacts of the development projects measurement suited to the context and the size of the project and budgets penalties. This report will also form a key typically take a while to manifest. For available. input into the company’s SEBI Business instance, a girl child education programme Responsibility Report and sustainability can show an increased enrolment and • Identifying the skills set required for report. The CSR committee may choose retention of girls and on a monthly basis, the impact measurement team and to go beyond the requirements of the but further impacts such as improved accordingly identifying, selecting and appointing the team. Companies Act, 2013 and issue a stand- learning levels will take at least a year. alone CSR report. So, impact measurement studies have • Assisting the team to prepare the different objectives from project monitoring methodology for selecting a sample, Process and typically have to be undertaken after conducting surveys, focus group discussions collecting information on Objective: Reporting the CSR at an providing sufficient time for them to the identified indicators. individual project level, consolidated at manifest. a programme level and aligned with the • Making the provisions for the site visits Impact measurement is often quite requirements under the Companies Act, by the team, involvement of the agency specialised and needs to be undertaken 2013 and the CSR committee. involved during the baseline and needs by an independent team with specific assessment. Process owners: The CSR department skills depending upon project design. • Undertaking the impact measurement For instance, if a girl child education Inputs: exercise and preparing the report. programme has a strong component • CSR strategy and policy for mobilising communities, then the • Identifying the lessons for future interventions.• the project MoU members of the evaluation team must not only understand education but also have • monitoring reports from individual Tools, technical guidance and knowledge of gender and the community in projects standards to be used: order to assess the impact. Output(s): • London Benchmarking Group(LBG) There are several tools and frameworks • consolidated CSR reports model for measuring impact. Each has its pros • external stakeholder communication and cons depending upon the nature of • Social return on investments (SROI), interventions, time and budgets available The SROI network Activities: for the study and the availability of people. • Global impact investing network • Identifying the recipient of the report: Thus, selecting the impact measurement (GIIN) the board of directors, investors, methodology is important. government agencies, beneficiaries, etc. • Accountability -: AA 1000, Institute Thus, impact studies have to be carefully • Selecting the appropriate reporting of Social and Ethical Accountability planned in terms of team composition, framework that is aligned with the • ISO 26000: social responsibility timing and methodology. The process must requirements of the Companies Act, be driven by the CSR committee which can 2013 and the global best practices. • Public consultation guidelines of delegate the day-to-day management of the Government of India, etc • Consolidating project reports into process to an appropriate structure within programme reports and an overall CSR the company. report. Step nine: Report consolidation Process The reporting format will form a part of the and communication CSR rules being drafted by the Ministry of Objective: Measuring the outcome and Purpose Corporate Affairs. impact of the projects. Reporting and communication closes the Process owners: The CSR committee loop between intent and achievement and is Tools, technical guidance and hence a crucial element of the CSR process. standards to be used: Inputs: In the context of the Companies Act, 2013 • resource planning• SEBI directive on ESG disclosure (if this is also a mandatory requirement as it applicable) , RBI guidelines on CSR, • the project MoU provides crucial inputs to preparing the sustainable development and non- directors’ report. Output(s): financial reporting (if applicable) Project-level reporting forms the base • impact measurement report • Clause 135, Companies Act, 2013 (if and hence getting it right is critical. • recommendations for the future project applicable) Project reports have to be consolidated in designs programme related reports, aligned with the CSR policy stated by the company as a requirement under the Companies 22 PwCCSR and SMEs Handbook on Corporate Social Responsibility in India 23CSR and SMEs Why collaborate for CSR initiatives? What are SMEs? CSR is for all companies. SMEs in India Small and medium enterprises (SMEs) have participated in CSR activities but these significantly contribute towards 21 efforts have not been optimally delivered. India’s economic growth. These serve One possible reason can be the fact that CSR independently and also as ancillary to larger activities depend on the profits of an SME units and help generate employment and and any fluctuations in profits can adversely industrialise the rural and backward regions affect their capability to continue their of India. They employ nearly 40% of India’s contribution for CSR. Another reason can workforce and contribute around 45% to be the limited human resources available to 20 India’s manufacturing output . SMEs which may also result in the lack of a What do they do? professional approach. The business activities of SMEs are SMEs tend to focus on short-term activities performed in proximity to the locals. This that involve lesser operational costs. A enables them to be aware of community survey conducted by UNIDO in 2008 on five needs, manage expectations and develop SME clusters in India, found that 31% to CSR programmes appropriately. 79% of the SMEs in these clusters, preferred charity donations rather than long-term Now that the CSR clause in the Companies programmes for local communities. Act, 2013 covers companies that have a net profit of five crore INR and above, it With the introduction of the new Companies is expected that while micro-enterprises Act, 2013, the SME’s approach to CSR has will not qualify, many small and medium to be modified while keeping operational enterprises (SMEs) will. costs low. One viable alternative is to pool resources with other SMEs in the cluster SMEs are being treated separately in this and create joint CSR programmes managed handbook because of their distinct features. by a single entity. This collaboration can be The CSR activities of these enterprises formed within the units in a cluster as they are driven by the personal interests of interact with the same communities and promoters who hold a significant financial have already established associations that stake in the business. They tend to be in cater to the business needs of the units. clusters and engaged in similar business activities. While the quantum of revenue Collaboration has the following available for CSR with individual SMEs is advantages: expected to be small, all eligible companies • Reduces operational cost: Individual in a specific geographical cluster, who single CSR efforts by a company consist handed as well as collectively impact the of establishing a CSR department, same community, can pool their resources assessing the needs of local to create a sizeable CSR fund. communities, undertaking programmes directly or through an NGO and How can SMEs contribute to CSR conducting regular impact assessment studies. A common organisation initiatives? catering to a number of companies will This section analyses the option of carry out these activities collectively undertaking collaborative CSR activities and thus reduce the operational cost of by SMEs. This collaboration can also be management. used by other companies to maximise • Undertake long-term projects: A the impact of their CSR initiatives while major hindrance in developing long- reducing the operational costs for fund term projects is the uncertainty in the management. CSR budget. This is dependent on the financial performance of the company. A fluctuating performance implies that the CSR budget allocations can be unreliable and can jeopardise a programme initiated earlier. Pooling resources addresses this issue to a 20. http://articles.economictimes.indiatimes.com/2013-06-09/news/39834857_1_smes-workforce-small-and-medium-enterprises 21. http://www.business-standard.com/article/sme/smes-to-get-professional-help-on-corporate-social-responsibility-108060501090_1.html 24 PwCcertain extent as the other partners The steps other than the guidelines can increase their share in case there mentioned by the steering committee in the is variance in allocation from a certain section “CSR: Planning and strategising” of segment of the cluster. The long- this handbook, include the following: term programmes also have greater • Deciding the thematic areas from impact than the short-term projects. Schedule VII of the Companies Communities are increasingly realising Act, 2013, beneficiary groups and the importance of the support offered geographies that it will target based on by these programmes in making their the inputs from participants. lives better. Long-term programmes also lead to better community relations • Developing internal processes to track and this ensures avoiding situations individual contribution by members of community unrest that hamper and their utilisation in CSR activities, business activities. finalising long-term projects based on projected contributions by members • Learning from experiences: A common and addressing non-payment by entity with multiple participants from members. the cluster will help assess community needs, undertake relevant programmes The CSR policy of individual SMEs should based on past experiences and address be designed to allow for flexibility in case of a greater number of community issues. a collaborative effort to undertake CSR. This Collaboration among the SMEs in a cluster implies that the policy, over and above the also provides an opportunity to manage guidelines mentioned in the section “Step social and environmental issues and one: Develop CSR strategy and policy”, respond better to the pressure from buyers, should allow the following: who are trying to establish ethical supply • Flexibility in selecting thematic areas chains and gain appreciation from the from Schedule VII of Companies international community. Collaborations Act, 2013, beneficiary groups and can also be forged amongst larger geographies as per the priorities of the companies, possibly through industry entire association. associations, to enable them to address • Support to initiate CSR programmes common issues plaguing a geographical to the extent possible, in case the region or an industry. association is abandoned. The process for an SME The next steps involved in the due diligence of implementation or the concept The first step involved in collaborating is to development partner are: create an alliance of interested SMEs. This • Project development may be initiated by the cluster association in case of large-scale participation from the • Operationalising institutional cluster. Alternatively, it can be initiated by mechanism an individual SME in case there are only • Contracting a few units interested in undertaking CSR • Budgeting and payments activities in collaboration. Involvement of the cluster association will ensure that the • Monitoring local priorities are given due consideration • Impact measurement while developing CSR programmes. In case Reporting and communication are as a sufficient number of SMEs in a cluster do described in section “CSR: Planning and not wish to participate or are not required strategising” under the Companies Act, 2013 to spend on CSR activities, the boundary may be In cases where the total CSR funds extended to other clusters, though this are insufficient to cover the cost of increases complexity. collaboration, SMEs can also contribute to the Prime Minister’s National Relief Fund The alliance should then form a steering or any other fund set up by the central committee with the representatives from government or the state governments as each SME so as to democratically decide on per activity ix of the Schedule VII of the issues. The steering committee should study Companies Act, 2013. the institutional method of implementation, i.e. undertaking activities through an established trust, society, a Section 8 company or forming a new entity or directly managing the funds. Handbook on Corporate Social Responsibility in India 25

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