By Rijit Sengupta
Led by a farsighted Minister, the Ministry of Corporate Affairs’ recent advances on Corporate Social Responsibility (CSR) are laudable, and have huge potential of ushering in a new era of CSR practices in the country.
Several guidelines on CSR have existed at the multilateral level, like the UN Global Compact (UNGC), OECD Guidelines on MNEs, etc. All these are voluntary guidelines, expected to be picked up by corporations through persuasion and continuous engagement, rather than their strict enforcement. Many countries have developed their own indigenous versions of CSR guidelines, deriving elements from the international codes. The Indian government has joined this bandwagon by bringing in the voluntary guidelines on CSR (and Corporate Governance). It is also noteworthy to mention that the Ministry of Corporate Affairs has shown a lot of resolve and commitment in pushing the agenda on CSR since the adoption of the voluntary guidelines.
CSR practices are ‘development services’ offered by companies to their workers and/or communities directly or indirectly affected by them.
The Indian government’s stance on CSR is clearly to stimulate firms to deliver on development. Government of India has realised that it needs a helping hand from India Inc. to meet the developmental needs of the country. In addition to meeting the targets set in the national development plan (2007-2012), it is imperative for India to meet the 2015 targets of the Millennium Development Goals (MDG) – to justify its rank as an (emerging) global power. Enhanced interest on CSR in India, in this context seems extremely opportune. A helping hand from the private sector would boost the country’s chances of meeting the MDG targets – hence the government is determined to woo industry leaders.
One of the recent-most steps is Parliamentary Standing Committee on Finance’s recommendation for leading Indian firms (whose net profits is beyond a certain threshold) to allocate 2% of their average net profits, calculated over the last three years for undertaking CSR programmes. This amount is being referred to as ‘CSR levy’, and is estimated for the current fiscal to be Rs. 4,300 crores. Pundits have expressed their views on both the pros and the cons of ‘CSR levy’, and it remains to be seen how this progressive idea is rolled-out into actions.
This amount computed for the current fiscal is nearly 8% of the combined planned allocation for health and education related expenditures (Rs. 53,336 crores), and can very well complement the government’s programmes in meeting the national and international development targets.
According to the Millennium Development Goal Report 2010 of the United Nations, a general increase has been noted in the rate of enrolment in primary education worldwide in the last decade or so, but this is still below the mark that would ensure that countries meet the MDG target of universal primary education for all by 2015. There is still a huge demand for provision of primary education which is unmet in India. Allocating this amount collected as CSR levy to meet the demand for primary education and healthcare in India would contribute immensely in improving India’s chances of meeting the MDG targets.
If the private sector has to deliver on development through the route of CSR, then there is a need for CSR managers in Indian firms to take cue from experiences in the development sector.
Much greater coordination of development finance and technical support is seen emerging as a trend among development partners working on a ‘specific developmental issue’. Many donors are pooling in their financial and technical resources to form ‘trust funds’, which are utilised to implement programmes on such ‘specific issues’. It has been noted, that such a coordinated effort has often led to better outcomes as compared to instances when such coordination was absent. In an article that appeared in Financial Times, recently during the MDG Summit in New York (Sepetember 2010), noted economist Jeffrey Sachs has reiterated the need for pooling funds (through ‘trust funds’) for better, coordinated and effective development assistance.
Given the current scenario and the impending challenges for the country to meet its development targets in a time-bound manner, this approach would be extremely useful for achieving outcome oriented CSR initiatives in India. The possibility can be explored in India on a pilot-scale, with a few leading firms volunteering to donate their ‘CSR levy’ into a centralised ‘trust fund’ to be housed and managed in the business chamber/association that these firms are members of. The ‘trust fund’ would then support programmes on a ‘specific issue’ (say, education or healthcare or any other) that all members have an interest in, and agree on. An advisory group would be established comprising of senior specialists/scholars, development professionals, government representatives (from MoCA, MoHR, MoHFW and other relevant ministries), etc. for developing the blueprint of the development programme, and guiding its implementation. All major stakeholders would thus be engaged in the process and can be held accountable for the success (or not) of such a programme (CSR project).
One of the highlights of this approach would be that the success of the programme (or its failure) would not be attributed to a single firm, but to all members of the ‘trust fund’. Such an approach might sound as a disincentive for the participating members in the short-run, but has the potential to be extremely successful in the long-run. Especially when the government becomes stricter in analysing CSR practices of firms, and uses ‘outcome from CSR projects’ as a criterion to evaluate and tax companies.
Board-room discussions in many companies have already helped achieve ways and means of integrating CSR projects into the core of doing business. CSR champions would have to emerge and make their presence felt both inside and outside the board-rooms. Business chambers have already started the process of creating an environment in India, which stimulates a discourse on good CSR practices. This should act as a catalyst not only for creating these CSR champions among industry leaders, but also to get them talking across the table discussing things that can be done together. Some firms have already mastered the art of integrating CSR into their business model, and can act as technical advice providers for others who are still novices, through such joint programmes.
A next task leading Indian business chambers would probably be to rally these CSR champions and bring them together to discuss possibilities for pooling-in their CSR resources for joint programmes. This sounds like the next big step that corporate India is poised to take, and should be discussed and promoted in the board-rooms, where strategies for the future are designed. The above approach provides a ‘win-win opportunity’ and cannot be ignored by business leaders of our country. While on one hand it provides a possibility for common learnings for firms, it also ensures that better and more harmonious impacts are made on the ground. The proposal sounds radical, but would definitely find favours among those in corporate India, who have always been referred to as ‘pioneers’.