Corporate Social Responsibility rules soon, will include 10 major areas

The government has identified 10 major areas including education, gender equality, environment, national heritage and the Prime minister Relief fund where India Inc can spend to claim credit for the mandatory 2% Corporate Social Responsibility (CSR) expenditure.

Under the new Companies Act, mid and large companies have to spend 2% of their three-year annual average net profit onCSR activities. The government expects a significant step up in spending on CSR projects by companies.

The activities which can be included by companies in their CSR policies include: eradicating hunger, poverty, malnutrition and promoting preventive healthcare, promoting sanitation and availability of safe drinking water, promoting education, promoting gender equality, ensuring environmental sustainability, protection of national heritage.

Those spending for the benefit of armed forces veterans, war widows and their dependents would be eligible to cover the expenses under CSR spending rules.

Under gender equality activities related to empowering women, setting up homes and hostels for women and orphans, setting up old age homes, day-care centres and similar facilities for senior citizens and projects on reducing inequalities faced by socially and economically backward groups have been included.

Spending on training to promote rural and nationally recognized para-olympic and Olympic sports would also qualify for credit under the CSR rules. Rural development projects and contributions or funds to technology incubators located within academic institutions and approved by the government would also be approved under this category.

Officials said they expect the rules to be notified soon, maybe within a few days, after the law ministry approves the list. The rules were finalized after the corporate affairs ministry examined over one lakh suggestions from various stakeholders. While the rules do not elaborate on the sub-categories under rural development projects, officials said they expect several projects to be covered under the category for CSR spending.

But a clause which allowed company boards to identify any activity for CSR spending has been questioned by the law ministry which has delayed the notification of the much awaited rules. "They (the law ministry) have some reservations. It is a purely legal issue. They don't have any questions about the substance of the clause," said an official. The law stipulates the Centre to define CSR activities and does not allow further delegation of these powers to a company board.

Corporate affairs minister Sachin Pilot had TOI last year that the essence of the bill is self-reporting and self-disclosures and there is no intention on the part of the government to create an inspector raj. "This is the company's money. They have full freedom to choose how they want to spend that money," Pilot had said.

India's new CSR law sparks debate among NGOs and businesses

India is the first country to mandate a minimum spend on corporate social responsibility initiatives. In a country facing multiple socio-economic challenges – can it work?

India is the first country in the world to mandate corporate social responsibility. On 1 April this year, the government of India implemented new CSR guidelines requiring companies to spend 2% of their net profit on social development.

It sounds like legislation to be celebrated – but does it go far enough? Global Reporting Initiative's (GRI) Sustainability Reporting for Sustainable Development conference, held this June in India, issued ajoint declaration (pdf) stating that while the government bill was welcome The 2% ruling could lead to forced philanthropy, 'tick box' behaviour, tokenism or even corruption, and masking of data to avoid having to comply. Time will show if this legislation will have a real impact on poor people's lives and prevent actual environmental degradation. The GRI conference, attended by thought leaders from business, civil society, social service, academia and the government, issued the Mumbai Declaration, which among a list of 13 points specifically highlights these issues with the government's CSR guidelines. This is not the first less than positive response to the Indian government's CSR guidelines; business leaders have expressed concerns from the corporate perspective. Ratan Tata, the former chairman of Tata Sons, the holding company of the $100bn Tata group,has said: We have a phenomenon which is meant to be good but is going to be somewhat chaotic ... we don't as yet know what kind of monitoring there'll be in terms of how well this money is used.

Concerns about the motives and implementation of this new mandate have also been voiced by Azim Premji, the philanthropist and head of the £3.4bn IT services firm Wipro, part of the global Dow Jones Sustainability Index. Last year he said: My worry is the stipulation should not become a tax at a later stage ... Spending 2% on CSR is a lot, especially for companies that are trying to scale up in these difficult times. It must not be imposed.

Can government-mandated CSR be a social development path for a nation in which over 900 million have a mobile connection but only 600 million (36% of the population) has access to a clean toilet? While the current CSR spending by the top 100 Indian companies is estimated at£0.6bn per annum, the Indian Institute of Corporate Affairs anticipates that about 6,000 Indian companies will be required to undertake CSR projects in order to comply with the new guidelines, with many companies undertaking these initiatives for the first time. Some estimates indicate that the CSR spends in India could triple to £1.8bn a year.

The government has set out specific guidelines on how CSR activities should be handled. These stipulate that the CSR activities need to be implemented by a CSR committee that includes independent directors. This committee will be responsible for preparing a detailed plan on CSR activities, including the expenditure, the type of activities, roles and responsibilities of various stakeholders and a monitoring mechanism for such activities. The company board is required to approve the CSR policy for the company and disclose its contents in their report as well as publishing the details on the company's official website. If the company fails to spend the prescribed amount, the board in its report is required to specify the reasons.

The government's suggested CSR activities include measures to eradicate hunger, promote education, environmental sustainability, protection of national heritage and rural sports, and contributions to prime minister's relief fund. The company can implement these CSR activities on its own, through its non-profit foundation or through independently registered non-profit organisations that have a record of at least three years in similar activities. This provision has led to a boom in the number of NGOs that can implement these CSR activities. A recent article in the Times of India reported that there are over 2m operational NGOs in India.

Choosing the right one from such a large number of NGOs won't be easy. Some organisations such as Samhita Social Ventures and HelpYournNGO are trying to facilitate this process by setting up online portals to assist. These portals group the NGOs across different sectors such as education, sanitation, women's welfare, water, livelihood, and children and also seek to provide a qualitative evaluation of the NGOs. While the larger companies typically have CSR teams to carry out evaluations and monitor the spends, the SMEs without a specialist team assigned for this activity might find it difficult to plan and monitor the spends. The government regulations allow such SMEs to pool their CSR funds with other companies to achieve scale and share a collective implementation process.

NGO evaluation portals and the pooling of resources by SMEs could help to streamline the CSR investments, and questions will continue to be asked about the government's role in mandating such investments. Even as this debate continues, the more important question that the Indian businesses need to answer is how do we align these government mandated CSR activities to handle India's socio-environmental challenges while enabling better long term profits for the business?

Ashok Prasad is a marketing communication professional, passionate about implementing triple bottom-line strategies. He is pursuing a masters programme in Sustainability at Harvard University

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4 tips for business to ensure ethical, slavery-free supply chains

Alongside moral issues of unscrupulous supply chains, the reputational damage to a company can be difficult to shake. Here's how to prevent contracting with a criminal.

Slave labour should be consigned to the history books. Yet the globalisation of supply chains and the relentless downward pressure on prices means that exploitation of the vulnerable still exists.

The Guardian's revelations that the Thai fish industry – and in particular the supply of prawns to UK supermarkets – has been implicated in the use of slave labour is the latest scandal to have rocked public perception of our food system. The resulting inquests, investigations and questions in Parliament show there are still more surprises to be found in the supply chains that end on our plates.

Alongside the moral concerns, food companies also have their reputations to consider. Once a product becomes marred with the taint of slavery, the exploitation of a vulnerable group (such as Bangladeshi garment workers) or a lack of welfare provisions for animals (such as battery chickens), it is difficult to shake off.

In a globalised world, being certain that your supply chain is free from suppliers that operate in breach of the law is increasingly complex. The reality is that an end producer may not know who its subcontractors are or what practices they employ. Even where a direct contractual relationship exists, it can be difficult to ensure applicable standards are complied with. So, how can you ensure you aren't contracting with a criminal?

While most organisations would not seek an unethical and damaging supplier, below are some tips to ensure you are proactively researching, reviewing and revising your supply chain.

1. Research

Carry out due diligence or incorporate HACCP (Hazard Analysis Critical Control Point) assessment principles into the entire supply chain, exploring risks and vulnerabilities and how these can be best protected against. These checks are usually designed to identify hazards (such as deterioration) and lessen the risk of these occurring (such as checks on temperature control) within the production and distribution chain, but can and should be applied more broadly.

Particular care should be observed if suppliers are located in high-risk jurisdictions or connected with sectors particularly vulnerable to exploitation, such as China, as evidenced in the melamine in milk crisis. When assessing the jurisdictions you operate in, consider what the reporting, regulatory or licensing obligations of that country are, and whether your company requires a higher standard. Investigate whether those standards are being met, rather than relying on regulation alone – as seen in the Bangladesh tragedy where certain obligatory workplace permits were not obtained.

2. Review

Perform an audit of supply contracts and, if necessary, gradually vary supply terms to improve provisions, commitments and standards by inserting specific clauses and conditions to be adhered to. You need to investigate what confirmation you receive from suppliers, that their specific reporting, regulatory or licensing obligations are adhered to, and confirm your role in supporting this process. Is this just a box ticking confirmation, or are copies of underlying audits or licences provided?

Lengthier supply chains require consistent standards of investigation and auditing at all levels. A greater degree of micro-management for the key contracts may be required, such as written reports and face-to-face or virtual meetings with suppliers.

3. Revise

Environmental, political or market conditions regularly change and, when they do, companies need to be keenly aware of the pressures suppliers may be under and what the resulting risks are likely to be. This can range from a harvest being adversely affected by weather conditions to contamination increasing consumer demand for an alternative food. It could be argued that the horsemeat scandal, for example, was caused in part by the cheaper prices of a similar commodity and the low risk of detection.

Purchasing arrangements need to be regularly compared to the market rate, and if they are significantly below this, the knock-on effects to suppliers should be investigated. At the very top of an organisation, support needs to be provided throughout the costly and complex process of investigations and audits. Transparency will be rewarded in the long run, and there shouldn't be a fear of sharing the negatives as well as the positives.

4. Going beyond the bare minimum

While over the next five years it is expected that additional reporting requirements and procurement rules will be introduced, the law generally imposes no duty on a company to prevent a third party from causing damage to another. This means that currently, the scrutiny of the actions of your supplier, beyond what they are contracted with you to supply, are in the realms of corporate social responsibility.

Going above and beyond the basic rules, truly interrogating your supply chain, pre-empting cumbersome legislation and taking voluntary action should be the target of any forward-thinking brand. The positive outcomes of good corporate etiquette and responsibility can be seen in the success of organisations such as Innocent, Green & Black's and Ella's Kitchen.

Not all organisations can carry the Fairtrade logo, but they should be aware of the dangers of failing to effectively research, review and revise their practices. Reputational damage can be mitigated by a strong supply chain that has buy-in at all levels – and, while auditing and contract management may seem costly and intrusive, it will provide your organisation with much needed cover from a hugely expensive and damaging scandal. The recent exposé of the fishing industry should come as a warning that shocking practices can unwittingly occur under a brand's name. Companies should take note and be diligent in ensuring we don't see such revelations again.

Jessica Burt is a food law solicitor at national law firm Mills & Reeve.

The supply chain hub is funded by Fairtrade Foundation. All content is editorially independent except for pieces labelled advertisement feature. Find out more here.

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How to use technology to make our planet more sustainable, not less

Investment is booming in clean and green technologies. But can they be implemented quickly enough to meet current challenges?

The controversial demographer Paul Ehrlich distilled the essence of his somewhat apocalyptic 1968 book, The population bomb, into a simple equation: impact (I) = population (P) x affluence (A) x technology (T). Twenty years later, Ray Anderson, the sustainability pioneer and then-CEO of Interface, asked the question: what if it were possible to move T to the denominator, so that technology reduces, rather than increases, impact on the environment and society?

Anderson's challenge is the Apollo mission of the 21st century – a near impossible project that, if achieved, will inspire generations to come. The only difference is that achieving a sustainable technology revolution – let's call it Mission SusTech – is playing for much higher stakes than JF Kennedy's space race. Failure is an option and it's called "overshoot and collapse".

The good news is that Mission SusTech is well underway. This article is the first in a series that will spotlight trends, breakthroughs, cases and lessons on the development and transfer of sustainable technologies around the world. But be warned: it won't focus on the latest touted miracle technologies but on the challenges of sharing, implementing and bringing to scale existing sustainable technologies.

What are the trends?

Not only is technological innovation booming, but it is rapidly shifting towards sustainable solutions. For example, many of the World Economic Forum's top 10 most promising technologies have a clear environmental and social focus, such as energy-efficient water purification, enhanced nutrition to drive health at the molecular level, carbon dioxide (CO2) conversion, precise drug delivery through nanoscale engineering, organic electronics and photovoltaics.

The 2012 Global Green R&D Report found that private investments in clean technology and green economic and commercial solutions reached $3.6tn for the period 2007-2012. This included more than $2tn in renewable energy, $700bn in green construction, $241bn in green R&D, $238bn in the smart grid and $231bn in energy efficiency.

For specific clean energy technologies – including wind, solar and biofuels – the market size was estimated at $248bn in 2013 and is projected to grow to $398bn by 2023, according to the 2014 Clean Energy Trends report. Biofuels remain the largest market ($98bn), followed by solar ($91bn) and wind ($58bn). In what Clean Edge hails as a tipping point, in 2013 the world installed more new solar photovoltaic generating capacity (36.5 gigawatts) than wind power (35.5 GW).

This rapid growth is being fuelled by significant investment in research and development and breakthroughs in sustainable technologies, as indicated by a spike in patent applications.

According to the World Intellectual Property Organization (WIPO), more patents have been filed in the last five years than in the previous 30 across key climate change mitigation technologies, or CCMTs (biofuels, solar thermal, solar photovoltaics and wind energy). While the average global rate of patent filing grew by 6% between 2006 and 2011, these CCMTs have experienced a combined growth rate of 24% over the same period. Contrary to what some may think, emerging markets cannot automatically be assumed to lag on sustainable technological innovation. China and the Republic of Korea have filed the most patents in recent years across all four CCMT technology areas, while in solar PV, the top 20 technology owners are based in Asia.

What does the future hold?

The sustainable technology innovation wave is only just building.Research by McKinsey shows that improvements in resource productivity in energy, land, water and materials – based on better deployment of current innovative technologies - could meet up to 30% of total 2030 demand, with 70% to 85% of these opportunities occurring in developing countries. Capturing the total resource productivity opportunity could save $2.9tn in 2030. We are living through the birth of what David King, director of the Smith School of Enterprise and the Environment at Oxford University, calls "another renaissance" in the industrial revolution: "Human ingenuity is the answer", says King.

"We created the science and engineering technological revolution on which all our wellbeing is based. That same keen intelligence can point to the solutions to the hangover challenges and this requires nothing less than another renaissance."

Wayne Visser is director of Kaleidoscope Futures and a senior associate at the University of Cambridge. He tweets @WayneVisser The technology and innovation hub is funded by BT. All content is editorially independent except for pieces labelled advertisement feature. Find out more here.

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