csr spending estimates
DESCRIPTION
The new company's act.TRANSCRIPT
SECTION 135
(The NEW COMPANIES ACT 2013)
CSR SPENDING ESTIMATES - BSE TOP 100
(Including Business Responsibility Reports Analysis)
1
fter the Lok Sabha gave its approval in December last year, there arose some noise
surrounding the New Companies Bill 2013. Media, companies, and that part of the general
public that seems interested in the legislative affairs of the country dissected the Bill end to
end, discussed and debated the likely impacts. A few days later, the noise ceased. Nobody seemed
to know what ultimately would become of the bill. Every Parliament session post December –
2012 saw increased anticipation among interested stakeholders as to when Rajya Sabha will
formally take up the bill for consideration. After more than seven months, on August 8th, the bill
was moved for consideration in the upper house. “This is a momentous day, as this will usher in a
new era for the company law," said Sachin Pilot, Minister of State for corporate affairs after the bill
was passed, aptly encapsulating the end of a long and anxious wait.
The President gave his approval to the bill to be enacted into a law end of August 2013. The
spanking new Act is simpler, with fewer clauses and pages and looks at contemporary issues such
as corporate governance, investor protection, corporate social responsibility (CSR) and measures
to check frauds. Further, a third of corporate boards have to necessarily comprise independent
members, some boards would have to include more women, auditors will be compulsorily
changed every ten years, minority shareholders and depositors can launch action suits against
managements, among other sea changes.
What interests us, Partners in Change (PiC), as an organization
that has been pioneering the understanding and practice of
corporate responsibility issues in India, is Clause 135 that makes
it mandatory for companies of a certain size and profitability to
spend 2% of their average net profits of previous 3 years on CSR.
The proposed draft CSR rules under Section 135 of the Act has
been posted on the Ministry of Corporate Affairs (MCA) website
for public comments till 7th October 2013.
The clause on CSR is being celebrated and criticized in, may we say, equal measure. The
development sector, as the world of NGOs and professionals working in the area of social and
economic development has come to be known as, is rejoicing. It sees this clause as a late but
welcome measure to make companies understand its responsibilities towards the society and act
conscientiously. The other side of their joy is the opening up of much-needed funding options.
Some in the sector, however, feel that the clause dilutes the meaning of a company’s commitment
to ethical and responsible business and instead focuses on the end (under Schedule VII) as
opposed to means of doing business.
The reactions seem appear mixed on the other side as well. Some in the corporate sector are
worried that making CSR spending mandatory would lead to what is informally referred to as
“cheque-book CSR”. Others, while sounding positive about a law that encourages companies to act
A
The proposed draft rules specify that “Net Profit’ for the section 135.. shall mean, net profit before tax as per books of accounts..”
2
responsibly, find the list and scope of activities too small to comprehensively correspond to what
entails a company’s responsibilities towards the society.
We at PiC, through this document, have tried to analyze the likely impact of the new Act on the
CSR landscape of the country. Although we do have an opinion on the subject, we have tried to
keep this document unbiased and objective. We believe that the use or misuse of the CSR clause
will be determined by the intent of the companies. As Plato said “Good people do not need laws to
tell them to act responsibly, while bad people will find a way around the laws.”
CLAUSE 135 WHO MUST COMPLY? Every registered company with: Net worth Rs 500cr or Turnover Rs 1,000cr or Net profit Rs 5cr; during any financial year
WHO WILL BE ACCOUNTABLE? Company to constitute a CSR Committee of the board members consisting of at least 3 directors
At least 1 committee member to be an independent director WHAT WILL THE CSR COMMITTEE DO? Formulate and recommend to Board, a CSR Policy which shall indicate the activities to be undertaken Recommend amount of expenditure to be incurred on activities Monitor CSR Policy of the company from time to time
WHAT WILL BE THE ROLE OF THE BOARD OF DIRECTORS? Review recommendations made by the CSR Committee
Approve CSR Policy for the company Disclose contents of the Policy in company's report/website
Ensure that company spends at least 2% of its average profits during previous 3 financial years.
WHAT ARE THE ACTIVITIES A COMPANY CAN UNDERTAKE?
As per Schedule VII, activities, as a Project Mode:
Eradication of hunger and poverty Promotion of education Promotion of gender equality and women empowerment Health - reducing child mortality, improving maternal health, combating HIV, AIDS, malaria Employment enhancing vocational skills Contribution to PM's fund or other fund set up by central govt or the state govts for socio-economic development and relief and funds for the welfare of SC, ST, backward classes, minorities and women Ensuring environmental sustainability Social business projects Such other matters as may be prescribed
3
he biggest challenge in providing an in-depth quantitative analysis of the impact of the CSR
clause was the huge universe that needed to be sampled and scrutinized –all listed and
unlisted companies which match the net worth, turnover and profitability parameters. The
other pressing challenge was the availability of reliable financial information relating to
companies, especially the amount allocated or spent on CSR.
For the purpose of this document, hence, we have chosen the Top 100 listed companies in India
based on Bombay Stock Exchange (BSE) rankings on 31st March 2011. Not only are these
companies the biggest and the most influential, establishing benchmarks for others to measure up
to, they have also been mandated by Securities and Exchange Board of India (SEBI) to publish a
yearly Business Responsibility Report (BRR) separately or along with their annual reports.
BRR is a disclosure of adoption of responsible business practices by a listed company to all its
stakeholders. Based on 'National Voluntary Guidelines on Social, Environmental and Economic
Responsibilities of Business (NVGs) notified by Ministry of Corporate Affairs, Government of India,
in July, 2011, BRR has been designed to provide basic information about the company, information
related to its performance and processes, and information on principles and core elements. The
prescribed format also provides a set of generic reasons which the company can use for explaining
their inability to adopt the business responsibility policy.
The analyses in this document are based on the information relating to these top 100 companies
available in the public domain. For each of these companies, we collated information on the profits
after tax during financial years (FY) 2009-10 to 20012-13 from the annual reports, BRR and other
secondary sources. In case of the amount spent on CSR activities during FY 2012-13 we chose to
strictly stick to the BRR or annual report. We could have collected information from alternative
sources such as sustainability documents, CSR websites and news reports but for robust analyses,
we relied on the latest information made available by the company itself.
After having collected this information, we calculated the actual CSR spending as a percentage of
average profits after tax for FY 09-10, 10-11 and 11-12 (which would be necessary amount to be
spent on CSR, as per the clause, if applied retrospectively). Then we calculated what would amount
T
It should be noted that the process and results of this assessment are based on
companies’ profit after taxes (specified in the original rules), as opposed to net profit
before tax specified in the recent draft rules posted on the MCA website. As per PiC’s
calculations the amounts stated in the in pages below may rise by 20-30%, depending
on what finally comes to be included in the calculation of net profit before taxes for the
purpose of Section 135.
4
to 2% of average profits after tax for FY 09-10, 10-11 and 11-12 to
assess the difference between actual and stipulated spending. Lastly,
we estimated what the spending may be in FY 13-14, based on the
profits of FY 10-11, 11-12 and 12-13).
Note: Although we have calculated the amount that may be
spent on CSR in FY 13-14, section 135 makes it mandatory to
spend on CSR from FY 14-15 onwards only.
XYZ Company India Ltd
FINANCIALS (INR Crore)
Net Profit in FY 2009-10 1,000
Net Profit in FY 2010-11 2,000
Net Profit in FY 2011-12 3,000
Net Profit in FY 2012-13 4,000
CSR Spending in FY 2012-13 100
% of Net Profit of FY 12-13 spent on CSR (100/4000)*100
2.5%
Average Net Profit of FY 2009-10, 2010-11, 2011-12
(1000+2000+3000)/3
2,000
2% of Average Net Profit of FY 2009-10, 2010-11, 2011-12
(2/100)*2000
40
Actual CSR spending as % of Average Net Profit of FY 2009-10, 2010-11, 2011-12
(100/2000)*100
5%
Average Net Profit of FY 2010-11, 2011-12, 2012-13
(2000+3000+4000)/3
3,000
CSR spending required in FY 2012-14 (2/100)*3000
60
Section 135 makes
it mandatory to
spend on CSR from
FY 14-15 onwards.
5
AVAILABILITY OF INFORMATION
As of 30th September 2013, we were able to access 84 companies’ AR and/or BRR. In case of seven
companies, the BRR did not have the required information. In case of 9 companies on the Top 100 list,
BRR was not available on the company websites. These either did not have their annual reports/BRR on
the website or the annual report was not due to be released.
Figure I: Availability of Information
COMBINED CSR ACCOUNT
The 84 companies whose CSR specific information was available and assessed spent
approximately Rs Rs 2724 crores in 2012-13. If all the 100 companies follow the clause under the
new companies bill in 2013-14, the total CSR expenditure for this financial year would be at least
Rs 5,690 crores.
Figure II: Actual CSR spending and requirement
COMPANY GRADING
84
7
9
BRR with required information
BRR available without required information
BRR not available
4,276
2,724
5,690
4,688
Actual CSR spending by the assessed 84
companies in FY 12-13
2% of Average net profit of FY 10, 11 and
12 for the assessed 84 companies
CSR spending requirement in FY 13-14 as
per the Act for the assessed 84 companies
CSR spending requirement in FY 13-14 as
per the Act for top 100 listed companies
6
To analyse the companies on the basis of how much they spent on CSR in FY 12-13, keeping in
mind the 2% clause which has come into effect, four grades were set. Companies that spent more
than 2% of their average profits of the previous three years in FY 12-13 were categorized under
Grade A; those who spent between 1 and 2% under Grade B; those who spent between 1 to .5%
under Grade C and companies that spent lower than that in the last category, i.e Grade D.
GRADING CSR SPENDING IN 2012-13
A More than 2 % of Average Net Profit of FY 09-10, 10-11 & 11-12
B Between 2-1% of Average Net Profit of FY 09-10, 10-11 & 11-12
C Between 1 - .5 % of Average Net Profit of FY 09-10, 10-11 & 11-12
D Less than 0.5 of Average Net Profit of FY 09-10, 11-12 & 11-12
Among the top 100 companies, only 16 fell under Grade A; 28 came under Grade B and 22 in Grade
C. A total of 15 companies in the Top 100 list spent less than .5% of their profits on CSR, with one
company admitting it has not spent anything. While information for 16 companies was not
available at the time of writing this report, 3 companies spent on CSR, despite incurring losses in
FY 12-13.
Figure III: Number of companies in each grade
Adani enterprises topped the Grade A list with almost 5.28% of the average of the previous three
years’ profits spent on CSR in FY 12-13. The other top spenders include Adani Power, Reliance
Power, NALCO, Ambuja Cements and Nestle India. The graph above shows the companies falling
16
28
22
15
3
16
Grade A
Grade B
Grade C
Grade D
Spent despite losses
No information
7
under Grade A and the following figures show the companies falling under Grade B and C and the
percentage of profit they spent on CSR during FY 12-13.
Topping the list of companies which came under Grade B is Bajaj auto with around 1.93% of its
average profits spent on CSR. This figure, however, is lower than what will be expected of
companies once the new law comes into effect. Other big spenders in this category include Dr
Reddy’s Laboratories, ACC, Reliance Industries among others. There’s one company in the Top 100
list which claimed that it has not spent anything on CSR in 2012-13.
The following figure shows the companies under Grades A and B and the amount spent by them on
CSR in 2012-13 as a percentage of the profits of the previous three financial years (as per the
Companies Act requirement). For Grades C and D, only company names have been mentioned.
8
1.09%
1.09%
1.11%
1.11%
1.22%
1.24%
1.25%
1.27%
1.29%
1.29%
1.32%
1.32%
1.35%
1.37%
1.38%
1.39%
1.42%
1.55%
1.58%
1.62%
1.63%
1.71%
1.72%
1.87%
1.89%
1.90%
1.90%
1.93%
2.18%
2.22%
2.24%
2.34%
2.43%
2.63%
2.70%
2.75%
2.88%
3.01%
3.22%
3.40%
3.75%
4.89%
5.26%
5.28%
Tata Motors
Bharat Heavy Electricals
Neyveli Lignite Corporation
Indian Oil Corporation
Bharat Petroleum Corporation
Lupin
Axis Bank
State Bank Of India
Oil And Natural Gas Corporation
Cummins India
JSW Steel
Mahindra & Mahindra
Cadila Healthcare
ABB
Oil India Limited
United Breweries
Hindalco Industries
MMTC
Indusind Bank
ITC
LIC Housing Finance
Grasim Industries
Larsen & Toubro
Gail (India)
Reliance Industries
ACC
Dr. Reddy'S Laboratories
Bajaj Auto
Hindustan Copper
Jaiprakash Associates
ICICI Bank
Colgate-Palmolive (India)
IDFC
Ultratech Cement
Adani Ports & Special Economic Zone
Tata Steel
Hindustan Unilever
Nestle India
Ambuja Cements
National Aluminium Company
Reliance Power
Adani Power
Jindal Steel & Power
Adani Enterprises
Figure IV: Companies in Grade A and B
9
GRADE C
HDFC Bank Sesa Goa
Yes Bank Titan Industries
Maruti Suzuki India NHPC
NTPC Bosch
Power Grid Corporation Of India DLF
Tata Consultancy Services Steel Authority Of India
Tata Power Petronet LNG
Power Finance Corporation Bharat Electronics
Cipla Container Corporation Of India
Godrej Consumer Products Shriram Transport Finance Company
Glaxosmithkline Pharmaceuticals Kotak Mahindra Bank
GRADE D
Reliance Infrastructure Asian Paints
Bharti Airtel Punjab National Bank
Canara Bank Hero Motocorp
Sun Pharmaceutical Industries Bank of India
Wipro Union Bank of India
Zee Entertainment Enterprises Glaxosmithkline Consumer Healthcare
Exide Industries Oracle Financial Services Software
Bank of Baroda
COMPANIES THAT SPENT DESPITE LOSSES IN FY12-13
MMTC Ranbaxy Laboratories Adani Power
COMPANIES THAT SPENT MORE THAN 2% OF AVERAGE NET PROFIT OF
FY11,12 & 13
Among the top 100 companies, there were a few who may not worry about not meeting the 2%
target, at least for the FY 2012-13. These companies spent more than 2% of their average profits
of the previous three years in 2012-13. The graph below shows which companies went beyond the
2% rule and by how much.
10
Figure V: Companies that went beyond 2%
TOP SPENDERS IN ABSOLUTE TERMS
The figures above are based on the percentage of profits spent on CSR. The list changes its
character once we look at the amount spent in absolute terms. The list is, unsurprisingly, topped
by Reliance Industries with almost Rs 357 crore spent on CSR in 2012-13. The list also includes
ONGC, Tata Steel, State Bank of India, ICICI Bank, ITC, Indian Oil Corporation, Larsen and Taubro
and Hindustan Unilever. The chart below shows the top ten spenders among the top 100 and the
approximate amount they spent on CSR in 2012-13.
Jindal Steel & Power
Tata Steel
Hindustan Unilever
Ambuja Cements
National Aluminium Company
ICICI Bank
Ultratech Cement
Adani Enterprises
Nestle India
Adani Ports & SEZ
IDFC
Reliance Power
Adani Power
Jaiprakash Associates
Colgate-Palmolive (India)
Hindustan Copper
99.14
170.59
69.09
39.82
30.99
116.55
43.40
15.57
24.54
25.78
31.21
10.70
6.50
28.81
9.92
5.11
37.69
124.05
47.99
24.73
18.22
104.27
32.95
5.89
16.29
19.09
25.65
5.71
2.66
26.01
8.47
4.68
2% of Average PAT of FY10, 11 and 12 CSR Spending in FY 13
11
Figure VI: Top spending companies
OBSERVATIONS ON COMPANY BRRs
While studying the Business Responsibility reports of the companies under assessment, quite a
few anomalies were observed. While SEBI has created a structured format for reporting, the same
has not been followed by many companies. A few of the observations are listed below.
Many companies are not using the suggested format
In many cases, the reporting requirements have been diluted by excessive descriptive text and avoiding statistics
Companies do not seem to be on the same page when it comes to the understanding of NVG principles
Many companies have not provided (sufficient) information on resource consumption.
Sustainable sourcing as a subject has not been addressed by many companies, either due to lack of understanding or due to lack of initiatives. There’s a need to define what sustainable sourcing entails.
Many companies seem to treat impact assessments by external agencies at par with internal feedback mechanisms.
Companies have avoided information about joint ventures and subsidiaries, therefore weaken the significance of the report.
357.05
261.58
170.59
123.27
116.55
99.14
82.34
80.08
79.53
73.16
Reliance Industries
Oil and Natural Gas Corporation
Tata Steel
State Bank of India
ICICI Bank
Jindal Steel & Power
ITC
Indian Oil Corporation
NTPC
Larsen & Toubro
Amount in INR Crore
12
ANNEXURE
Table 1. Companies and their current and potential CSR spending
Company Name
CSR Spending in FY 12- 13
2% of Average PAT of FY 10, 11 and 12
CSR spending estimate in FY 13-14
2% of PAT of FY 11, 12 and 13
INR Crore
Reliance Industries 357.05 377.07 408.86
Oil And Natural Gas Corporation
261.58 405.42 433.15
Tata Consultancy Services 65.21 161.09 208.88
ITC 82.34 101.41 123.79
NTPC 79.53 180.35 206.29
State Bank of India 123.27 194.25 227.18
Bharti Airtel 29.56 152.48 123.61
HDFC Bank 39.01 80.27 105.46
Wipro 14.13 93.29 101.19
ICICI Bank 116.55 104.27 132.94
Hindustan Unilever 69.09 47.99 58.61
Larsen & Toubro 73.16 85.26 88.82
MMTC 2.10 2.71 0.80
Tata Motors 19.14 35.29 22.36
Indian Oil Corporation 80.08 144.13 109.36
Cairn India 20.50 NA* 79.25
Bharat Heavy Electricals 63.00 115.75 131.11
Sun Pharmaceutical Industries
4.55 28.01 25.25
Jindal Steel & Power 99.14 37.69 38.44
Power Grid Corporation Of India
21.75 53.27 67.90
Bajaj Auto 51.73 53.63 62.57
GAIL (India) 64.65 69.03 74.91
Axis Bank 42.42 67.63 85.39
Tata Steel 170.59 124.05 124.15
Nestle India 24.54 16.29 18.97
Mahindra & Mahindra 33.52 50.85 59.28
13
Ultratech Cement 43.40 32.95 43.37
Hero Motocorp 1.27 43.58 42.83
Kotak Mahindra Bank 4.08 16.43 21.76
Maruti Suzuki India 18.90 42.80 42.10
Steel Authority of India 32.55 101.33 70.77
Adani Enterprises 15.57 5.89 7.66
DLF 6.81 20.50 18.74
Reliance Power 10.70 5.71 7.32
Bank of Baroda 7.17 82.03 91.51
Asian Paints (India) 0.98 16.71 18.55
Oil India 41.28 59.63 66.15
Dr. Reddy'S Laboratories 16.82 17.67 20.47
Punjab National Bank 3.32 88.15 93.76
Ambuja Cements 39.82 24.73 25.25
Bosch 5.75 17.13 19.59
Adani Ports & SEZ 25.78 19.09 26.11
ACC 25.60 27.01 23.37
Bharat Petroleum Corporation
17.88 29.30 36.66
Hindalco Industries 29.79 41.93 40.49
Hindustan Copper 5.11 4.68 6.01
Cipla 7.65 21.10 23.94
Power Finance Corporation 22.10 57.88 67.13
NHPC 15.73 46.85 48.57
Grasim Industries 25.30 29.67 23.89
Tata Power 7.88 20.38 20.89
Lupin 9.32 15.08 19.15
Oracle Financial Services Software
0.00 18.11 20.57
Canara Bank 11.20 68.87 67.87
IDFC 31.21 25.65 31.15
Titan Industries 2.97 8.53 11.70
Ranbaxy Laboratories 4.26 NA* NA*
Bank of India 1.10 46.04 52.76
Glaxosmithkline Pharmaceuticals
3.69 10.37 10.47
14
ABB 2.74 4.01 2.56
Jaiprakash Associates 28.81 26.01 17.96
Reliance Communications 2.62 NA* 0.15
Sesa Goa 22.59 63.65 61.32
Godrej Consumer Products 3.07 8.58 10.33
Jsw Steel 24.85 37.72 36.25
Cadila Healthcare 7.98 11.80 11.77
Reliance Infrastructure 6.40 28.21 33.86
Colgate-Palmolive (India) 9.92 8.47 8.96
Indusind Bank 9.12 11.53 16.27
Adani Power 6.50 2.66 NA*
Neyveli Lignite Corporation 14.59 26.37 27.79
United Breweries 1.72 2.47 2.97
National Aluminium Company 30.99 18.22 16.75
Cummins India 7.00 10.84 12.97
Shriram Transport Finance Company
5.58 22.39 25.64
Yes Bank 6.50 14.54 20.03
Exide Industries 1.25 11.09 10.99
Petronet LNG 3.68 13.87 18.83
LIC Housing Finance 13.89 17.00 19.41
Zee Entertainment Enterprises
1.41 10.83 11.37
Union Bank of India 0.76 39.61 40.17
Container Corporation Of India
4.38 16.93 17.95
Bharat Electronics 4.21 16.08 17.21
Glaxosmithkline Consumer Healthcare
0.01 5.92 7.27
TOTAL 2723.75 4276.07 4687.86
* Losses in previous years
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Established as a not-for-profit organization in 1995, Partners in Change (PiC) has been
pioneering the understanding and practice of corporate responsibility issues in India,
whilst simultaneously promoting cross-sector partnerships as a tool to overcome complex
development challenges. Partners in Change works with companies, NGOs, business
associations and governments for promoting the practice of corporate social responsibility
for the all-round sustainable development of the society. We have been Drafting Committee
member for the ‘National Voluntary Guidelines (NVGs) on Social, Environmental and
Economic Responsibilities of Businesses’ under Ministry of Corporate Affairs. We were a
Steering Committee member for the Planning Commission's report on the Voluntary
Sector for the Eleventh Five Year Plan. We have been instrumental in designing the
Workplace Code of Conduct with Bureau of Indian Standards(BIS) – GoI.
PiC’s core strength lies in helping companies to devise CSR strategy, identify
implementation partners, undertake need assessment, stakeholder mapping and
impact assessment. PiC has been helping many national and international NGOs to
establish CSR partnerships in India.
Contact
Sunanda Poduwal Bhomik Shah
[email protected] [email protected]
+91-9971593423 +91-8860179180
C - 75, South Extension – Part II, New Delhi - 110049 (India)
Tel: +91 11 41642348-51; Fax: +91 11 41642995
www.picindia.org
Note: The information provided in this document has been derived from the secondary sources and
Partner in Change indemnifies itself from the further use or citing of the information contained
herein.