CSR and Sanitation - University of Michigan Law …...India – the current context – the...
Transcript of CSR and Sanitation - University of Michigan Law …...India – the current context – the...
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Beyond CSR – Impact
Investing – India
Centre for International
Development Services
+ India – the current context – the
positives
The worlds largest democracy - home to one sixth of humanity
Contrasting mix of modernity and tradition enriching diversity and pluralism of national ethos
Till yesteryear seen as a land of snake charmers but today a land that has charmed the the ‘mouse’ to power the world with IT Enabled Services
Stability of Political system and potential of the consumer market attracting global investors
Post 1991 Reforms ushering in a generation of innovators and entrepreneurs, pushing beyond “the Hindu Rate of growth”
+ India – the current context – the
challenges
The living dichotomy of 2 Indias: One aspiring for secure and dignified livelihood and the other on the cusp of Reforms 2.0– GDP rising at 8% and 37% of population in dire poverty
Growth along with increasing Inequality for large population posing a conundrum for Policy makers
Marginalised segments in pockets of poverty trap: Welfarism versus Rights based entitlements
Fragile States, chronic governance deficit, leaky pipes of service delivery rampant corruption, encouraging social unrest
Depressed human development indicators inhibiting growth and development
+ A crises of Credibility,
Confidence & Trust
High Economic Growth is threatened by corruption at all
levels
+ Points to ponder
“Supposing I have come by a fair amount of wealth – either by way of legacy, or by means of trade and industry – I must know that all that wealth does not belong to me; what belongs to me is the right to an honourable livelihood, no better than that enjoyed by millions of others. The rest of my wealth belongs to the community and must be used for the welfare of the community. “
“Those who own money now, are asked to behave like trustees holding their riches on behalf of the poor. You may say that trusteeship is a legal fiction. But if people meditate over it constantly and try to act up to it, then life on earth would be governed far more by love than it is at present.”
Mahatma Gandhi
“The humdrum of Indian miracle is manifested in the crinkle of Bank notes with Gandhi on one side and their denominations in 17 languages on the other”
Ram Chandra Guha,
“Democracy is a cruel hoax without relative equality and it can only be guaranteed by the state through democratic means with social justice as its objective”
James C. Scott, 1998
+ Restoring credibility,
Legitimacy and trust
People centric legible, accessible and effective means of distributive justice by strengthening coherence between Public, Private and Civil Society
Convergence of efforts to address vulnerability with evidence based policy making and continuum of Reforms approach
Improved Standards of Accountability and Result oriented planning for the Vulnerable by creating safety nets
Revitalising Judicial, legislative and executive accountability and ensuring balance of power
Policy frame work to address protection of rights and social security of the vulnerable
+ Profit and the shareholder value
myth
While recognizing that the Business of Business is Business, Government and Business increasingly realize that ‘Business cannot succeed in societies that fail’
Business cannot be driven by shareholder primacy and the shareholder value myth of pursuit of profit unmindful of the negative collective value caused in this pursuit
Law and Regulation seek to cultivate conscience and create ‘Sustainable & Responsible Business’ – With sensitivity to entrepreneurship and growth
And help business to earn profit with purpose sensitive to business impact on people and planet
Strengthening the ecology of business by “ de jure ethical practices and de facto policy flexibility”
+ Uncompromising compliance with
law the foundation for CSR
Legally Mandated
Responsibilities - Compliance
Corporate Social
Responsibility
Business Responsibility
+ Indian corporate law mandates
CSR expenditure by large
corporations Socio-political construct
Introduced in 2009 as a ‘National Voluntary Guideline’ (NVGs) mandating public disclosure of CSR initiatives and expenditure
Enacted into law in 2013 and operationalized in FY 2014-15
A welcome first step that seeks to cultivate conscience and encourage business to internalize and adopt ‘pro-social’ behavior.
While possibly rooted in philanthropy, businesses inclined to adopt a shared value approach to CSR taking actions that directly or indirectly benefit the business
+ CSR Provisions
Every covered company required to spend at least 2%
of its annual profits on specified activities.
Covered companies - must have average (3 years)
annual profit of USD 800,000 or meet minimum Net
Worth or Sales criteria.
Legal obligation is a ‘reporting and disclosure
obligation’.
Failure to spend not an offence but failure to disclose
non/under spending is an offence
Operates as a tax – CSR spend is not tax deductible as
a business expense. Tax deduction is partially available
akin to s. 501(1)(c)(iii) of the US Tax Code
+ CSR Provisions
Projects to be undertaken through corporate efforts or
corporate foundations or independent not-for-profit
entities that have a 3 year track record
Projects undertaken and CSR expenditure to be
reported
Multiyear CSR projects possible
CSR fund pooling for collaborative CSR efforts possible
Committee of Directors responsible for CSR actions and
reporting
Non compliance is punishable under the CSR law
+ Principles for CSR –the NVGs
Businesses should conduct and govern themselves
with Ethics, Transparency and Accountability
Businesses should provide goods and services that
are safe and contribute to sustainability throughout
their life cycle
Businesses should promote the wellbeing of all
employees
Businesses should respect the interests of, and be
responsive towards all stakeholders, especially
those who are disadvantaged, vulnerable and
marginalized
+ Principles for CSR –the NVGs
Businesses should respect and promote human
rights
Business should respect, protect, and make efforts
to restore the environment
Businesses, when engaged in influencing public
and regulatory policy, should do so in a
responsible manner
Businesses should support inclusive growth and
equitable development
Businesses should engage with and provide value
to their customers and consumers in a responsible
manner
+ CSR provisions - viewpoints
Focus on 2% spend (in identified ‘need’ areas) may take
away attention from the way in which the profits are earned
and the business operates – toxic business likely to
implement and more likely to loudly showcase CSR projects
to gain a halo that blinds, to drown out critics and to
‘greenwash’ its image
A good beginning along with the NVGs towards sensitizing
business owners, managers and employees to code the 9
guiding principles into the corporate DNA and business
operations
Direct transfer of 2% to PM Relief fund is an easy compliance
escape route
Identified eligible areas exclude policy research and other
critical areas
+ Impact investing - Transforming
Business – Improving the World
Questions that investors and business must necessarily ask
Who are the stakeholders qua the business
Are actions being taken by the business ‘fair’ to and respectful of the rights of all stakeholders?
Are these along a path that is sustainable
What impacts does the business wish to see as a result of its actions
What are the ways in which it will measure and report such impacts
+ Possible Policy Option
CSR spend/investments may be directed to achieve enduring impact in specific areas that may be ranked/scored using standardised metrics and such ranking/score included in eligibility conditions for participation in public procurement and award of contracts for infrastructure projects.
The Public Services (Social Value) Act 2012 (SVA) in the UK uses this approach for award of public contracts.
Under the SVA public sector organizations can consider ‘social value’ as a criterion when awarding tenders for services – for example awarding 10% of the marks was a criteria used by some City Councils
Other options may include pooling and channelling CSR spends into specific impact funds - e.g. Health Fund, Education Fund, Sanitation Fund, Environment Fund, Social Venture Funds etc. regulated by Government but managed independently and professionally that place equity and debt investments in social ventures keeping both the RoI and SRoI as well as new metrics such as the Social Earnings Ratio (SER) as measurements of effective impact led returns.
+ Impactful Investments – attempted
through Government action
Government of India and State Governments have, for long, through policy, law and regulation sought to incentivize and channel investments for impact e.g. tax law concessions for production units in notified backward areas (based on assessment of public and social infrastructure and socio economic indicators) was aimed at development and improvement of the infrastructure and indicators
+ Impact Investing – India
India has a long tradition of social entrepreneurship
Impact investments are rooted in the local context, provide patient capital that incubates, nurtures and finally links to and unlocks mainstream capital that seeks scale and sustainability and demands accountability.
Government institutions – NABARD, SIDBI, and the RMK have invested in and attracted investments to the Financial Inclusion space.
Most impact investors in India emphasize the need for an enterprise to be sustainable, scalable and deliver market returns, with impact being generated due to the very nature of the sectors and business models in which they
Apart from financial inclusion, sectors that have attracted impact investments are clean energy, skilling, livelihoods, healthcare, education and agri-business
+ Impact Investing – India
SELCO India – Solar lighting solutions for the poor – investment by USAID and Winrock (conditional grant).
MYA – Milk Route - supply chain solutions for livelihood enhancement – Khosla Impact, Unitus Equity Fund.
Bandhan, Basix, Equitas, Ujjivan – Lok Capital, Aavishkaar, Unitus Equity Fund, SIDBI, and others
Aravind Eye Care – market based high quality eye care solution
Affordable Private Schools – Pearson Affordable Learning Fund alongwith
+ Impact Investing and CSR
CSR law enables Corporate Social Responsibility (CSR) contributions to incubators - providing legs to for-profit ventures working with social objectives.
Non-banking finance company Mahindra & Mahindra Financial Services Ltd (MMFSL) used a portion of their 2014-15 CSR funds to invest in two social startups through Villgro — a Department of Science and Technology (DST) and the Indian Institute of Management-Ahmedabad's (IIM-A's) technology business
SustainEarth Energy Solutions — a startup working to provide affordable bio-gas technology for rural areas
Sickle Innovations — a startup making handheld cotton picketing machines using a patented technology that enhances labor productivity
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+ Way Forward……….
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Centre for International Development
Services
India
www.cids-india.org