Effectiveness of Corporate Social Responsibility (Csr) Guidelines in India
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EFFECTIVENESS OF CORPORATE SOCIAL RESPONSIBILITY (CSR) GUIDELINES IN INDIA Amita V. Joseph B.A., PGDM (Management), LLB, PGDM (Law). Submitted in fulfilment of the requirements for the degree of Doctor of Philosophy Deakin University 18 April 2017 Abstract This thesis is set within the context of the development of corporate social responsibility (CSR) internationally and in India, and the corporate governance reform agenda in India. Post 1991 liberalization of the Indian economy and the explicit encouragement of foreign investment, the Indian government have taken actions on companies’ mandated CSR commitments and reporting, that are of interest internationally. A key concern is how CSR might be used to address inequalities and disparities in growth, especially for the bottom 50 percent of the Indian population. Barriers to more equitable redistribution of growth include lip service to voluntary global standards by the Indian corporate sector, crony capitalism and the use of power, and the way influence and social connections are used to capture politics ad public policy in the interests of the rich. The thesis tracks the reform milestones in India which began in 2009 with the Government of India’s Ministry of Corporate Affairs’ release of voluntary guidelines on CSR, which in 2011 became the National Voluntary Guidelines (NVG), and in 2012 the Securities Exchange Board of India’s decision to mandate the top 100 Companies by market capitalisation on the Stock Exchanges, to publish Business Responsibility Reports (BRR). In 2013 guidelines were issued for central public sector undertakings and the Companies Act of 2013 replaced the Companies Act of 1956. Section 135 of the Act on CSR, sought to mainstream sustainability with a mandatory ‘apply or explain’ principle as a minimum requirement. An exhaustive search of CSR and the growth of sustainability reporting of companies since 2010 shows that only about 50 percent of India’s top 100 companies have been reporting consistently on GRI guidelines and the GRI reporting of 14 of these is analysed and an index proposed. The thesis traces 12 of those top companies that report on both GRI and BRR/CSR, comparing their reporting from 2010/11 up to 2014/15. The central theme of the thesis is to analyse the impact of CSR and reporting guidelines in India through an analysis of the selected companies, whose journey is tracked through publicly available sources. The aim is to find out whether increased reporting and the 2013 CSR Guidelines have led to better transparency and whether this reporting gives a full picture of the impact the company makes on society and environment. Analysis shows that mere increased CSR spend does not necessarily lead to increased responsibility or transparency. Analysis reveals that reporting on the externalities of corporate operations is not very specific 4 or measurable and whilst the reports may be mandatory, companies can cherry-pick what they choose to report on. This points to the need for further regulation, alongside facilitation of civil society, community and public scrutiny of corporate reporting and CSR effectiveness. A new regulatory framework is needed to ensure that companies comply with expectations of transparent, independently verified due diligence, against meaningful indicators of performance and impact, with systematic reportage in the public domain. This thesis will promote critical analysis in India which links business responsibility reporting to CSR, giving a fuller picture of how profits are made and what is given back to the society. 5 Table of Contents Effectiveness of CSR Guidelines in India Acknowledgement Declaration List of Tables List of Figures List of Abbreviations Introduction 21 Global Reporting Initiative and Indian Companies Research outline Research design of the thesis Weighting Time Horizon Limitation of Existing Data Limitation of Existing Literature Chapter 1: Evolution of Corporate Social Responsibility (CSR) 35 1.1 Introduction 1.2 Definition of CSR 1.3 Historical Evolution and Overview of CSR 1.4 Does Corporate Social Responsibility Create Shared Value? 1.5 CSR as a Partnership for Development 1.6 CSR in India 1.6.1 CSR in India- Milestones 1.6.2 Philosophical Background of Indian Philanthropy and Charity 1.6.3 Models of Modern Day CSR in India 1.6.4 The Case for CSR 1.7 Conclusion 6 Chapter 2: Corporate Governance and CSR 61 2.1 Introduction 2.2 Defining corporate governance 2.3 International corporate governance reforms 2.3.1 OECD principles of corporate governance 2004, 2015 2.3.2 Application of a principles-based approach 2.4 Development of corporate governance in India 2.4.1 The Rahul Bajaj Committee 1996 2.4.2 Kumar Mangalam Birla Committee Recommendations on Corporate Governance 1999 2.4.3 Naresh Chandra Committee 2002 2.4.4 Narayan Murthy Committee 2003 2.4.5 SEBI reforms 2004 onwards 2.5 The role of corporate governance, CSR and sustainable development 2.6 Conclusion Chapter 3: Government of India Regulations on Corporate Governance and CSR under the Companies Act, 2013 83 3.1 Introduction 3.2 The Need for Mandatory Corporate Responsibility Legislation in India 3.2.1 Details of the New CSR Provisions in India 3.2.2 The Catalytic Role of the Bill 3.3 Reforms under the Companies Act, 2013 3.4 Penalty for Non-Compliance of CSR Provision 3.5 CSR Agenda as Reflected in the Act 3.5.1 Role of the CSR Committee 3.5.2 CSR Policy and the CSR Report 3.5.3 CSR Role of the Board of the Company: Accountability and Responsibility 3.6 Conclusion 7 Chapter 4: Corporate Misdeeds and Trust Deficit 101 4.1 Introduction 4.2 Examples of Corporates contributing to the Trust Deficit 4.2.1 Reebok 4.2.2 Kentucky Fried Chicken 4.2.3 Wal-Mart 3.2.4 Nestle 4.2.5 Nike 4.2.6 Apple iPod 4.2.7 Gap 4.2.8 Vedanta 4.2.9 Coca-Cola Case 4.2.10 POSCO (Pohang Steel Company) 4.3 India and the Problems from Multinational Companies 4.4 Failure of Other Multinational Companies’ Initiative which did not Address Key Issues 4.5 Conclusion Chapter 5: An Overview of CSR Rating and Surveys, in India, up to the 2013 Company Act 121 5.1 Introduction 5.2 The importance of CSR ratings 5.3 An Overview of Global Compact and CSR in India 5.3.1 The Global Compact 5.3.2 CSR Surveys 5.4 Karmayog CSR Study and Ratings 5.4.1 The FICCI –SEDF Business World CSR Award 5.4.2 Distinctive features of CRISIL GVC Ratings 5.4.3 CRISIL Ratings on Governance (GVC Ratings) 5.4.4 TERI Corporate Social Responsibility Ratings Award (2001- 02) 5.5 Transparency Index by Socio Research & Reform Foundation (2013) 5.6 Summary and Conclusion 8 Chapter 6: The Shift to Sustainability: GRI Analysis of some Indian Companies 143 6.1 Introduction 6.2 Sustainability Reporting for Companies and the GRI 6.3 Sustainability Reporting in India 6.3.1 Indian Companies and the Use of GRI 6.2.2 Methodology of CSR Rating 6.4 Results of GRI Analysis 6.5 Discussion of Results Analysis 6.6 Conclusion Chapter 7: CSR and Business Responsibility Reporting (BRR): Will Transparency Promote Accountability and Responsible Business Practises? 167 7.1 Introduction 7.2 Analysis of Twelve Companies based on their Business Responsibility Reporting 7.2.1 Analysis of Twelve Companies based on Principle 1 of the BRR from the First Reporting Year 2012 to 2015 7.2.2 The Demonstration of Stakeholder Engagement as a Critical Process for the Company based on its Identification and Disclosure 7.2.3 Direct Impact on Employment as seen in Terms of Regular Work vs. Contractual Workers Employee 7.2.4 Sustainable Sourcing, Environment, Emission and Legal Notices 7.2.5 Impact of the Companies Act on Reporting and Practice of CSR 7.2.6 Analysis of the CSR Implementation Mechanism and Amount Spent by the Twelve Companies after Companies Act mandate of 2013 7.2.7 Comparison of CSR Performance with BRR Disclosure for the Twelve Companies that Report on BRR and GRI. 7.3 Recommendations for strengthening of BRR Framework to make Reporting effective 7.3.1 Principle 1 7.3.2 Principle 2 7.3.3 Principle 3 7.3.4 Principle 4 9 7.3.5 Principle 5 7.3.6 Principle 6 7.3.7 Principle 7 7.3.8 Principle 8 7.3.9 Principle 9 7.4 Conclusion Chapter 8. Main Findings, Discussion and Conclusions 229 8.1 Introduction 8.2 Achievement of the research objectives 8.3 Chapter findings 8.4 Discussion 8.5 Research conclusions and implications 8.6 Limitations of the study 8.7 Conclusion Appendices 248 Appendix 3 Excerpts from Companies Act 2013 Appendix 6.1 Details of GRI Indicators Appendix 6.2 List of Top 50 Companies with Revenue and Market Capitalisation MCAP (Year 2011) Appendix 6.3 Some details of Companies with CSR Activities References 291 10 List of Tables Table 1.1: How Shared Value Differs from Corporate Social Responsibility. Table 5.1: Karmayog CSR Ratings Indian companies, 2010 Table 5.2: Observations from the Karmayog CSR Ratings Table 6.1: Indian Company Reports Published in 2008 Following GRI Guidelines Table 6.2: The six broad parameters taken from the Global GRI framework Table 6.3: Scoring based on GRI ranking methodology for the year 2010-11 Table 6.4: Consolidated Scores of GRI (Scale 1-possible 150) of 14 Companies Table 7.1: Extension of a policy on ethics, transparency and accountability to other entities such as Group/Subsidiary Companies, Joint Ventures/Vendors/Contractors and NGOs 2012/15 Table 7.2: Have the Companies Identified and Provided the List of Stakeholders from 2012- 15.