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New CSR Rules Explained

Dr_Bhaskar_ChatterjeeInterview with Dr. Bhaskar Chatterjee, CEO and Director General-IICA

In the aftermath of the new CSR rules released by the Ministry of Corporate Affairs, many questions concerning the premise, objective and implementation of the act arose from corporates across sectors. As a part of the series of conferences and roundtables being organized across the country to address these questions, NextGen hosted an IT sector roundtable in association with NASSCOM at Mindtree Global Village, Bangalore on the 4th of October, 2013. The conference was presided by the Director General and CEO of Indian Institute of Corporate Affairs, Dr. Bhaskar Chatterjee. Sustainability heads from various IT companies were present at the conference and were briefed about the implementation of the Section 135 of Companies Act 2013. Below is an interview with Dr. Chatterjee who led the framing of the rules.

1. Section 135 is viewed globally as the world’s largest and most ambitious CSR experiment. What is the history, philosophy and objective of the revolutionary Section 135 of the Companies Act, 2013?

Dr. Chatterjee: Section 135 has evolved over a period of time through much debate, discussion and consultation between all stakeholders – Corporates, Government, Parliamentarians, Civil Society, NGOs etc. It embodies the essence of what the development sector in this country really needs today – active involvement of corporate India in nation building. Corporates have excelled in the last two decades in generating much wealth and prosperity. Ironically, much of this growth has been skewed in favour of a few, while the vast majority has been left behind. Section 135 provides us all a historical opportunity to set this right by catalyzing a process of national regeneration wherein corporate India can work hand in hand with the government and civil society to bring about sustainable development. If implemented in true letter and spirit, the Act has the potential to be a game changer for our country.

2. What is the role of IICA in driving Section 135? What are the initiatives planned by IICA?

Dr. Chatterjee: The IICA lies at the fulcrum of the monumental change that is now unfolding. As a think tank and the action research arm of the Ministry of Corporate Affairs (MCA), it will have a seminal role to play in ensuring that the potential and opportunity that the new law provides does not go wasted. It not only has to facilitate effective delivery and implementation of the new law, but also has to battle and win over the skeptics who are ever eager to belittle its potentialities that lie latent within the text of the new legislation.

The IICA is planning a series of activities and initiatives to fulfill its mandate. Some of these include – developing a National NGO hub; setting up a data and collaborative projects CSR Portal; taking up CSR trainings and consultancies, developing a Sustainability center, creating a Global gateway for CSR in India; conducting awareness workshops, conferences and seminars nation-wide; developing partnerships with chambers of industry, academic institutions and corporates that can give impetus to the implementation of its mandate; etc.

3. What learning was derived from the implementation of CSR in the PSUs (government-owned corporations)?

Dr. Chatterjee: In many ways, the DPE Guidelines of 2010 served as a precursor to the formulation of Section 135. An important learning attained from implementing these Guidelines was that peoples’ participation in the development process is crucial for it to be sustainable, and therefore, policy formulation must suitably incorporate this dynamics.

4. It is estimated that USD 3 billion dollars of CSR capital will be generated annually? How can we use it effectively?

Dr. Chatterjee: CSR spending will be directly linked to the CSR Policy of a company. It is therefore imperative that there is appropriate orientation of the CSR Committee of the Board that develops the CSR Policy. Once the Policy is in place, its implementation, monitoring and evaluation would be critical to ensure that every rupee that is spent actually counts. Each company would need to do all these with great responsibility and diligence. In the end, publishing of CSR work in the public domain, over a period of time, would act as a deterrent to inefficient use of funds.

5. Tell us more about Schedule VII. Doesn’t it make the process very restrictive?

Dr. Chatterjee: Schedule VII provides an indicative list of activities that a company may take up as part of its CSR. It was uploaded along with the CSR Rules on the MCA website in September – October 2013 to elicit public feedback. This Schedule can be amended by the government and need not go back to Parliament for any change. Let us wait and see what the feedbacks are. If required, the government can suitably amend it.

6. How will the government audit the CSR projects? Who will tell whether a particular project is a qualified CSR activity? And How?

Dr. Chatterjee: The government does not intend to audit CSR projects. That would be micro-management and counter-productive. Corporates would need to assess and audit their own projects. This could even be done through qualified third parties appointed by the company. The CSR Policy of a company will be the ultimate arbiter in defining what a permissible CSR activity is. This Policy would need to be accurately aligned to the CSR Rules and Schedule VII that are finally decided by the MCA. All these would need to be in sync with the letter and spirit of Section 135. I would even venture to say that eventually the people, media and civil society of this country will judge if an activity is genuine CSR.

7. You were the driving force behind Section 135 right since its inception. What do you think is the road ahead and how do you think this will evolve over time? What is your long term vision of Section 135?

Dr. Chatterjee: I see exciting times ahead. We have created history by enacting this progressive legislation. But this is just the beginning. The real challenge lies ahead – how to ensure that we make this law work for our nation’s growth and development. As the implementation begins, we will be diligently monitoring the dynamics at the macro level. The CSR Rules are not cast in stone and these may need to be modified based on feedback. Long term, I feel Section 135 will continue to provide a broad framework within which CSR Rules would slowly evolve till they acquire a level of stability. This dynamics is likely to take 4-5 years.

8. What do you think are the major challenges that we will face in implementing the Section 135?

Dr. Chatterjee: Implementation of the new legislation would pump crores of rupees into the development sector. Ensuring that these funds are optimally utilized, I feel, will be a big challenge. Inability of companies to spend as per the 2% criteria is another area that would require quick ramping up of CSR delivery bandwidths. CSR training across all levels is another mammoth task that would need to be taken up at a fast pace. Identifying credible NGOs that have the capacity to deliver effectively at scale, is also a daunting task.

9. Section 135 has made CSR very fashionable in attracting high quality talent. What is your opinion on this? Will this give rise to Social Entrepreneurs?

Dr. Chatterjee: CSR is the new buzz in the job market. It will no longer be a backroom activity in corporate India. Companies will have to hire the brightest and most outstanding talent to drive their CSR initiatives since this will now begin to also impact their bottom lines. Yes, Social Entrepreneurs will definitely get a lot of encouragement as substantial CSR funds may soon begin to come their way. They will need to develop effective and viable Social Business Projects to seek CSR funding from companies that are keen to participate in this domain.

(Interviewed by Abhinav Prakash)

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Dr. V.Shubhalaxmi
An encouraging interview. I am one of the social entrepreneur who has ventured out to interface with corporates and NGOs in the domain of CSR. I consider both to be different species and they will need a ecosystem which my enterprise has created where the expectations and fulfillment of CSR mandates are mutual. Many encouraged my idea but few discouraged too, but this article has again built some hopes for Ladybird Environmental Consulting.
Dear Sir, We, at Higher Education Support Trust, are giving Loan Scholarship to: Brilliant, Underprivileged Students (from very low income families) for Higher /Professional (Engineering, Medical, Pharmacy … etc,) courses, with an aim to uplift their families. This is done by Donations from various Individuals, Companies and Institutions. We have a some QUESTIONS: 1. Can A Donation by Companies to Our Trust Qualify as expenditure towards CSR, Under Companies Act (2013) and CSR Rules? 2. Can Companies undertake activity which we are doing through oue Trust, reimburse our Trust actual funds ( from their own institution designated to undertake CSR activities) for No. of students/scholars they wish to support? Arvind Shah, For, Higher Education Support Trust. web site: <>
cud we know this in course format,

Pingback: Financial Inclusion and CSR | Forbes India Blog

Unavailability of finances with NGOs is always being a constraint to the work and contribution of the NGOs to the society as the fund received from Govt. to NGOs is minuscule and does not make a impact. This indeed a great step taken by the Govt. and one has to hope that the implementation really take place. Best of luck NGOs.
Liya Elizabeth Jacob
Indeed a promising change! Hopefully this principle will foster a tripartite relationship between the government, corporate India and NGOs; removing any "trust deficit".
Will Section 134, sub-section (3), be counter-productive to the purpose? All the Board needs to do is report why the 2% could not be spent...
Vineesh Valiyaparambil
Section 135 surely, promises exciting time ahead. I hope this will not make corporate to spend only 2% of their PAT, as there are organizations who already have a CSR spent to the tune of 3-5%.
Insightful inputs from the author of the legislation. Truly the most exciting time for CSR space in India. Looking forward to more articles.
 
 
NextGen
NextGen is India's leading Sustainability and CSR Management company, working with Fortune 500 clients across 16 sectors in 6 countries. NextGen works across the value chain from strategy development to on-ground implementation to reporting and audit of CSR and Sustainability initiatives. NextGen is also working closely with Ministry of Corporate Affairs, Government of India on the CSR ecosystem development as per Section-135. NextGen was previously incubated at IIM-Bangalore and BITS-Pilani.

NextGen is a consulting affiliate of the Shared Value Initiative, a global community of practice to drive adoption and implementation of shared value strategies among leading companies, civil society, and government organizations. The Initiative is operated by FSG, a nonprofit consulting firm specializing in strategy, evaluation, and research, co-founded by Harvard Business School Professor Michael E. Porter and Mark Kramer. Today, FSG works across sectors in every region of the world—partnering with corporations, foundations, nonprofits, and governments to develop more effective solutions to the world’s most challenging issues. Learn more and join the community at sharedvalue.org.
 
 
 
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July 22, 2014 12:54 pm by Dr. V.Shubhalaxmi
An encouraging interview. I am one of the social entrepreneur who has ventured out to interface with corporates and NGOs in the domain of CSR. I consider both to be different species and they will need a ecosystem which my enterprise has created where the expectations and fulfillment of CSR mandates...
June 12, 2014 14:47 pm by Arvind Shah
Dear Sir, We, at Higher Education Support Trust, are giving Loan Scholarship to: Brilliant, Underprivileged Students (from very low income families) for Higher /Professional (Engineering, Medical, Pharmacy … etc,) courses, with an aim to uplift their families. This is done by Donatio...
June 02, 2014 19:06 pm by sharmila
cud we know this in course format,
April 02, 2014 13:40 pm by Financial Inclusion and CSR | Forbes India Blog
[...] per the new CSR regulations, the banking and financial services sector will contribute ~2000 crores into the development [...]
January 11, 2014 15:18 pm by Abhay Nain
Unavailability of finances with NGOs is always being a constraint to the work and contribution of the NGOs to the society as the fund received from Govt. to NGOs is minuscule and does not make a impact. This indeed a great step taken by the Govt. and one has to hope that the implementation really ...