Karmayog Corporate Social Responsibility

Ratings 2007of the largest 500 Indian Companies

www.karmayog.org/csr

Summary of Presentation

• Easy everyday examples of social responsibility

• What is Corporate Social Responsibility?

• Results of the Karmayog CSR Rating

• How we assigned the CSR Rating

• Inferences from the CSR rating exercise

• Our Recommendations for companies

• Importance of the CSR Ratings for different stakeholders

Easy everyday examples

of

Social Responsibility

Easy everyday examples of social responsibility…..

No. Type of Organisation Examples of socially responsible activities

1 Private Schools & Colleges - Getting Alumni to institute scholarships & prizes - Offering space for training / classes / sports, etc.- Adopting a local garden - Encourage volunteering for topical causes

2 Housing Societies - Suggesting solutions for local problems to govt & media- Maintaining nearby public spaces, including footpaths- Offering space in society (garage, etc.) for use for training / classes. etc. and as a material collection centre

3 Shops e.g.: Chemists

- Awareness posters of symptoms of different diseases- Collecting & donating old medicines to charitable hospitals- Offering discounted medicines for poor patients

4 Private Hospitals - Creating a Patients’ Information Centre & Library - Encouraging citizens to help accident victims by taking care of legal aspects of accidents / emergency cases- Displaying “Patients and Doctors Bill of Rights & Responsibilities”

Easy everyday examples of social responsibility

No. Type of Organisation Examples of socially responsible activities

5 Movie Theatre / Multiplex/ Malls

- Screening of NGOs films- Special shows for underprivileged groups- Offering table space for NGOs - Adopting a nearby garden / open space and maintaining it

6 Petrol Pumps - Checking and offering tips to vehicle users - Ensuring PUC certificates - Promoting accident awareness, pedestrian safety

7 Hotels and Restaurants - Donate excess food responsibly to NGOs / citizens.- Compost organic waste

8 Media (TV, print, radio) - Telecast/print profiles and achievements of NGOs / citizens - Telecast/print social service messages along with advertisements- Dedicated section on social & developmental issues, and for citizens’ dialogue / feedback

What is

Corporate Social Responsibility?

What is Corporate Social Responsibility?

The Karmayog CSR study led to some very clear & simple insights, that:

“Every company harms the environment!” (Just as an individual does)

Corporate Social Responsibility is thus only about two aspects:

1) Reducing the Negative Effects: Steps taken by a company to neutralise, minimise or offset the harmful effects caused by its processes and product-usage

2) Increasing the Positive Contributions: Further steps taken using its resources, core competence, skills, location and funds for the benefit of people and the environment

Results

of

the Karmayog CSR Rating 2007

Karmayog CSR Rating

No. of Companies % of Companies

Level 5 (highest) 0 0%

4 4 * 1%

3 41 8%

2 137 28%

1 89 18%

0 (lowest) 229 (no CSR) 46%

Total 500 100%

Results of the Karmayog CSR Rating of the largest 500 Indian companies

* * HDFC, Infosys, Tata Steel, Titan IndustriesHDFC, Infosys, Tata Steel, Titan Industries

Basis of assignment of the CSR ratings…

Level 4

Only 4 companies out of 500 in this study have been assigned a level 4 rating since they do the following

Founding principles

Philosophy of improving society through business

Internalised CSR CSR is central to the business process and is planned and taken forward, rather than done alongside or in reverse steps

Using core competence

CSR activities are linked to the company’s unique resources

CSR recommendations

The company has adopted all or most of the 11 recommendations on CSR made in the Karmayog CSR study,

Setting standards The company raises the standards in its sector

Commitment to improvement

The company is transparent about its business processes, monitors & reports these, including setting improvement targets

Innovative CSR Strategies

The company uses innovative ideas and strategy for its CSR activities similar to its business practices

Basis of assignment of the CSR ratings…

Level 3

40 companies out of 500 in this study have been assigned a Level 3 rating since they do the following:

CSR philosophy defined

The company has a defined CSR philosophy and focused areas of work, that may or may not be related to their business processes.

CSR alongside business

CSR is in the process of being internalised into the operations of the company, and is at present being done alongside other operations

CSR for local community

CSR activities are connected with physical areas of operation of the company, but may not be using the core competence

Measuring CSR CSR activities are listed and documented, though there may not be actual figures of amount spent by the company on CSR

CSR recommendations

The company has adopted some of the recommendations regarding CSR made in the Karmayog CSR study

Upward CSR learning curve

It is expected that many Level 3 companies will become Level 4 companies in due course.

Basis of assignment of the CSR ratings

Level 2

138 companies out of 500 in this study have been assigned a Level 2 rating

Business Process and product life cycle

Degree of environmental damage caused during sourcing, manufacturing or delivery of the product or service is considered

Companies engaged in the following extensively damage the environment: chemicals (fertilizers, paints, plastics), mining, aviation, thermal power generation, cement manufacture

Hence their CSR rating is limited to 2 even if they are doing extensive work under CSR.

Level 1 89 companies out of 500 in this study have been assigned a Level 1 rating

Environmental

impact

Every Company must be working towards reducingenvironmental degradation, to get a Karmayog CSRrating of even Level 1

Basis of assignment of the CSR ratings

Other criteria considered for assignment of the CSR rating

CSR Amount Amount spent by a company on CSR relative to its sales

Expanding markets to rural areas

Considered as expansion of the business and not part of CSR

Employee volunteerism

Participation of employees in unrelated volunteering is not considered to be part of the company’s CSR activities.

Level 0

229 companies out of 500 in this study have been assigned a Level 0 rating

Companies doing no CSR Companies producing cigarettes/tobacco products & liquor

Inferences

from

the Karmayog CSR rating exercise

Inferences from the Karmayog CSR rating exercise

1) No CSR

The results of the CSR Rating exercise are

extremely disappointing since almost half of

The companies are not doing any CSR

6) CSR Philosophy

Very few have a clearly defined CSR philosophy. Most implement CSR in an ad-hoc manner, unconnected with their business process.

2) Token Gestures

Many are only making token gestures towards CSR in tangential ways such as donations to charitable trusts, NGOs, sponsorship of events, etc.

7) CSR Transparency

Very few companies openly state the damage caused by their processes and the steps being taken to reduce this damage

3) CSR Effectiveness

Most spread their CSR funds thinly across many activities, thus reducing the effectiveness and seriousnes

8) CSR Reporting

Only 6 companies publish a Corporate Sustainability Report to measure and assess the impact of their business on the environment

4) CSR Commitment

Most seem reluctant to do CSR activities unless mandated by law

9) CSR Spend

Virtually no company states how much it spends on CSR

5) CSR as PR

Most use CSR as a marketing tool

Industry Sector–wise analysis

of the CSR activities

of the largest 500 Indian companies

CSR in 28 Industry Sectors

An industry analysis of 28 sectors has also been done for the 500 companies

(Number of companies in each sector is in brackets)

Automobiles (13)  

Auto-components (22) 

Banks (42) 

Cement (16)  

Chemicals (27)  

Construction & allied activities (13) 

Fertilizers (12) 

Financial Services (11)  

FMCG & Consumer Durables (20)  

Gas Processing (5)  

Glass & Ceramic (4)  

Heavy Engineering (19)    

Hotels (4)

Iron & Steel (25) 

   

Metals (12) 

Mining (7) 

Oil (17)

Paper (6)

Petroleum & Petrochemicals (5) 

Pharmaceuticals (32)  

Polymers & Plastic Products (14)  

Power (16) 

Shipping & Logistics (9) 

Software & ITES (17) 

Sugar (12)  

Textiles (28)   

Trading (11)  

Tyres (7)   

Importance of the Sector-wise analysis

Snapshot of sector It presents a picture of an entire industry, their common processes and products, their CSR initiatives, including examples of companies doing good CSR

Potential CSR impact It presents figures of the sales of the entire sector, the net profit, and possible impact with the recommended CSR expenditure

Sector-specific guidelines

Uniform norms get created for processes and CSR activities for different sectors, & also a level playing field

Best practices for the sector

Benchmarking of best practices internal to & externally by the companies

Sector Example - The Paper Industry

Karmayog CSR Rating of Largest 500 Indian Companies - Extract of Paper Sector

NoCompany (alphabetical)

Sales Rs. Cr.

NetProfit Rs. Cr.

MinCSR

Rs. Cr *

KarmayogCSR

Rating CSR Activities

1Andhra Pradesh Paper Mills 450 25 0.9 2/5 education, healthcare

2 Ballarpur Industries 1800 150 3.6 2/5community, environment

3 J K Paper 650 15 1.3 2/5 education, health

4Rama Newsprint & Papers 300 20 0.6 1/5

community development

5Tamil Nadu Newsprint & Papers 700 35 1.4 1/5 environment

6 West Coast Paper Mills 350 30 0.7 1/5 environment

  Total 4250 275 8.5    

* Note : Karmayog recommends that Companies spend a minimum of 0.2 % of sales on CSR activities annually

Compulsory CSR:-

our 4 Recommendations

Compulsory CSR:- Our 4 Recommendations…

1) Adoption of industry guidelines for processes

Two types of international guidelines already exist:

• Common guidelines on Environment, Health and Safety (EHS) applicable to most industries

• Industry-specific guidelines linked to the processes of that sector. e.g.sector-specific guidelines that include technical reference documents for different sectors such as forestry, manufacturing, power, etc.

2) Sustainability Reporting in the Annual Report

Every company must include a Corporate Sustainability section in its Annual Report (just as Technology Up-gradation Report is included) and preferably publish a separate Corporate Sustainability Report (as per the Global Reporting Initiative framework) also

3) Protection and restoration of the environment

Every company must be engaged in CSR activities that minimise its OWN harm to the environment

Compulsory CSR:- Our 4 Recommendations

4) Minimum annual CSR expenditure

Every company must spend a minimum of 0.2% of its sales on CSR activities (i.e. Rs. 20 Lakhs per Rs. 100 Crores)

Table showing Rupee impact of 0.2% of sales for CSR expenditure

Sizeby

Sales

Company Sales inRs. (cr.)

Net Profit Rs. (cr.)

Minimum CSRRs. (cr.)

at 0.2% of Sales

1stIndian Oil Corporation 140,000 5,000 280.0

100thVijaya Bank 2,500 350 5.0

200thNagarjuna Construction Co. 1,000 50 2.0

300thRico Auto Industries Ltd. 600 35 1.2

400thL.G. Balakrishna & Bros. 400 15 0.8

500thWartsila India Ltd 250 25 0.5

Total sales of 500 companies: Rs. 14,00,000 crores

If recommended minimum CSR is spent @ 0.2% of sales, this = Rs. 3000 crores

Voluntary CSR:-

Our 7 Recommendations

Voluntary CSR:-Our 7 Recommendations…

1) Define CSR philosophy

The CSR philosophy and objectives should be

clearly stated (starting with areas that directly

concern the company’s own business processes)

5) Use core competence

Core competence should be utilised to benefit its stakeholders and society

2) Focused CSR

A few CSR activities should be identified and worked upon for a sustained period

6) Extend Business Scope

A company should stretch its business reach to under-served groups and populations even at reduced profit or marginal losses

3) Create Inclusive Employment

Inclusive employment opportunities, such as for the physically-challenged, should be created

7) Develop CSR implementation systems

A CSR committee should be set up including an external Director, an NGO and local stakeholders for selecting, monitoring and evaluating CSR activities

4) Spur Community Development

Projects to help its local communities and environment should be the starting point

Some developments in CSR after our study

• Reserve Bank of India: outlines guidelines for financial sector Dec. 2007: RBI Notification to all Banks & Financial Institutions

recommending that Non Financial Reporting (NFR) be undertaken as a step towards ‘Responsible Banking’.

• Ministry of Corporate Affairs: recommends reporting of CSR June 2008: The MCA has stated that it would like to encourage all companies

to “disclose on their balance sheets the social work that they do”.

• Government of Gujarat: mandates CSR expenditure Sept. 2008: - Gujarat Govt. directs 6 PSEs to set aside 30% of their profit before tax to

carry out welfare activities across Gujarat. - Draft industrial policy of Gujarat Govt. mandates CSR for industry

associations and corporate houses in the state. Companies to be allocated developmental activities in sectors like health, education & environment in respective talukas, villages or districts.

Importance of the CSR Ratingsfor different stakeholders

Companies Industry & trade associations

Govt. bodies

NGOsMedia

Researchers, students

Citizens,Investors,shareholders

Every stakeholder has a role to play to make CSR effective and sustainable

Diagram showing various stakeholders of CSR

Importance of the CSR Ratings for …

Board of Directors

• To implement international CSR guidelines and norms

• To sensitise employees about the value of CSR

• To identify possible CSR activities

• To learn from others’ CSR initiatives

Industry & Trade Associations

• To understand the huge scale and magnitude of the benefits that are possible if an entire sector spends even 0.2% of turnover on CSR

• To get a snapshot of the state of CSR& set benchmarks for companies

• To prepare case studies, highlight best practices & give awards • To provide consultation on CSR

• To work with Government, NGOs and international organisations to upgrade and improve CSR activities

Importance of the CSR Ratings for…

Government bodies

• To develop industry-wise guidelines for CSR

• To introduce laws that would reward companies that are working towards reducing environmental damage and laws that would penalise companies that continue to do harm. (e.g. the polluter-pays principle)

• To enable companies to partner with government in implementing social welfare and developmental schemes (e.g. adoption of ITIs)

NGOs

• To know about the areas of CSR work undertaken by companies, thus enabling partnerships with them

• To be able to identify companies which are not doing CSR or doing so in a token manner, so as to approach these companies to initiate meaningful projects

• To assist companies to formulate CSR objectives, implement CSR activities, and monitor and evaluate their CSR activities

Importance of the CSR Ratings for …

Media

• To stop eulogising leaders whose companies & products are damaging the environment & harming lives

• To highlight companies practising good CSR, and to negate those companies which are actually engaged in marketing of their products under the guise of CSR

• To present a clear view of CSR that is separate from philanthropy, charity & expanding business scope, and to sensitise the public about this

• To encourage publications to have a regular feature on CSR initiatives

Citizens, Investors, Shareholders

• To understand that as consumers and stakeholders of companies, we can and must influence companies to change harmful polices and adopt proper CSR practices. (due to the huge impact and power that companies have on people and the environment)

• To ensure that our purchase choices align companies to do business in a way that reflect our desirable values for society.

Importance of the CSR Ratings for …

Students

• To be sensitised about the role and responsibility of companies

• To understand the impact and consequences of everyday processes and actions

• To develop a holistic view of life and living

• Before joining a company: to join a company that is working to benefit society and not one that is harming it

• Within any company: to improve the functioning of the company to make it a business that contributes to society

• Beyond the business: use the core competence and resources of the company to improve society

Closing Statement…

• Enlightened businesses worldwide, small and large, have begun to realise that responsible practices enhance profitability & ensure long-term survival. Companies not doing CSR will not survive – it’s only a question of when.

• For those companies which disrespect the environment or living beings, we, as responsible citizens, need to individually and collectively, reward or penalise them through our voices and our wallets

…..

Jubilant Organosys, a pharmaceutical company, while acknowledging the harm caused in manufacturing its chemicals, actively works to minimise the damage. It is one of the only 6 Indian companies that published a Corporate Sustainability Report last year.

“There are stakeholders who can voice their concerns today while we engage them. There is another category of stakeholders like flora, fauna and physical environment, whose voices we cannot hear, but who are affected by anthropogenic (i.e. caused by humans) impacts of global population. The future generation is another important group of stakeholders that does not exist today but will be impacted by our activities ……” Jubilant Organosys Limited, Corporate Sustainability Report, FY 2007

Closing Statement

 Karmayog Corporate Social Responsibility

Ratings 2007of the largest 500 Indian Companies

www.karmayog.org/csr