Mandatory CSR spending moved a step closer this week after and announcement by the Indian Ministry of Corporate Affairs that it had received no objections to the controversial Clause 135 of the Companies Bill 2011. This helps clear the way for the bill to become law sometime next year.
Clause 135 states that all businesses with a net worth of $90 million, turnover of $180 million or net profit of $900,000 will have to donate 2% of their average net profits over the past 3 years to CSR schemes, or if they do not have the funds available explain why this is the case.
This is a story I’ve followed ever since the clause was first introduced to a predecessor bill in 2010. Battles have been fought over the precise nature of the regulation (disclosure only, introducing the “pay or explain” nuance, etc) but the government has stuck firmly to the 2% expected spend and the level at which it is activated.
Quite how this will play out over the years remains to be see. The bill replaces legislation which is over 50 years old and includes other measures to strengthen corporate governance in India, including fixed term appointments for non-executive directors and the ability for corporations to be be sued by class action suits.
In short, it brings India fully up to speed with international business best practice and puts the country a little ahead of the curve in some areas, despite its misgivings around emissions reduction targets. Well known businesses which will be affected include Infosys, Tata and ICICI Bank.
All of which raises an interesting question. If some of the world’s leading IT, automotive and financial services businesses are forced to make a minimum 2% contribution to their CSR schemes, what will their international competitors do?
I’ve long argued that regulation will have to come into CSR in one form or another: for example the EU has said it will make “legislative proposal on the transparency of the social and environmental information provided by businesses” by 2014 and China has recently published a new legal framework on green and sustainable business.
The tide is definitely turning and it’s not the US which is leading it. Which might mean that it will end up influenced by other countries’ definitions of responsibility, not defining them.