Karmayog Corporate Social Responsibility Ratings 2007-2008of the largest 1000 Indian Companies www.karmayog.org/csr2008

Summary of the Presentation

What is Corporate Social Responsibility?

Importance of CSR Ratings for Stakeholders

Results of the CSR Ratings of 1000 largest Indian Companies

CSR Reporting

Parameters of Karmayog CSR Ratings 2008

Sector Analysis

Observations

Mandatory and Non Mandatory Recommendations

View on CSR by Group companies

Recent Trends and Developments

Closing Statement

What is Corporate Social Responsibility?

“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 by a company using its resources, core competence, skills, location and funds for the benefit of people and the environment

Triple Bottom Line and CSR

• TBL is a concept whereby a company will have to look at not just where the company should deploy its profits but how it made its profits in the first place .This implies looking at impacts on all its stakeholders which in essence is the base of CSR

Did you know that….

• A paper company manufactures paper from waste cloth to reduce the use of pulp from trees

• A Chemical manufacturer has protected the largest stretch of mangroves along Mumbai’s coast

• A software company has developed a special call receiving software for 1098-Childline , India’s national helpline for children in distress

• An FMCG company is working to protect and conserve endangered plant species in India through re-forestation programmes

• A construction company (in Mumbai) posted a 60 % profit in 2008 amounting to Rs.1400 cr. and did not do any activity to benefit society

• Don’t Drink and Drive is the CSR campaign of a leading company that makes alcoholic beverages

• A drug manufacturer in India provides gifts and vacations abroad to doctors who prescribe its products.

• A power generating company is the highest CO2 emitter in India

Importance of the CSR Ratings

for different stakeholders

Actual Stakeholders of Companies

• GOVT. AGENCIESGOVT. AGENCIES

SHAREHOLDERSSHAREHOLDERS

CONSUMERSCONSUMERS SUPPLIERSSUPPLIERS

• EMPLOYEESEMPLOYEES

• COMMUNITY/CITIZENSCOMMUNITY/CITIZENS

ENVIRONMENTENVIRONMENT

COMPANYCOMPANY

Importance of the CSR Ratings for different stakeholders

Some examples of eachBoard of Directors To sensitise employees about the value of CSR

Industry and 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.

Government Bodies To develop industry-wise guidelines for CSR

continued…

Importance of the CSR Ratings for different stakeholders

Media 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

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

Citizens, Investors, Shareholders

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

Students To join a company that is working to benefit society and not one that is harming it

Results of the Karmayog CSR Rating 2008

of the 1000 largest Indian companies

Results of CSR Ratings 2008of 1000 largest Indian Companies

Karmayog CSR Rating

Number of Companies % of Companies

Level 5 (highest) 0 0%

4 10 1%

3 45 5%

2 221 22%

1 232 23%

0 (lowest) 492 (no CSR) 49%

Total 1000 100%

CSR Ratings BAR ChartKarmayog CSR Ratings

0% 1%5%

22% 23%

49%

0%

10%

20%

30%

40%

50%

60%

Level 5 Level 4 Level 3 Level 2 Level 1 Level 0

Rating Levels

% o

f C

om

pan

ies

* Indicates companies that received a Level 4 rating in the Karmayog CSR Ratings

2007

No. Company Sector

1 ACC Ltd. Cement

2 Ballarpur Industries Ltd. Paper

3 HDFC Ltd. * Finance

4 Infosys Technologies Ltd. * Software and ITES

5 Jubilant Organosys Ltd. Pharmaceuticals

6 Kansai Nerolac Paints Ltd. Paints

7 Moser Baer Ltd. Hardware

8 Tata Consultancy Services Ltd. Software and ITES

9 Tata Steel Ltd. * Steel

10 Titan Industries Ltd. * Watches & Jewelry

Companies with the highest rating of Level 4

Parameters of the

Karmayog CSR Ratings 2008

Note: - Companies that manufacture liquor, tobacco, genetically modified crops have been given a Level 0 rating

The criteria stated above are only the minimum criteria needed to qualify for a particular rating; apart from this, there are other negative and positive criteria that are also applicable, and a combination of these determines the final rating.

If undertaking any CSR Activity Level 1

If CSR is linked to reducing the negative impacts of company’s own products or processes

Level 2

If CSR initiatives are for the local community Level 3

If CSR is embedded in the business operations Level 4

If innovative ideas and practices are developed for CSR Level 5

Minimum necessary parameters for different rating levels

Sector–wise analysis of the

CSR activities of the

largest 1000 Indian companies

Sector Analysis

• 35 industry sectors were studied

• Best Sectors in CSR- Banking, Software,FMCG, Paper

• Poor performing sectors in CSR-Retail, Entertainment and Media, Mining , Construction

• Each sector shows the the possible impact with the recommended CSR expenditure of 0.2% of Sales.

CSR in 35 Industry Sectors

Auto Ancillaries (48)

Automobiles (13)

Banking (40)

Cement (30)

Chemicals (63)

Construction (56)

Computers (7)

Diversified (13)

Electronics (18)

Engineering (44)

Entertainment and Media (15)

Fertilizers (19)

Financial Services (32)

FMCG and Consumer Durables (60)

Heavy Engineering (10)

Hotels (9)

Iron and Steel (93)Jewelry (11)

Logistics (17)

Metal (14)

Mining (6)

Miscellaneous (42)

Oil and Gas (19)

Packaging (10)

Paper (13)

Petroleum and Petrochemicals (8)

Pharmaceuticals (48)

Polymers and Plastics (10)

Power (46)

Retail (5)

Software and ITES (40)

Sugar (25)

Telecommunications (20)

Textiles (78)

Trading (18)

An analysis of 35 sectors has been done for the 1000 companies (Number of companies in each sector is in brackets)

Importance of the Sector-wise analysis

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

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

Sector-specific guidelines

Uniform norms can 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

Comparison between sectors

It presents a comparison between industry sectors with low and high CSR

Example of Poor Performing Industry sector

• Total of 57 companies were analyzed

• 36 Companies are doing no CSR

• Only 3 Companies have disclosed the amount spent

• Two Level 3 companies are DLF and GMR Infrastructure

• Total Sales of 57 Companies is Rs.65000 cr.

• As per Karmayog’s recommendation CSR expenditure amounts to Rs.130 cr.

Construction Sector Ratings

61%

18%18%

4%0%0%

0%

10%

20%

30%

40%

50%

60%

70%

Level 5 Level 4 Level 3 Level 2 Level 1 Level 0

Rating Levels

% of

Comp

anies

Example of an industry sector with good CSR

• 40 out of 1000 companies are in the banking industry

• 57% of these companies do CSR

• 60% of the companies are working in the area of Rural development

• There are 6 Level 3 companies: (Andhra Bank, Canara Bank, ICICI Bank, PNB, Union Bank of India, Yes Bank)

• Mandatory regulations on CSR for PSU banks makes this sector high performance

• Total Sales of 40 companies is Rs.2,60,000 cr.

• If 0.2% of sales is spent on CSR (as per Karmayog’s recommendation), then annual CSR expenditure would amount to Rs.520 cr.

Banking Sector Ratings

0% 0%

15%

23%20%

43%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Level 5 Level 4 Level 3 Level 2 Level 1 Level 0

Rating Levels

% of

Comp

anies

Some sector specific best CSR practicesNo. Sector Expected CSR Company that is

undertaking this

1 Cement Quarry Rehabilitation ACC Ltd

2 Paper Farm Forestry programme generating rural employment

Ballarpur Industries Ltd.

3 Finance Enabling access to affordable housing HDFC Ltd.

4 Software Developing software to improve public systems

Infosys Technologies Ltd., TCS Ltd.

5 Pharmaceutical Reducing environment pollution through process improvement

Jubliant Organosys Ltd.

6 Paints Development of environmentally-friendly paints

Kansai Nerolac Paints Ltd.

7 Hardware Improvement in product design and use to benefit society

Moser Baer Ltd.

8 Steel Mitigating impact on the natural and human environment

Tata Steel Ltd.

9 Watches and Jewellery

Employment of handicapped and village artisans

Titan Industries Ltd.

Observationsfrom

the Karmayog CSR Ratings

Observations

51% 509 Companies reporting their CSR activities in either the Annual Report or Website

2% 21 Companies have published a separate Sustainability Report

3% 30 out of 1000 companies have reported the amount spent on CSR

10% 107 out of 1000 companies are doing CSR through a trust or foundation

90% More than 90% high impact companies have no separate environment report

40% Widely done CSR area is Education followed by Healthcare and Rural upliftment.

Observations….

All PSU’s undertake a basic minimum level of CSR based on mandatory regulations (e.g. relating to employment)

Individual companies that are part of a larger group do not list their individual CSR activities; the same CSR activities are listed for all companies of a Group

Poor performing Sectors- Construction, Entertainment and Media, Mining,Retail

Best Sectors- Banking, Software, FMCG, Paper

Mandatory CSR: our 5

Recommendations

Mandatory CSR:- Our 3 Recommendations

1) 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

1 Indian Oil Corp. 226000 7000 452

200 Indian Hotels 1800 370 3.6

400 Ahluwalia Contracts 880 51 1.8

600 Trent 500 30 1.0

800Technocraft Industries 310 30 0.6

1000Marathon NextGen Realty 100 60 0.2

Total sales of 1000 companies: Rs. 25,00,000 crores

If recommended minimum CSR is spent @ 0.2% of sales, this = Rs. 5000 crores

Every Company must do CSR

Mandatory CSR: Our 3 Recommendations…2) Reporting Sustainability Reporting in the Annual Report

A Corporate Sustainability section to be included in the Annual Report and preferably a separate Corporate Sustainability Report (as per the Global Reporting Initiative framework) to be published.

3) Process for CSR

a) Adoption of industry guidelines for processes

Common guidelines on Environment, Health and Safety (EHS) applicable to most industries Industry-specific guidelines linked to the processes of that sector.

b) CSR linked to the skills of a company  

Companies must use their core competence, skills and strengths while undertaking CSR activities

c) CSR linked to the location of a company

Companies must first undertake CSR activities in the areas they are located in. (factories, plants, offices, etc.) and focus on improving conditions in the communities in which they operate.

Non Mandatory CSR:Our Recommendations

Some of our Voluntary Recommendations

Define the company’s vision and mission

Define the company’s Vision and Mission: as this leads to the company’s CSR philosophy being defined

Create inclusive employment

Create Inclusive Employment - for marginalised groups such as the physically-challenged, with a special emphasis on the local community

Ensure responsible behavior in supply chain

Every company should make efforts towards ensuring responsible behavior for their supply chain

Use core competence

A company’s unique skills and resources should be utilised to benefit its stakeholders & society for e.g.: financial education program by banks

Link CSR to government’s development plans

Link CSR activities to government’s development plans -It is important that companies CSR efforts are connected to and supplement the government’s social & development goals and plans. e.g. Sarva Shiksha Abhiyan

Some of our Voluntary Recommendations…

All employees to be involved in CSR

A company should involve their employees in its social responsibility efforts. This ensures sustainability of CSR initiatives, as there is a commitment to CSR throughout the organisation

CSR activity linked to industry sector

Companies, through the CSR activities that they undertake, work towards raising standards and setting benchmarks for their specific sectors

Expand Reach to benefit society

Companies must extend their products and process to markets and areas that may not be as profitable to the company

Support areas and issues that are neglected

Companies must come forward to take up these. E.g. Sports such as chess, endangered species of wildlife, heritage, etc

Karmayog’s views onGroup Companies CSR

CSR by Group companies

• While there are synergies and various managerial reasons for companies to do CSR activities at a group level, it is necessary for each company to undertake its own CSR activities (linked to its processes and skills), while also contributing to the group’s CSR work

No. of Groups in this study

Of the 1000 companies studied there are 30 groups with individual companies ranging from 2 to 24The 5 largest groups in this study are: Tata Group, Aditya Birla Group, Mahindra Group, Reliance (ADAG), and Essar Group.

Same CSR reported

Most of the companies under the group report the same CSR activities across the group

Philanthropy Some Group companies contribute money to the group Foundation/ Trust as a part of their CSR

CSR Expenditure

Individual companies do not mention the amount spent by the company; instead the group expenditure is listed

Group Foundation

The common Foundation of the group undertakes all the CSR activities, as a result of which CSR is often not connected to the processes & core competence of the individual companies

Recent Trends and Developments in CSR in India

Recent Trends in CSR-2008Expectations of the stakeholders

There are vast majority of stakeholders that have come to expect more from corporates which would extend beyond their profits.

Government’s Role The government has become sensitive towards the CSR issue for eg: RBI notification for non financial reporting.

Increasing awareness amongst consumers, management colleges and students

There is an increasing awareness and interest among the consumers towards CSR. More seminars and discussions are being held in management colleges to sensitize the CSR issue among the students

Suppliers Responsibility Companies are encouraging suppliers to adopt socially responsible business practice.

Disclosure of social and environmental performance

Almost every stakeholder is asking for more information on companies social and environmental performance. As a part of this move 2% of the companies have Sustainability Report and 5% have information on CSR on website or Annual report.

Some developments in CSR in India since the first Karmayog CSR Ratings – 2007 Dec. 2007 RBI Notification to all Banks & Financial Institutions recommending

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

June 2008 Ministry of Corporate Affairs has stated that it would like to encourage all companies to “disclose on their balance sheets the social work that they do”

Sep. 2008 Government of Gujarat: mandates CSR expenditure - directs 6 PSUs 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

Feb. 2009 Petroleum Ministry says that it will be mandatory for public sector oil companies to spend a minimum of 2% of their net profits on CSR activities

Closing Statement…• Enlightened businesses worldwide, small and large, have begun to realise

that responsible practices enhance profitability and 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.

…..

““We believe that Corporate Social Responsibility is not We believe that Corporate Social Responsibility is not an externalised activity nor is it only philanthropy. It is an externalised activity nor is it only philanthropy. It is an internal process reflecting the soul of the Company.”an internal process reflecting the soul of the Company.”

Titan Industries Ltd. Titan Industries Ltd. Corporate Social Responsibility Report 2008Corporate Social Responsibility Report 2008

 Karmayog Corporate Social Responsibility Ratings 2007-2008of the largest 1000 Indian Companies

www.karmayog.org/csr2008