2013

Implications of Companies Act, 2013 on Ambuja Cement Ltd. CSR Working

Vishwesh Koundilya
IIM RANCHI-PGEXP/004/2012-14
10/13/2013

Implications of Companies Act, 2013 On Ambuja Cement Ltd. - CSR Working

ABSTRACT Corporate Social Responsibility (CSR) has assumed a new meaning in todays world, given that it has extended the boundaries of the firm into the society. In this paper we discuss the CSR bill guidelines effect on the working of the Ambuja Cement Ltd. According to World Business Council for Sustainable Development, 2001, CSR is the commitment of business to contribute to sustainable economic development, working with employees, their families, and the local communities. The Indian government has passed new Companies Bill in the Indian Parliament clause 135(5) of the same bill prescribes that every company with a net worth of at least Rs.5000 million, or turnover of at least Rs. 10,000 mn, or a net profit of at least Rs. 50 mn will have to spend 2 % of its three years average profit on CSR activities. Given that almost a third of the countrys population lives in poverty and penury, CSR provides Indian corporations a readily available and highly impactful opportunity to prove and establish the legitimacy of their actions by moving beyond charities and vanilla rural developmental activities. More objectively, it will tend to counterbalance to some extent; the impact of the huge negative externalities that commercial activities tend to create in the developing societies they operate in, also new business models emerging out of these innovative hybrid partnerships may give rise to unforeseen fortuitous results that will give a boost to economic growth in this emerging market. In this paper, we aim to discuss the contemporary understanding of CSR practiced by Ambuja Cements Limited , through its CSR initiatives before & after passing of the bill . .

The 2% CSR allocation 2013 Implications

India is home to the largest number of poor and illiterate. 3 out of 10 people need to be taught how to read 4 out of 10 people need to be given food Every year a million children need to be saved before they are a month old and another million before they are 5 years old. Every year 15000 farmers need to be given hope A quarter of the population needs to be taken out of the dark Over 49% of urban areas and 65% of rural areas need to be given toilets By 2020 India will be the 3rd largest economy in the world This will put extraordinary pressure on our natural resources and our infrastructure. Water. Waste. Energy. Urbanization. Livelihood....are just some of the several challenges we face
The new Companies Bill has mandated that organizations of a certain financial strength spend 2% of their net profit on corporate social responsibility (CSR).

Going by the governments 2% norm Rs 63 billion is expected to flow in from Indias top 500 listed companies. If we expand this list to the top 1,000 corporations, add MNCs, co-operative banks and SMEs, then we are talking about at least Rs 120 billion. Each of Indias 660 districts could get over Rs 18 crore of this investment

But the corporate landscape is challenging...... CSR in many companies is either part of HR or Corporate Communications. Need for a separate department with specific deliverables CSR budgets are expected to double; this will also lead to increased scrutiny by stakeholders. Need for re-skilling of existing teams and establishment of processes. Many CSR initiatives have been ad hoc and not necessarily linked to requirements. Need for a strategic focus +Study of stakeholders needs and aspirations, + an action plan that can run for several years CSR initiatives in the past may not have formed part of standard corporate reporting Need to assess, monitor and report initiatives and judge efficacy

Impact/Industry Response:
With CSR spending becoming mandatory for prescribed class of companies, there is bound to be increased engagement of companies with social and development projects. So far, there were only voluntary guidelines for companies to follow. The rationale for CSR activity is that corporates earn their profit by exploiting different resources of the society, and so a portion of the benefit derived by them should be channeled for the betterment of society. Though compulsory CSR spending may seem burdensome for some class of companies, it will create of a sense of responsibility among Corporates, especially when they see benefits in the long term. Children, women, uneducated, and unemployed would be among the beneficiaries as CSR activities may be focused on them. The intention of policy makers is quite clear - to report business community's contribution for fulfillment of social, environmental and economic responsibilities. While contribution to the local community is a good objective, businesses should choose social, environmental and economic activities that contribute to society at large. CSR activities will also help improve the image of a company within the society as one that cares for the community. Significantly, there is no penalty for defaulting on CSR norms. Only an explanation is to be given by the board in its report for such non-compliance. So, it seems there is no real coercive factor. The Government has adopted a "Gandhi wad" with the provision - either contribute to society or inform to society why you are not contributing.

ABOUT AMBUJA CEMENTS LIMITED One of the largest cement companies in India, Gujrat Ambuja Cements Limited has set up Ambuja Cement Foundation with the objective of improving the socio-economic conditions of the communities it works with and of ensuring sustainable development. The Foundation works in the areas of natural resource management, watershed development, health and sanitation, education, womens development, livelihood, wasteland development, agriculture development, AIDS awareness, adoption of schools & setting up schools for mentally challenged children. The Ambuja Cement Foundation works with a competent team of professionals
at all its 21 locations. Its community development work is based on its mission and underscores our belief in communities and in our role as catalysts to bring in change. ACF undertakes projects and schemes for promoting the social and economic development for communities in and around the manufacturing locations of Ambuja Cement Ltd. These development initiatives are in line with the needs of people, in partnership with them and in close collaborations with like-minded NGOs and the Government. We are guided by an esteemed board of trustees. Its areas of focus cover issues that affect our locations and are often common to other rural areas too. Prior to the identification of these areas, we undertake Participatory Rural Appraisals and close interaction with the people. The Ambuja Cement Foundation is active in 12 of Indias major states where our plants are present. The oldest location where the first activity was started is Kodinar in Gujarat. Our state-wise spread demonstrates the activities undertaken in each state translating into success stories, and finally collectively leading to enhancing the true potential of rural India. Through the efforts we made in various states in India, the outcome has been positive. Pertaining to the issues it address, a lot of the methods and techniques have been approved by the government and replicated to similar conditions in different areas of the country. ACF have undertaken impact assessment studies, both internally and by external consultants, to assess its work periodically.

Implications of Companies Act, 2013 on ACL- Corporate Social Responsibility

Sl. No. 1 Provision in the CSR Bill Every company having a net worth of rupees five hundred crore or more, or a turnover of rupees one thousand crore or more, or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director. The Boards report under sub-section (3) of section 134 (o) shall disclose the composition of the Corporate Social Responsibility Committee. Implementing Yes No ACL CSR Working Description Total Members in the board -11 Independent directors -2 Remarks

Board of Directors Mr Suresh Neotia Mr B B Tandon, IAS (retd) Ms Padmini Somani Mr Narotam Sekhsaria Mr P K Laheri, IAS (retd) Mr B L Taparia Mr Sharadchandra Kale, IAS

(retd) Mr Onne van der Weijde Mr Manmohan Malhoutra Independent Directors Mr. V.K Jain Ms. Pearl Tiwari 3. The Corporate Social Responsibility Committee shall, Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII; Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and Monitor the Corporate Social Responsibility Policy of the company from time to time. For budgetary requirement from the company following procedure is adopted Budget based on need assessment by the community Coordinators at each site. Commitment of the plants to the community during liaison Recommendation of Plant Head All the requirements will be compiled and recommended for approval to CSR- HEAD. CSR-HEAD will present & take approval of budget from the board of directors. Budget will be transferred to the ACF account for implementation.

The Board of every company referred to in subsection (1) shall, After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose the contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and ensure that the activities as are included in Corporate Social

Monitoring- Programmes at ACF are closely monitored through MIS and audits. Cost effectiveness is encouraged in any ACF project. The budget is prepared and collated through a bottoms-up approach. ACF always strives to maintain low overheads and administrative costs. In 2012- 13, these were18% of the overall budget. Reporting is done on an annual basis in Ambuja Cement Foundation & GACL Site through Annual Report. Content of annual report

Annual_Report_2012 _13.pdf

introduction
About ACF Members of the Board Chairmans Message Directors Report Auditors Report Balance Sheet Income & Expenditure Statement Financial Statements Significant Accoutning Policies & Notes on Accounts to the Members of Ambuja Cement Foundation

our mission
ACF Spread Empowering Communities What We Do

Responsibility Policy of the company are undertaken by the company. .

Our Partners

our footprint
Andhra Pradesh Chhattisgarh Gujarat Himachal Pradesh Maharasthra Punjab Rajasthan Uttarakhand Uttar Pradesh West Bengal SEDI

our Achievements
Activity-wise Achievements Stakeholders Speak Funds and Resources

our team
ACF Organogram Team ACF Contact Information Our Publications Abbreviations and Glossary

The Board of every company referred to in subsection (1), shall make every endeavour to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy; Provided that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Average Profit of 3 yrs of ACL 1263.177 Cr. Annual budget shall be 25.263 Cr. ACL contribution towards CSR work - 32.14 Cr.

ACF is spending more than 2% of the profit.

Sources of funds for ACF Activities (Total ` 5725 Lakhs)

ACL Contribution - 56% (3214.80 Lakhs) Direct Funding to Communities 18% (1020.13 Lakhs) Peoples Contribution - 14% (780.35 Lakhs) Government Funds 8% ( 454.51 Lakhs) Donor Agencies 4% (255.21 Lakhs) Financial sustainability is an essential component of ACFs strategy. Increasing community support in implementing projects year after year indicates the willingness of the people to take ownership of the programmes. Contributions by the community are made either financially or in kind. The extensive work undertaken by ACF would not have been possible

without the consistent support of Ambuja Cements Limited. ACF also collaborates with governments and donors who provide institutional support to numerous projects. The Foundation works in the areas of natural resource management, watershed development, health and sanitation, education, womens development, livelihood, wasteland development, agriculture development, AIDS awareness, adoption of schools & setting up schools for mentally challenged children.

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to: (i) eradicating extreme hunger and poverty; (ii) promotion of education; (iii) promoting gender equality and empowering women; (iv) reducing child mortality and improving maternal health; (v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; (vi) ensuring environmental sustainability; (vii) employment enhancing vocational skills; (viii) social business projects; (ix) contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and (x) such other matters as may be prescribed The companies shall give preference to the local area and area around it where it operates for spending the amounts earmarked for CSR activities.

Activity wise Expenditure (Total `5725 Lakhs) Natural Resource Management (Water &Energy) 27% (1547.74 Lakhs) Agro-based Livelihood - 21% (1179.65 Lakhs) Human Development (Health, Education & Training) - 20% (1152.32 Lakhs) Rural Infrastructure 14 % (795.33 Lakhs) Co-ordination & Administration 18% (1049.96 Lakhs)

ACF undertakes projects and schemes for promoting the social and economic development for communities in and around the manufacturing locations of Ambuja Cement Ltd.

Conclusion
Ambuja Cement Ltd community development foundation has been founded on the belief that the fruits of industrialization need to be shared by communities at large. Industry exists to fulfill human needs and unless communities around it accept it willingly as a means of enhancing their lives and lifestyles, it cannot prosper. For this, industries have to accept as their objective, the larger development role as a necessity not just as an ornamental function of Corporate Social responsibility. Effort of Ambuja Cement Ltd community development foundation is to nurture societal value creation efforts. It has sought to do this through direct interventions under its various programs and projects; it has also tried to achieve it by enabling people to participate in projects; it has also tried to achieve it by enabling people to participate in projects for the improvement of their own lives and living standards. The efforts has been twofold: to set up the institutions that provide specific services where none exists and, more important, to create the soft skills required to provide those services. For this, appropriate social infrastructure often needs to be created be in terms of creating a cadre of health workers, teachers, and trained farmers to promote modern agriculture techniques or other development workers. At times, it involves strengthening the already existing social infrastructure by improving the capabilities of government appointed functionaries like agriculture extension workers, Primary health care providers or schoolteachers. Ambuja Cement Ltd is engaged with local communities near their area of operations, and the beneficiaries of CSR activities are generally the local population. The company has develop scalable models of CSR that can be extended across the nation in each geographical area. Scalable models will be helpful in expanding the socio-economic impact of CSR activities of the corporates. We observe that Ambuja Cement Ltd. is already complying all the provisions of the CSR Bill, 2013 . Therefore, we suggest Indian corporates to refer the working of ACF while planning and strategizing their CSR operations in India.

Recommendation
The companies would have to do a lot as the CSR spends are slated to increase several folds. Some basic steps are listed below: i. Draw up a core CSR team and organize capacity building program to bring people up to date ii. Appoint a CSR Committee of the Board, if it does not exist already. Engage independent directors that have strategic and hands-on development experience. iii. Develop/Modify the CSR Policy. Central Public Sector Enterprises have merged their CSR and Sustainability effort. This could be a direction to follow, so as to bring unified impact. iv. Gear up the CSR infrastructure - staff, advisors, consultants that can help in strategizing, planning, monitoring, evaluation and implementation. Monitoring and impact assessment preferably should be done by external experts to maintain objectivity. v. Network with credible non-profit organisations to leverage their expertise and capacities. vi. Choose few projects but go for in-depth and long-term support, so that social impact is visible and can be credibly reported upon.

Guidelines to measure CSR

i. Does the CSR activities carried out as per the recommendations of the firms CSR committee and CSR policies? ii. Do the local communities that are the targeted beneficiaries (TB) require these CSR activities? iii. What forms of partnerships were developed or used for these CSR activities? iv. What is the social impact of the CSR activities (on TB)? v. What is the economic impact of the CSR activities on TB? vi. What is the ROI of the CSR activities? vii. Is the CSR impact sustainable?