Evening the score

POORAN C. PANDEY is the Executive Director of the United Nations Global Compact Network India. The Global Compact, launched in 2000, asks companies to embrace core values of transparency, human rights and compliance with labour standards and environmental regulations. Earlier this year, the organisation released a report on aspects of sustainability of Indian companies. In an interview to Frontline , Pandey speaks about the responsibility of companies to engage with communities, the larger implications of the mandatory 2 per cent profits being spent on corporate social responsibility, expectations from the new government, and the challenges ahead for setting post-2015 Millennium Development Goals. Excerpts:

Is there a broader vision among the corporates who were part of the survey to negotiate with communities? We have seen community demands coming into conflict with corporate-driven development again and again.

It is proven beyond doubt that in today’s time and context companies cannot survive, sustain and carry on what they’re supposed to unless they have people by their side. Companies must have a social licence to operate. Companies need to be ethical, responsible and careful in ensuring that they do not take away more than what they give to the planet. While preparing the global report on sustainability and corporates, we approached about 1,000 CEOs [chief executive officers] across the world. This year we interviewed about 77 CEOs across the globe out of whom 27 belong to transformational companies which were trying to set the agenda in sustainable development. Companies need to ensure that shareholders are not the only people that they work towards keeping happy. They need to look at the stakeholders—the people, community, civil society. Unless that happens, it is difficult to partner and collaborate for greater public good. Companies will have to be corporate citizens and imbibe the 10 principles of the United Nations Global Compact. These principles emphasise anti-corruption, transparency, sustainability, ensuring human rights across the supply chains, and compliance with labour standards. Every company that is a participant in the Global Compact is required to report on these 10 principles at the end of the year. They identify areas and issues which are important for the company to address over a period of 12 months. At the end of the year, they report on the progress made.

What is your take on the voluntary sustainability reporting by corporates since 2008. What is the credibility of this method of reporting?

There has been a lot of debate around this within the communities and in civil society. The debate is about voluntary reporting versus regulation from top down. There has been a mixed response. Public policymaking globally is quite a patient exercise. It begins with voluntary compliance.

The United Nations Global Compact was born in 2000 as an organisation comprising corporates, NGOs [non-governmental organisations], SMEs [small and medium enterprises] and academic institutions. The board has members from private companies as well as PSUs [public sector units] and trade unions. The U.N. system is voluntary, but we believe that the companies reporting on those 10 principles are reporting the right thing the right way because if you get caught then you could be delisted. There could be a lot of naming and shaming among the peers. We believe that reporting should be voluntary and there has got to be a certain amount of supervision around it. At present we have 170 members from India, of which 112 are large public sector and private sector companies.

What is your view on the 2 per cent spending on corporate social responsibility in India mandated by the new Companies Bill and its impact on sustainability? There was a lot of resistance from the companies initially.

I agree that there was a lot of resistance to the mandatory CSR spending by corporates. In 2007, the Ministry of Finance set up a committee to look at the revenue forgone because of the tax rebates given to companies. It came to light that tax rebates worth about Rs.12,000 crore were being given to corporates on account of their non-profit, charitable activities. When the government tried to look at what came out of these activities, where the money was spent, etc., it did not find satisfactory results. On the one hand, corporates with charitable activities were getting tax rebates under Section 80G of the Income Tax Act 1956. Also, under Section 35AC of the Income Tax Act, charitable activities attract up to 100 per cent tax rebates. There was no accountability of the companies availing themselves of tax rebates. It is in this context that the idea of making CSR mandatory came up.

The new Companies Bill says if your annual turnover is Rs.1,000 crore, the net worth is Rs.500 crore and your net profit is Rs.5 crore, then you have to spend 2 per cent of your average net profit for the last three years on CSR activities. There are punitive measures too. As a consequence of this, roughly about Rs.25,000 crore is going to be generated from about 16,000 companies. This is only 1.6 per cent of the total registered companies in India. You would also need about 50,000 trained people and 25,000 independent directors to man CSR departments of companies. Willy-nilly now, corporates have to find out innovative ways of engaging with the community and civil society. There will be a greater emphasis on people-centric development. There will be a direct interface between the corporates and the community. Companies are trying to figure out how to become more innovative, have projects and programmes which help the community. Companies cannot survive if you do not factor in the well-being and welfare of the community. It will be interesting to see how this unfolds.

What role do you envisage for the government in striking a balance between rapid growth and social disharmony and slower but inclusive growth?

The government has to align the activities that will qualify as CSR activities with national development plans such as the Five Year Plans. It is commendable that the government has tried to do something that has the force of law. The government has to play the role of a facilitator and engage with the companies to ensure that this money is spent on issues that will serve the purpose of the larger socio-economic development of the country. If we could build an embedded governance and process ownership of these programmes with effective monitoring and evaluation, a large part of the problem of livelihood and employment in the rural areas could be taken care of. The government has not yet made it clear whether the CSR spend will attract tax rebates or exemptions. It is to be seen what the new government does with the provision. The reporting on CSR could be made a part of the annual corporate report of the companies. There could be some sort of an ombudsman to look at disputes arising out of the provision of CSR. Even if the NDA [National Democratic Alliance] comes to power, it’s unlikely that it will overturn the CSR provision in the Companies Bill.

How effective do you think can be the engagement of corporates with post-2015 Millennium Development Goals [MDGs] agenda?

The achievement on the MDG goals across the world has been erratic. Some unforeseen factors, such as the financial crisis, were not built into the framework of the MDGs. At present there is an intergovernmental and a high-level panel appointed by the Secretary-General working on the post-2015 MDGs. There is an independent advisory panel in the office of the Secretary-General. It is a political process to get everybody to sign on an MDG programme. Health, education, environment, climate change, women’s empowerment, agriculture, and governance issues are likely to figure in the post-2015 MDGs. In the Indian context, the CSR guidelines have been framed keeping in mind the larger global picture. The CSR guidelines are a step towards ensuring that companies align themselves with sustainability objectives and a larger global development agenda.