This article is written by Yash Lahoti, a student of GNLU, during his internship with iPleaders

The New Companies Act, i.e. Companies Act 2013 requires a minimum net profit of Rs. 5 crore to be spent on CSR activities. This brings many Small and Medium Enterprises (SMEs) into the picture of spending on CSR. This brings another set of challenges as the company is expected by its B2B customers to comply with environmental and social standards.

Small and Medium Enterprises contribute largely to the country’s economic growth by employing nearly 40% of the nation’s workforce and by contributing about 45% to the manufacturing output pool. That is because these enterprises not only serve independently but are also ancillary to those larger units and hence generate employment and help industrialize the rural and backward regions of India.

The activities done by these enterprises are done with the awareness of community needs and expectations. Hence, doing such business activities in proximity of locals will help them develop appropriate CSR programmes.

The standard of companies having a net profit of INR five crore and above set by the CSR clause in the Companies Act, 2013 makes the SMEs qualify for the same excluding the micro- enterprises.

The CSR activities of these enterprises are largely affected by the personal interests of the promoters engaged in similar business activities. The quantum of revenue available to these enterprises is expected to be small and so for the benefit of the community, the pooling of resources by all eligible companies in a geographical area is the apt thing to do to create a sizeable CSR fund.

The collaborative CSR activities taken up by these SMEs create an impact on the community. They not only help in fulfil community needs and expectations but are also beneficial to the companies themselves as collaboration reduces  operational costs for fund management. The collaboration of CSR activities is a necessity because the efforts taken by the SMEs are not optimally delivered to the community due to the following reasons:

• The CSR activities largely depend on the profits of SMEs and any fluctuations in the profits can adversely affect their contribution towards CSR.
• There is lack of professional approach due to lack of human resource in SMEs.
• SMEs focus on short-term activities rather than long-term programmes for local communities to reduce operational costs involved.

Pooling of resources with other SMEs and creating joint CSR programmes managed by a single entity is the modified approach of SMEs towards CSR with the introduction of new companies Act, 2013 so as to reduce operational costs. A survey conducted by UNIDO in 2008 found that 31% to 79% of the SME clusters preferred charity over long term programmes for local communities. These collaborations can be formed within the units in a cluster as they interact with the same communities and have established associations that cater to the business needs of the units. These collaborations have the following advantages:

• Reduces operational cost:

The CSR efforts of a company consist of the following:

1. Establishing a CSR department;
2. Assessing the needs of local communities;

• Taking up programmes directly or through an NGO;

1. Conducting regular impact assessment studies.

  These activities require huge investment and a common organization catering to a number of companies will carry out these activities effectively with reduced operational costs.

• Undertake long-term projects:

The uncertainty in the CSR budget is a major hindrance in taking up long-term projects. The financial performance of the company is a great factor; any fluctuation in the financial performance of the company directly affects the contribution to CSR. The CSR budget allocation is highly unreliable and can jeopardize the projects that have been taken up. Here comes the importance of pooling. Even though the share of one partner reduces, the others can contribute to an extent more than their allocated share in case there is a variation in contribution from a segment of the cluster. Long-term programmes have a larger impact than short-term impact due to the following reasons:

1. Communities have realized these long-term programmes genuinely help in making their lives better;
2. The long-term programmes lead to better community relations;

• Long-term programmes help in reducing situations of community unrest that hamper business activities.

1. The workforce affected by these programmes also remains happy and hence, the business activities of the companies aren’t affected.

• Learning from experiences:

A large number of participants in a common entity discuss and assess past experiences and cater to the communities’ needs and issues.They undertake those programmes that will address greater number of community issues and will be beneficial for the communities.

Collaboration among these SMEs in a cluster also provides an opportunity to address social and environmental issues and gives a better response to the pressure from buyers, who are trying to establish ethical supply chains and gain appreciation from the international community.

• Process to be undertaken for collaboration:

Firstly, an alliance of the interested SMEs has to be created which can be done through cluster association, in case of large-scale participation. In other situations where there are only few SMEs interested in undertaking activities in collaboration, it can be initiated by an individual SME. When cluster association undertakes CSR activities, they make sure that local areas are given due consideration while developing CSR programmes.

A steering committee is required to be formed by the alliance which will constitute representatives from each SME so that they can mutually  resolve any issue that arises. The Steering committee will, then, decide the method of implementation of the activities, i.e. whether through a registered society, trust, a Section 8 Company or through a new entity or directly.

The alliance also need to decide the beneficiary group and the geographical area that they will target based on the inputs from the members of the alliance. Individual SMEs should develop their CSR Strategy in a way that it is flexible to incorporate collaborative effort to undertake CSR activities. Flexibility should be given in case of choosing the themes given under Schedule VII.

In case where the funds allocated for CSR activities are insufficient to cover the cost of collaboration, SMEs have an option of contributing to the Prime Minister National Relief Fund or any other fund set up by the Central Government or the State Government as given under Schedule VII of the Companies Act, 2013.

Volunteering Programmes by Companies

Companies, as part of their corporate social responsibility efforts, encourage their employees to volunteer for a cause during their work hours under formalized EVPs (employee volunteering programmes) which is usually pre-selected by corporate human resource. These EVPs must be carefully planned and executed as it involves substantial opportunity cost for employers.

A Corporate Volunteer’ is an employee who actively takes on the tasks or a project on his own without being assigned or told to do so as part of his daily duty. Corporate volunteering is intended to promote larger social and environmental good and is considered as an altruistic activity. It is intended to improve the quality of life of a target community. Mostly, there isn’t any financial gain while providing such services by the volunteers. At times, these services involve incentives such as profile or personality development, socialization, skill and fun.  There are a few areas like health services, emergency rescue or education where the volunteers themselves need training before they could contribute. While considering EVP, several design parameters and related activities need to be considered which are as follows:

• Setting an objective of a Company from its EVP,
• To develop a framework under which employee volunteers can derive its maximum benefit,
• Recruiting qualified and talented individuals for a specific volunteer role,
• Training new volunteers for their roles and responsibilities. This provides an introduction to the volunteers to the environment they will be working in.
• ‘Adhoc’ assistance is given by a senior and more experienced person to facilitate a new trainee to reach his or her individual goals and objectives in the volunteering programme.
• Reward and Recognition should be given as it motivates volunteers in achieving a goal or organizational objective. This is important in cases where volunteers do not get financial incentives.
• Employees with unique experience and background should be encouraged to work together to increase productivity, effectiveness and responsiveness to changing conditions to enhance their contribution and benefit from the volunteering exercise.

Community Engagement

A community can be defined as a homogeneous group which is bound together politically, culturally, geographically or when they share certain principles, values or at times characteristics. Regarding the discussion here, the community is basically defined as the collection of stakeholders who are resident in the vicinity of the operations of the company and also who rely or are impacted by the shared resources.

Community engagement can be defined as a process in which priorities, needs and values of different individuals and also of external organizations in a community are included into the corporate decision making and management decisions of the company.

Procedure for robust community engagement is as follows:

• Firstly, the complexities and characteristics of the local landscape is to be understood and the same information, then, can be used for strategic planning of community engagement.
• Facilitation and support is to be given to the process of community driven It enables communities to identify their own opportunities, set their own goals and also assets their plan to utilize or share.
• A list is to be created of the individuals, institutions and groups that could be affected by any community engagement project. This step is very important as it generates knowledge about institutions, individuals and local organizations so as to understand their behaviour, interests and inter-relations.
• Target and scope of such an engagement should be set up which is to be in line with the activities that the company is planning to support.
• The best possible way to implement the project is to be identified keeping in mind several variables like project timeframe, budget objectives of community engagement, etc.
• Proper monitoring and evaluation should be done so that the information collected can be used in future planning and finally the information gathered should be communicated to all the stakeholders, the company, and also to the community.