This article has been written by Akarsh Chaturvedi, pursuing a Diploma in Companies Act, Corporate Governance, and SEBI Regulations from LawSikho.
Table of Contents
Introduction
An alliance between Nestle and Starbucks does not only come as a blessing for coffee lovers but also signifies that we are going to be witnessing some amazing innovation streak in the coming days. The alliance and their innovation strategy will obviously be focusing on the growth of their business, but what else will grow alongside- is the dedication of these companies to contribute towards the social development of society.
A company being a part of society has some duties towards the community in which it functions. It is observed that companies that are committed to contribute or give back to society via different sustainability, community, and health advancement initiatives are likely to grow effectively as such activities add value to the business. Provisions related to Corporate Social Responsibility (“CSR”) were introduced in the Companies Act, 2013 (“Act”) in the year 2014. CSR is a concept whereby companies contribute to the betterment of society and a healthy and hygienic environment.
In the present era where almost everything has gone online and this has become the new normal, there is a need for companies to find innovative ways to contribute to society, be it through education, awareness programs, etc. Section 135 of the Act which enumerates the provisions of CSR was recently amended in the year 2019 and 2020 and the amendments have been in effect from January 2021.
Now, to dwell on the aspect of the alliance, American coffee house chain, Starbucks, and Swiss food and drink company, Nestlé formed a global coffee alliance in the year 2018. An alliance is a strategic collaboration for the growth of a business. Pertinently, why is reading about the CSR activities of both these companies necessary? It is observed by the author that both these companies majorly contribute to philanthropic and sustainable development activities in India. Therefore, the author through this article would like to enumerate the CSR activities and their relevance and effect on the people in India and the applicable provisions of corporate social responsibility to these companies.
CSR activities of Nestle and Starbucks
Nestlé
The company acquired a global license to produce Starbucks-branded products which included ground and roast coffee, as well as portioned and soluble coffee, teas, and creamers. The arrangement excluded sales of any products, produced under the agreement, at any Starbucks outlet. It was a $7.15 billion global alliance.
Nestlé has faith in fortifying the quality of life of people living in the areas where it functions. It has been a partner in India’s growth for more than a century and has a relationship of trust with the people of the country.
In 2012, the company in its report titled – “The Nestlé Creating Shared Value Summary Report 2011: Meeting the global water challenge” was published, which included summary sections on nutrition and rural development. Pertinently, the report met the criteria for the highest level of transparency and was awarded A+ level by the Global Reporting initiative. Following are CSR activities and programs by Nestlé:
- Access to Sanitation [Schedule VII (i)]
Sanitation is a major concern for female child and proper facilities encourage them to attend schools. The motive is to ensure that no child skips school due to lack of proper toilets which is a major reason for not attending schools. More than five hundred and fifty sanitation facilities have been constructed to date which has given more than 1, 82, 000 girls access to clean toilets and the opportunity to lead healthy lives, and also pursue their academic dreams. The company (Nestlé India) has also provided sanitation blocks in and around 59 schools in Samalkha, Haryana. Hygienic toilets are not just a matter of convenience, they also make a difference between enabling a girl to access education and a girl being forced to stay at home.
- Clean drinking water [Schedule VII (i)]
Access to clean water is vital to any thriving community as it reduces exposure to waterborne diseases and easing the burden of ill health. Nestlé India has constructed drinking water facilities in schools by setting up water filtration systems working on ultraviolet rays and reverse osmosis to facilitate access to clean water, sanitation, and hygiene in communities where it functions. In Samalkha, Haryana, 19 such schools around the factory have been provided with clean drinking water which has transformed the lives of students of these schools. This is helping children get a better education.
The company has also partnered with the Department of Medicine and Health (DMH), Rajasthan to provide access to clean drinking water at twelve Public Health Centres (PHCs). Since 1999, the company has provided facilities of clean drinking water in schools near its factories which has benefitted over 1,36,800 students.
- Improving conditions of pregnant and lactating women and Inspiring communities to lead healthier lives [Schedule VII (i)]
The project ‘Jagriti’ in association with MAMTA i.e. Mamta Health Institute for Mother and Child is supported by Nestlé. The project works with four groups of pregnant women, lactating mothers, adolescents, and young married couples. The program centers around creating support groups for counseling on healthy nutrition for pregnant and lactating mothers, encouraging the uptake of public health services and early initiation of breastfeeding, improving breastfeeding practices.
- Education [Schedule VII (ii)]
The company focuses on supporting education, with a special focus on education for the girl child. The company runs various programs throughout the year with an aim to support the education of the girl child.
- Sustainable agricultural practices and Rural Development [Schedule VII (iv)]
To ensure the sustainability of coffee farming in Kerala and Karnataka, Nestlé India came up and implemented Nescafé Plan in 2012, which helps coffee farmers to preserve traditional farming techniques while assisting them with modern scientific techniques. It provides training to the coffee farmers and thereby introducing them to best farming practices supported by modern scientific advances and intensive research done on the development of healthy coffee plantlets. The idea is to make farmers adopt as well as bring into farming practice, more sustainable form of agriculture practices that can accommodate commercial production as well as ensure sustainability. Trained farmers are able to incorporate these methods into their farmlands and are verified against 4C (common code for coffee community) sustainable guidelines. The ‘4C’ certification, as a part of the Nescafé Plan, ensures sustainability in coffee farming and compliance. The Company focuses on various activities that have a positive impact on the environment.
- Livelihood [Schedule VII (ii)]
The company also focuses on livelihood enhancement through pieces of training. Through training to farmers and women, the company has majorly contributed to eradicating unemployment.
- Nutrition [Schedule VII (i)]
Improving nutrition awareness of communities is a focus area of Nestle. The company runs various programs such as ‘Nestlé Healthy Kids Programme’ and ‘Project Jagriti’.
Starbucks
Starbucks arrived in India in the year 2012 with an alliance with Tata Global Beverages Limited forming a joint venture called Tata Starbucks Ltd. which today owns and operates the cafes across India.
CHAI Project
The Community, Health, and Advancement Initiative (CHAI) is a collaboration between Starbucks Foundation; Tazo Tea; Mercy Corps; Indian tea companies, and origin communities in India and Guatemala. Since 2003, Starbucks has contributed to tea-growing communities and the joint effort has directly impacted the lives of more than 12,000 people in rural areas with health services and economic development assistance.
CHAI is the only organization functioning with Northern Indian Tea estates (generally autonomous entities with little or no government or NGO presence). Tazo and Starbucks’ relationship with local tea growers has helped the project gain access to tea estates, building trust and a long-term commitment to the communities they are working with.
Today, the CHAI initiative is helping people in origin communities to:
- Education [Schedule VII (ii)]
In Assam, 54 youth groups formed with 6,000 young people are engaged in projects which have reduced students’ school dropout rate. The high school dropout rate in Assam is 60%, however, 91% of participants in the CHAI Education Retention program continue to higher education. The company through its projects also awarded 297 scholarships.
- Improve access to water, sanitation, and health [Schedule VII (i)]
In Darjeeling, incidents of waterborne diseases in CHAI project communities dropped by 50%annually. The most significant accomplishments include the construction of 1,250 toilets and 26 clean water infrastructure projects.
- The initiative of Tata Starbucks for empowering women and girls [Schedule VII (ii)]
The initiative seeks to provide skills development, education, and economic empowerment to girls and women in India. It provides girls and young women with the education, community support, and financial assistance with the idea to develop their skills and help in improving their careers.
- Sustainable agriculture practices [Schedule VII (iv)]
Starbucks’ program C.A.F.E. (Coffee And Farmers Equity) practices focus on sustainable coffee farming and sustainable agricultural practices like the use of bio-fertilizers, water conservation systems, co-investing in farmer communities through technical assistance and grants, and supporting the prosperity and resilience of the farmers. The program makes sure that Starbucks sources sustainably grown and processed coffee by evaluating the social, economic, and environmental aspects of coffee production.
- Safeguarding environmental sustainability [Schedule VII (iv)]
The Sustainability mission of Starbucks stretches out similarly to greener stores and a greener cup. Tata Starbucks’ commitment to the environment came up with its first store opening in 2012 using paper bags, paper sleeves, and paper napkins made out of recycled fiber. The paper cups used for cold and hot beverages adhere to FSC (Forest Stewardship Council) standards, and over time Starbucks has strengthened its commitment with various green initiatives like compostable and biodegradable cutlery, compostable straws, etc.
In 2018, On World Environment Day, Tata Starbucks reinforced its commitment to reduce waste with two sustainability initiatives such as ‘Bring Your Own Tumbler’ which gives an incentive i.e. ten rupees off to customers for using their tumblers or mugs for beverages, and the ‘No Paper Bill’ initiative providing choice to customers to opt-out of receiving paper receipts and thereby reducing paper usage. Tata Starbucks has been working to get rid of the use of single-use plastic across its stores. The company is advancing its commitment to serve its sustainable coffee across the market in India.
Provisions of CSR
The concept of CSR in India has now become mandatory w.e.f. 22nd January 2021 and non-compliance of it attracts penalty as specified in the section. Section 135 of the Act enumerates the provisions of Corporate Social Responsibility. A company is required to spend on CSR activities if it is has a net worth of Rs. 500 Cr. or more, or turnover of Rs. 1000 Cr. or more or net profit of Rs.5 Cr. or more, during the immediately preceding financial year.
A company that is to spend more than fifty lakh rupees on CSR activities shall constitute a CSR Committee of the Board consisting of three or more directors, in which at least one director shall be an independent director. However, if a company is not required to appoint an independent director it shall have in its CSR committee two or more directors. The committee has a responsibility to formulate and recommend a CSR policy to the board which shall indicate the activities to be undertaken by the company in areas or subjects, specified in Schedule VII. The committee shall also recommend the amount of expenditure to be incurred on the company’s CSR activities. Further, the Committee is also responsible to monitor the CSR policy of the company.
The Board of Directors of every Company approve the Corporate Social Responsibility Policy and the Board of every entity shall ensure that it spends, in every financial year, at least two percent (2%) of the average net profits of the company made during immediately preceding three financial years; or where the company has not completed three financial years since its incorporation, during such immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy. The company shall give priority to the local area and areas around it where it operates, for spending the amount designated for CSR activities.
Further, if a company spends more than the requirement specified above, on its CSR activities, such amount may be set off against the requirement to spend for CSR activities for up to immediate three succeeding financial years and by passing a board resolution to that effect.
If the company fails to meet its CSR commitments the board shall specify the reasons for not meeting its commitment and not spending the amount in its report made under clause (o) of section 134(3) and if the unspent amount does not relate to any ongoing project referred to in sub-section (6) of section 135 of the Act, it is to be transferred to fund specified in Schedule VII of the Act within six months of the expiry of the financial year. However, where the unspent amount relates to an ongoing project undertaken by a company in pursuance of its CSR Policy, it shall be transferred by a company within thirty days from the end of the financial year to a special account to be opened by a company in that behalf for that financial year in any scheduled bank by the name of Unspent Corporate Social Responsibility Account. Such amount shall be spent by a company within three financial years from the date of such transfer, failing which, the company shall transfer the same to a Fund specified in Schedule VII of the Act, within thirty days from the date of completion of the third financial year.
Effect of non-compliance with CSR provisions
With effect from 22nd January 2021, spending on CSR activities became mandatory and now a penalty could be imposed for non-compliance.
Section 135(7) of the Act states the penalty for non-compliance of the CSR provisions by a company which is twice the amount required to be transferred by a company to the fund specified in Schedule VII of the Act or Unspent Corporate Social Responsibility Account, as the case may be, or one Rs. 1 Crore whichever is less.
Also, every officer who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by a company to such fund specified in Schedule VII of the Act or Unspent Corporate Social Responsibility Account, as the case may be, or Rs. 2 Lacs, whichever is less.
Conclusion
We know Nestle by way of our favorite chocolates i.e. Kit-Kat and Milky Bar and Starbucks satisfies the taste buds of a million coffee lovers all across the world. Both the companies are not only good at growing their businesses and meeting the needs of their customers but also have been serving the Indian community for a long time. Both the companies have been indulged in philanthropic and sustainable development activities globally as well as in India much before the concept of CSR was even introduced in the Indian Companies Act. No wonder, they have made a global brand out of themselves and earned the loyalty of the customers. No points in guessing that when two such companies enter into a grand alliance, the effect will be as momentous and something to look forward to.
Today, India faces a host of social issues and one of the major issues is sustainable farming. India is a nation, once whose economy was totally dependent on the agriculture sector, and today even after a century it lacks modern farming techniques. Sustainable economic development is directly related to agricultural and rural development. The alliance of Nestle and Starbucks can expand their reach by also including farmers other than coffee farmers and train them with sustainable farming techniques with modern scientific techniques. This will not only enhance the livelihood (thereby decreasing urban-rural differences) of people but also impact unemployment and poverty in India. Initiatives like Nescafé Plan and C.A.F.E. programs are a boon for India.
Companies collaborating not only extend their boundaries and impact their growth but also impact the lives of people globally in the areas where these companies operate. With corporate social responsibility, companies should establish themselves as good corporate citizens as meeting social responsibilities leads to business sustainability.
References
- nestlé-India-corporate-social-responsibility-policy. pdf (nestle. in)
- Corporate Social Responsibility: The India Drive – Outlookindia
- Corporate Social Responsibility Under Section 135 of Companies Act 2013 (cleartax. in)
- https://www.business-standard.com/company/nestle-india-175/information/company-history#:~:text=Nestle%20India%20Ltd%20was%20incorporated,the%20area%20into%20soluble%20tea
- https://www.fool.com/investing/2020/02/25/how-starbucks-and-nestle-are-benefiting-from-their.aspx
- https://www.starbucks.in/about-us/company-information/
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
