Why traditional CSR is failing to deliver?

How to make Integrated External Engagement (IEE) a Reality

Traditional corporate social responsibility (CSR) is failing to deliver, for both companies and society. Executives need a new approach to engaging the external environment and entities must incorporate interaction with stakeholders into decision making at every level of the organization. This is the new strategy for practice suggested by John Browne and Robin Nuttal in a quarterly update by McKinsey. Browne is the former CEO of BP and is a partner of Riverstone Holdings while Nuttall is a principal in McKinsey’s London office.

“We believe that the best one is to integrate external engagement deeply into business decision making at every level of a company. In this article, we show how to make that kind of integrated external engagement (IEE) a reality. We set out to answer three questions. Are companies doing well at external engagement? Where might they be going wrong? How can they do better? Are companies doing well at external engagement?

Properly understood, external engagement means the efforts a company makes to manage its relationship with the external world. This relationship can and should include a wide variety of activities: not just corporate philanthropy, community programs, and political lobbying, but also aspects of product design, recruiting policy, and project execution. In practice, however, most companies have relied on three tools for external engagement: a full-time CSR team in the head office, some high-profile (but relatively cheap) initiatives, and a glossy annual review of progress.

That traditional approach has had some positive effects. Companies certainly consider the external environment more carefully than they did in the past, and their philanthropic programs have helped many people. But in a majority of cases, CSR has failed to fulfill its core purpose—to build stronger relationships with the external world. The Occupy movement in the United States is the most visible sign of discontent, but polls show that levels of trust in business are below 55 percent in many countries. A significant minority views business executives as villains, enriching themselves at the expense of society. Even firms with the glossiest CSR reports have found themselves cast as public enemies. Take major Wall Street firms in the aftermath of the financial crisis or BP after the Gulf of Mexico spill: their relationships with the external world have been shattered, and they have lost billions of dollars of value as a result.

Many executives recognize that their current approach is inadequate. In a recent McKinsey survey of more than 3,500 executives around the world, less than 20 percent of the respondents reported having frequent success influencing government policy and the outcome of regulatory decisions. This problem creates an opportunity for significant competitive advantage. In marketing or operations, companies struggle to raise their performance a few percentage points above that of their competitors. But as leading-edge companies such as Statoil and Unilever have discovered, effective external engagement can set you far above your rivals.

Where are companies going wrong?

Executives should not blame themselves alone. One reason they struggle is that the expectations of citizens and governments have never been higher. Companies are expected not only to obey the law or meet certain standards within their own businesses but also to ensure high standards across their supply chains. Large companies are expected to go further still, helping to solve major economic, environmental, and social problems—even those unrelated to their businesses. Moreover, as the expectations of citizens have increased, so has their power to scrutinize. Digital communication has enabled individuals and nongovernmental organizations (NGOs) to observe almost every activity of a business, to rally support against it, and to launch powerful global campaigns very quickly at almost zero cost. High expectations and scrutiny are here to stay. Successful companies must be equipped to deal with them.

What is wrong with CSR? Why have well-resourced teams, backed by the authority of CEOs, failed to deliver on their core purpose? In our experience, that centralized approach has four serious flaws.

First, head-office initiatives rarely gain the full support of the business and tend to break down in discussions over who pays and who gets the credit. Without the active participation of the big-spending functions—typically, production and marketing—the ambitions of a central team are difficult to realize.

Second, centralized CSR teams can easily lose touch with reality—they tend to take too narrow a view of the relevant external stakeholders. Managers on the ground have a much better understanding of the local context, who really matters, and what can be delivered.

Third, CSR focuses too closely on limiting the downside. Companies often see it only as an exercise in protecting their reputations—to get away with irresponsible behavior elsewhere. Effective external engagement is much more than that: it can attract new customers, motivate employees, and win over governments.

Finally, CSR programs tend to be short-lived. Because they are separate from the commercial activity of a company, they survive on the whim of senior executives rather than the value they deliver. These programs are therefore vulnerable when management changes or costs are cut.

Michael Porter and Mark Kramer summarize the result: “a hodgepodge of uncoordinated CSR and philanthropic activities disconnected from the company’s strategy that neither make any meaningful social impact nor strengthen the firm’s long-term competitiveness.”

How can companies engage more profitably?

In response to this problem, a number of observers have proposed new intellectual frameworks to analyze how businesses manage their relationships with the external world. Almost all of these frameworks, including Porter and Kramer’s “shared value” and Ian Davis’s “social contract,” share a core idea: companies must deeply integrate external engagement into their strategy and operations.

The logic is simple and compelling. The success of a business depends on its relationships with the external world—regulators, potential customers and staff, activists, and legislators. Decisions made at all levels of the business, from the boardroom to the shop floor, affect that relationship. For the business to be successful, decision making in every division and at every level must take account of those effects. External engagement cannot be separated from everyday business; it must be part and parcel of everyday business.

In our experience, most executives share that objective, but many do not know how to achieve it. What can you do to integrate external considerations into decision making across a business? To build on our own experience at BP and McKinsey, we spoke to seven leaders who excel in this area. We conclude that you need to do four things: define what you contribute, know your stakeholders, apply world-class management, and engage radically. We discuss each element in turn.

Define what you contribute

“We are finding out quite rapidly that to be successful long term we have to ask: what do we actually give to society to make it better? We’ve made it clear to the organization that it’s our business model, starting from the top.” —Paul Polman, CEO of Unilever

Every company makes a significant contribution to society. At the most basic level, businesses offer goods and services people want. In the process, they provide capital, jobs, skills, ideas, and taxes. But many companies don’t emphasize that contribution. Internally, they focus on what they can get from society: cheaper inputs, higher prices, and kinder regulation. Externally, they promote their tiny CSR-related contributions—vaccines they’ve donated, say, or playgrounds they’ve built—ignoring the vast contribution made by the day-to-day business.

This focus creates two serious problems. Externally, it undermines credibility. If your company exists to extract value from society and tacks on a few CSR initiatives to “give back,” no one will believe a word you say. Citizens, NGOs, and regulators will tend to view your efforts to engage—even genuine ones—as cynical and selfish maneuvers. In that climate, cooperation is very difficult. Internally, the same mind-set hinders the integration of external engagement into daily activities. The goal, as BHP Billiton’s outgoing CEO Marius Kloppers describes it, is for “every single employee, contractor, and supplier to take responsibility for social issues.” That is very difficult to achieve if these parties behave as if their relationship with the external world was essentially extractive.

Companies that succeed in building a profitable relationship with the external world tend to think very differently: they define themselves through what they contribute. This approach does not mean changing purpose; it means being explicit about how fulfilling that purpose benefits society. Nor does it mean abandoning a focus on shareholder value; it means recognizing that you generate long-term value for shareholders only by delivering value to society as well.

That point may seem to be an intellectual or linguistic distraction, but a CEO’s vision for a company has a powerful practical impact. Take Paul Polman, whose bold strategy we quoted above. His approach has been formalized in the Unilever Sustainable Living Plan (USLP), which sets a clear goal: to double the company’s sales while reducing its environmental impact. The plan explains why that goal makes business sense, what targets the company must hit en route, and how it will do so. Every employee can understand what the company wants and how he or she fits into that goal. Like other companies following similar strategies—AstraZeneca, GE, and PepsiCo, for example—Unilever hasn’t got there yet. But with the USLP, Polman has laid the foundation for external credibility and internal transformation.

Redefining the way a company thinks about itself requires leaders to promote their vision again and again with unremitting energy, both internally and externally. Duke Energy’s Keith Trent emphasizes this point: “Whether it’s the CEO or his or her senior leaders, the biggest job is creating that vision for the company.” That involves a significant personal risk because you have to take on incumbents who benefit from the status quo. All of the leaders we spoke to had met with resistance from other executives, shareholders, and competitors. Daniel Vasella, the former chairman of Novartis, puts it well: “When people believe change will only cost them, you can be sure they will do everything to make change fail or not even start.” Leadership requires you to put your reputation on the line and to bring people with you. Make it clear that they can choose to engage with the world—or they can leave.

Know your stakeholders

“Companies often focus on speaking about our needs and our business, trying to persuade people about the soundness of our activities. We would be more effective if we understood stakeholder dialogue as an exercise to listen and understand.” —Helge Lund, CEO of Statoil

Our second maxim of integrated external engagement is to know your stakeholders. That idea may sound obvious, but many executives do not take it seriously. Knowing your stakeholders means more than writing down a list of risks they could pose, having a cup of tea with some NGO heads, and holding a few focus groups. It means understanding your stakeholders as rigorously as you understand your consumers.

The McKinsey survey found a strong correlation between the in-depth profiling of stakeholders and success at engaging with them. Sixty-seven percent of respondents from successful companies report that they are very effective at understanding the priorities and objectives of the stakeholders, versus 28 per cent of respondents from less successful companies.

Effective marketing relies on a detailed knowledge of the preferences and resources of consumers. Likewise, effective external engagement relies on a detailed knowledge of the preferences and resources of stakeholders. That means learning, on an individual and institutional level, what they want, when they want it, how much they are prepared to compromise, how your activities affect their goals, and what resources and influence they can bring to bear. Companies can gain such a detailed understanding only through a rigorous and exhaustive process, including personal conversations with stakeholders, expert analysis (from external sources where necessary), and specialist monitoring of the Internet and social media. Research may sometimes take place at the corporate level—to develop an overview of strategic social issues—but more often at the level of a single facility, market, or project. As we discuss later, line managers must have the skills, incentives, and resources to conduct 

that research.

Sometimes it takes more innovative methods to acquire the necessary knowledge. In 2002, BP began developing the vast Tangguh gas field, in West Papua, Indonesia. The area was rife with social issues: political separatism, land disputes, human-rights abuses, and environmental degradation. 

Construction required the relocation of one village to two new resettlement sites. An independent advisory panel was established to hear community concerns, encourage debate, examine BP’s activities, and report its findings publicly and fully—all without influence from BP. That gave the panel’s reports credibility and gave the company’s leadership a far greater understanding of the issues than would have been possible if the research had been left to executives caught up in the project’s technical challenges. BP’s approach may seem expensive and even dangerous, but it is essential, and far cheaper than misunderstanding social issues, making mistakes, and being driven out by local resistance, government decree, or international pressure. To act in ignorance is to take a huge risk.

Thorough stakeholder research not only summarizes issues and interests as they stand today but also identifies potential problems and opportunities before they arise. That allows a company to act before its competitors do. Paul Polman describes how a lack of foresight hurt Unilever: “We missed the issue of obesity and the value of healthy and nutritional food. We were behind, while Nestlé was riding that wave. Not being in tune with society, with the benefit of hindsight, can cost you dearly.” The closer your relationship with stakeholders, and the greater your expertise, the more likely you are to spot the trends that seem so obvious in hindsight.

Apply world-class management

“There are the guys and girls sitting at the top who are wrestling to ensure that in the long term they do the right thing. Then there are the people who are asked to deliver. The question is how do they react and behave?” —Martin Sorrell, CEO of WPP

Companies that succeed at integrating external engagement into their businesses see it as a critical contributor to profitability, not as some woolly qualitative activity. They manage it like any other business function, using the three core tools of great management: creating capabilities, establishing processes, and measuring outcomes.

Creating capabilities

Employees need the right skills to include external considerations in their decision making. That starts at the top, as Statoil’s Helge Lund explains: “We have to have 360-degree leaders. They have to be good businesspeople who can develop talent and build business relationships, but they also have to genuinely understand the requirements and the expectations of external society.” CEOs are responsible for ensuring that their senior teams are as capable at external engagement as at internal management and that the necessary skills are valued, promoted, and developed throughout the organization.

Companies can develop their external-engagement skills through a mixture of on-the-job experience and formal training for employees. In many cases, particularly at senior levels, these skills are best developed in several areas of the business—experience in marketing, for example, equips executives to analyze and communicate with stakeholders, experience in operations to deliver change on the ground. Formal training is a useful supplement, particularly for more specialized skills, such as negotiation. For example, BP held master classes with leaders such as Madeleine Albright and Henry Kissinger, people who really know how to align diverse interests effectively. At the lower levels of the company, training helps every employee and contractor to understand the importance of relationships with the external world and to know the company’s policy on social issues.

Establishing processes

Putting capabilities in place is not enough; companies must formally incorporate external engagement into business processes at all levels. Every process—whether it helps a company to set corporate strategy, design products, or plan projects—must include efforts to consider its impact on stakeholders and consequences for the business. Helge Lund describes this approach at Statoil: “Stakeholder interests, dialogues, risks, and opportunities are deeply integrated in every business decision that we take. Every single project or investment decision comes with reflections, risk maps, and mitigation actions around the particular topic that we’re discussing.”

When companies develop processes, clarity is essential: conflicting policies, standards, guidelines, and initiatives can be counterproductive, creating overload and confusion. BHP Billiton has worked hard to avoid all this by replacing its old forms of guidance with what Marius Kloppers describes as “a series of group-level documents that clearly articulate the minimum standards that must be in place at all company assets, to ensure that all managers and employees fully understand the company’s corporate expectations.”

The risk in practice is that business lines will treat external engagement as an afterthought and a hoop to jump through to satisfy the head office. Each recommendation in this article—setting the vision, creating capabilities, and measuring outcomes—reduces that risk, but ultimately it is a risk that executives must take. Only business lines have the resources, the influence, and the knowledge to transform a company’s relationship with the external world.

It is worth cautioning against a common error. Some companies publicize their internal processes, holding them up as evidence for their responsibility and expecting praise in return. Those details should remain behind the curtain: stakeholders generally care about results and results alone.

Measuring outcomes

Results should also be the only thing executives care about. In external engagement, perhaps more than in any other business function, it is easy to be diverted from a focus on outcomes to a focus on processes or, even worse, an ill-defined sense of “doing good.” To retain a focus on outcomes, companies must set targets, measure progress against them, and link incentives to their achievement. 

The saying “what gets measured gets treasured” is as true for external engagement as for any other area of business. Ideally, companies should measure outcomes in terms of value added to the business, a challenging standard—less than 20 percent of respondents to the McKinsey survey reported that their companies measure the financial impact of external-affairs activities. The difficulty arises because their financial benefits are often indirect and far in the future or can be quantified only against an unobserved counterfactual.

In practice, businesses can observe various proxies, of varying degrees of accuracy, for the value external engagement adds. The closest proxy is satisfaction among stakeholders, weighted according to their importance to your business. Independent panels, such as BP’s in Tangguh, are a good way to get a fair appraisal, and standard polling may be useful in some circumstances. When it is not possible to measure stakeholder satisfaction, a company can look at specific impacts on society and the environment. Unilever’s Sustainable Living Plan, for example, sets about 60 targets for seven metrics, including total water consumption and greenhouse-gas emissions. In some cases, such as political engagement, companies cannot track the satisfaction of stakeholders or the impact on society. The only possibility is to measure activities (such as the number of meetings with politicians), though companies must take great care to ensure that these activities are not undertaken for their own sake. In general, the issue in question will determine which measures are possible and appropriate.

Engage radically

“I have an aversion against missionaries. I don’t like to go out as a missionary and preach, and then be accused of preaching for my own parish. This is a negotiation, and it can be a very tough one.” —Daniel Vasella, Former chairman of Novartis

The final hallmark of integrated external engagement is a radical approach to communication with the external world. In our experience, and the experience of the executives we spoke to, companies must guard against three pervasive errors.

First, a lot of companies start engagement too late. The natural temptation for many busy and cost-conscious executives is to delay acting until something hits them. That can be fatal. Integrated external engagement requires you to sit down with stakeholders early and often. The discussion should be ongoing, constantly building goodwill, understanding, and connections, so that companies stay informed and establish a reserve of trust to draw down in times of crisis. As Helge Lund puts it: “Gaining stakeholder trust is not something that you achieve once and for all. You can lose it very quickly. We have to be continuously working on this subject, even when we do not necessarily have big issues to deal with. It has to be developed as part of the DNA of the company.” The McKinsey survey found that 65 percent of executives think they should proactively engage with governments but that only 38 percent actually do so. As for regulatory bodies, 63 per cent of executives acknowledge the need to engage with them but only 33 per cent follow through.

The second error, alluded to by Daniel Vasella above, is to treat stakeholder engagement as a propaganda exercise. Repeatedly saying how responsibly your company behaves is not credible and achieves very little. Rather, engagement should be understood as a negotiation with intelligent and often powerful operators. As in any negotiation, your bargaining position determines your strategy and style. That’s why it is so important to know your stakeholders and their payoffs and resources in advance. Negotiating with them is an ongoing game, and establishing trust is therefore important. 

You may be able to fool a regulator or an NGO once, but that is liable to backfire the next time you interact. In most cases, if you are prepared to change your business in a significant way, you can achieve mutually advantageous outcomes and thus real collaboration.

That does not mean the aim is to please everyone—the third common error. Sometimes, a mutually advantageous solution is impossible, collaboration will not yield your best outcome, and a stronger negotiating strategy is to attack. For example, in a dispute with a regulator, if the law is on your side, there may be no point in seeking compromise. If activists make ridiculous demands that will win no sympathy with the broader society, it may be best to show them the door. As Iglo Group’s former CEO Martin Glenn puts it: “You don’t have to manage all of your stakeholders equally. Some people who think they are stakeholders might not be. You have to decide whether Stakeholder X is truly critical to the long-term health of your business or not.”

Selective cooperation applies not only to stakeholders but also to competitors. When it would be ineffective or too costly to act alone in addressing an issue, cooperation with them may be in the best interests of all players. For example, an industry may sometimes seek intelligent regulation to shut out free riders that undermine its reputation. But in certain cases, the first-mover advantage is considerable, and it is best to act alone. As Martin Glenn told us, “For big initiatives which we want to own, we’ll take a risk, and then we will seek advantage from that.”

From CSR to IEE

A good relationship with NGOs, citizens, and governments is not some vague objective that’s nice to achieve if possible. It is a key determinant of competitiveness, and companies need to start treating it as one. That does not mean they have to initiate philosophical inquiries into social responsibility and business ethics. But it does require them to recognize that traditional CSR fails the challenge by separating external engagement from everyday business. It also requires them to integrate external engagement deeply into every part of the business by defining what they contribute to society, knowing their stakeholders, engaging radically with them, and applying world-class management. In other words, it requires the same discipline that companies around the world apply to procurement, recruitment, strategy, and every other area of business. Those that have acted already are now reaping the rewards.

First Regional Conclave on Corporate Social Responsibility (CSR) organised

The first Regional Conclave on Corporate Social Responsibility (CSR) is being organised by the CSR Hub in collaboration with Cochin Shipyard at Cochin in India on January 16, 2012. It is being chaired by Secretary, Department of Public Enterprises (DPE) D.R.S. Chaudhary. This Conclave is the first of a series of Regional Conclaves being organised with Central Public Sector Enterprises (CPSEs) located in each region, in the next couple of months.

The Regional Conclaves on CSR aim to engage various stakeholders in an interactive discussion on further evolving CSR activities in a synergetic manner for inclusive growth and development of the society. All CPSEs will be required to participate in these conclaves to highlight the CSR activities being undertaken by them, share their views and experiences and give suggestions on making the CSR guidelines more clear, robust, effective and in tune with the trends and best practices in the fields.

A host of other issues are also slated for discussions in the regional workshops. Constitution of regional groups of CPSEs and formulation of a strategy for evolving a rapid response mechanism in case of emergencies and disasters is one such issue likely to come up for discussion. A Core Committee comprising of Director, CSR Hub and the CSR Heads of nine CPSEs, like, ONGC, GAIL, NTPC, BHEL, CIL, NMDC, OIL, Goa Shipyard and the Cochin Shipyard has been constituted to assist DPE in compiling and coalescing the suggestions that will crystallize from the discussions of the Regional Workshops.

The Secretary, DPE has also written to the Chief Secretary of every State to ensure active participation of the States in the Conclave. The State Governments play a vital role as stakeholders in CSR activities and also as facilitators in their selection, planning and successful implementation. An important issue on which the views of the State Governments are eagerly solicited is the evolving of a transparent and effective consultative mechanism between CPSEs and State Government/District Administrations for identifying developmental activities to be undertaken under CSR by the public sector.

CSR is an integral component of good governance. Although many CPSEs have done commendable work in CSR, some CPSEs have been found wanting in the desired level of initiative in this regard. Director, CSR Hub has informed the DPE that so far only 4 CPSEs have registered their CSR activities with the Hub. Even those CPSEs which have done considerable work in CSR have not registered their activities. The CSR guidelines of DPE clearly stipulate that all CSR/activity undertaken by a CPSE are to be registered with the Hub so as to be considered part of rating the performance of the CPSE for their annual MoU evaluation. The DPE has informed the CPSEs that it would not be in a position to give credit to any CSR activity not registered at the Hub, and as advised, all CPSEs to register and update their activities accordingly.

India releases simulation software for solar thermal power plant

New computer simulation software for design optimization of solar thermal power plants was launched by Mr. Deepak Gupta, Secretary, Ministry of New & Renewable Energy, Government of India in New Delhi on July 25, 2011.

The software is equipped to handle user defined configurations and carrying out optimization through multiple simulation approach under Indian climatic conditions. It will be useful to various stakeholders for design optimisation of solar thermal power plants.

The software was developed as part of the R&D project titled “A megawatt-scale national solar thermal power research facility” sanctioned by the Ministry of New & Renewable Energy to IIT Bombay in 2009 with total project cost of over Rs 40.0 crore ($ 9 mn) for a duration of five years. The project aims at to establish a solar thermal power test facility at Solar Energy Centre of the Ministry.

IIT Bombay is implementing the project in a consortium mode with the participation of several industries including Tata Power, Tata Consulting Engineers, Larsen and Toubro, Heavy water Board and Clique Development Industries.

This facility is one of its kind in whole Asia, and when commissioned, will be used for hands on training of the Indian solar thermal power plant developers. The software will be available through web for use and feedback for its further refinement. It is planned to have advanced versions of the software after incorporating suggestions and feedback received, and to make it more user friendly.

This is a major step forward to develop capacities in the field of solar energy in the country, which would ultimately contribute, to achieving targets of Jawaharlal Nehru National Solar Mission (JNNSM).

Voluntarily India has reduced 108 million metric tones of CO2 equivalent over a period of one year, earned more than $ 200 Mn through CER

India is richer by $ 200 Mn by way of earning Certified Emission Reductions (CER) under the Clean Development Mechanism (CDM) over a period of one year.  As many as 342 projects have been approved with host country approval accounting for 10887923.6 CER during the period of July 13, 2010 to July 13, 2011. Calculating average price of 13 euros per CER, India has earned $ 204.5 Mn and reduced 108 million metric tones of CO2 equivalent during this period.
 

Out of 342 approved projects, 249 projects are from energy industries which include both renewable and non-renewable sources.  Energy Demand category accounts for 19 projects while 18 projects have been approved from manufacturing industries. Waste handling and disposal accounts for eight approved projects while metal production and transport sectors account for one and two projects respectively.
 

Certified Emission Reductions (CERs) are a type of emissions unit (or carbon credits) issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by CDM projects and verified by a DOE under the rules of the Kyoto Protocol. CERs can be used by member countries in order to comply with their emission limitation targets or by operators of installations covered by the European Union Emission Trading Scheme (EU ETS) in order to comply with their obligations to surrender EU Allowances, CERs or Emission Reduction Units (ERUs) for the CO2 emissions of their installations. CERs can be held by governmental and private entities on electronic accounts with the UN.
 

Out of 342 projects, private projects are sharing the majority. As many as 330 projects have been approved which are basically private projects totaling to 9670957.6 CER. Nine projects have been approved, proposals for which have been floated by various state or local governments of India while only three central government projects have been registered and approved under the manufacturing industries.

As on date, the National CDM Authority has accorded Host Country Approval to 2004 projects amounting to 654407145.99 CER by 2012. Though India does not have emission reduction target under the Kyoto Protocol, however, approved CDM projects have the potential to reduced 650 million metric tonnes of CO2 equivalent by year 2012.
 

Meanwhile, Analysis by Bloomberg New Energy Finance shows that June saw the highest ever volume of carbon allowances (EUAs) traded in the European emissions market. Volumes on the Intercontinental Exchange (ICE), which accounts for around 91 per cent of the EU emissions market, reached 654Mt CO2e for June and 78Mt on a single day on June 23 of this year. This beats the previous highs of 584Mt in March 2011 and 53Mt on March 16 this year.
 

These high volumes came about as the market reacted to a combination of influences, including concerns about an oversupply of emission allowances, falling oil prices, the European Commission's proposed energy efficiency package and the precarious state of Greece's economy. This caused to the price of the Dec-11 EUA contract to plummet 22 per cent in five days from €15.65/t on June 17 to €12.26/t on June 24.
Overall the second quarter of 2011 saw volumes of carbon emission rights traded throughout the world decline slightly, by three per cent. The value of the market however increased to €26.4bn, up six per cent from the first quarter of 2011. This rise in market value was driven by higher carbon prices in the European Union emission trading system (EU ETS) in April, May and early June compared to the first quarter of 2011.
 

On average, Dec-11 EUA and CER prices increased by eight per cent and seven per cent respectively in the second quarter compared with Q1. The firm prices were driven by Germany's decision to phase out nuclear power and the expectation that European power companies will need to start buying more allowances to compensate for the lack of nuclear power and the removal of free allocations in 2013 when Phase III of the scheme begins.
 

The main cause of the slight decline in traded volumes in Q2 was the dwindling interest in the market for primary Certified Emission Reduction (CER) credits issued under the Clean Development Mechanism of the Kyoto Protocol. With the lack of progress towards a new global climate agreement, transactions of CERs and Assigned Amount Units fell by 5 per cent in Q2 compared with Q1.

Bloomberg New Energy Finance believes that overall the carbon market in 2011 will trade at record levels of around €106bn – an increase of 27 per cent on 2010’s revised figure, driven by a boost in demand for allowances from utilities in the EU ETS.

India releases National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business

Corporate Affairs Minister of India Mr. Murli Deora released the “National Voluntary Guidelines on Social, Environmental and Economic responsibilities of Business” that will mainstream the subject of business responsibilities”. At a function held in Ashoka Hotal on July 8, 2011 the Minister expressed the hope that these guideline will strengthen and enable the Indian corporate sector to evolve into a global leader in responsible business. He said the beginning of industrialization marked the transition from merchant charity to industrial philanthropy in India which was more secular, more inclusive in terms of caste, creed and community and more oriented to bringing progress to society through western style modern institutions.

Earlier in June, 2011, IDSTPR in its blog has indicated the the Indian Government is not likely to make Corporate Social Responsibility (CSR) mandatory. By enacting a stringent law making CSR mandatory for all polluting companies could have made a huge difference, but the Indian government has chosen not to walk on that direction.

Apart from making political donations for the freedom struggle, business fraternity also contributed towards many of the social and cultural causes. Mahatma Gandhi expounded the theory of trusteeship of wealth. Influenced by his teachings, many businessmen contributed for the cause of removal of untouchability, women’s emancipation and rural reconstruction.

Mr. Deora said his ministry has been pursuing the agenda of providing an effective regulatory framework to the Indian corporate sector that enables them to freely exploit their energies to develop while contributing to the overall growth of the society. He said his ministry has taken a number of initiatives the past few months in the legislative, regulatory, service delivery and capacity building areas. These are aimed to modify and upgrade the procedures and provisions under various Laws are as under:-

(i) Introduction of the online application process for obtaining Director’s Identification Number (DIN), the online payment of fees by companies, the Green Initiative allowing paperless compliance under the Companies Act, 1956 and the Easy Exit Scheme, 2011.

(ii) Initiation of introduction Companies Bill, 2011 in the Parliament. Convergence of Indian Accounting Standards with International Financial Reporting Standards. And launching of Investor Awareness Programmes for the benefit of small and medium investors to safeguard their interest.

(iii) Notification of Merger and Acquisition procedures.

(iv) Also undertaken the Initiative to formulate Policy to appoint at least one woman direction on the Board of Directors if it has five directors.

(v) Formulation of the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business.

He said Public Sector Undertakings have been undertaking CSR activities in a big way. It has been mandated for them to spend 2 per cent of Profit After Tax (PAT) on CSR activities. Their contribution has been noteworthy in this field. The private corporate sector has come a long way from the days of ad hoc charity. The concepts of CSR, corporate citizenship and increasingly, Responsible Business are salient aspects of many companies in India. They undertake the social environmental and economic responsibilities such as establishing charitable trusts, foundations and mega institutions for public causes, directly running community development programmes, forming partnerships with the Government or NGOs, etc.

In his address Mr R.P.N. Singh, Minister of States for Corporate Affairs said the Ministry has formulated the “National Voluntary Guidelines on Social, Environmental and Economic responsibilities of Business” that will mainstream the subject of business responsibilities. He said the guidelines, being released by the Minister for Corporate Affairs, are a refinement over the Corporate Social Responsibility Voluntary Guidelines 2009. These guidelines have been formulated keeping in view the diverse sectors within which businesses operate, as well as the wide variety of business organizations that exist in India today – from the small and medium enterprises to large corporate organizations. The Guidelines are applicable to all such entities, and are intended to be adopted by them comprehensively, as they raise the bar in a manner that makes their value-creating operations sustainable.

In his welcome address, Mr. Manoj K Arora, Director IICA said the release of the guidelines marks an important policy initiative by the Ministry of Corporate Affairs. He that the new guidelines have expanded the scope of CSR to cover social, environmental and economic responsibilities of business.'

The Secretary in the Ministry of Corporate Affairs, Mr. D.K.Mittal said that the guidelines are not prescriptive in nature, but are based on practices that take into account the realities of Indian business and society as well as the global trends and good practices adapted to the Indian context. It urges businesses to embrace the “triple bottom-line” approach whereby its financial performance can be harmonized with the expectations of society, the environment and the people it interfaces with, in a sustainable manner. The adoption of these Voluntary Guidelines would also improve the ability of businesses to enhance their competitive strengths, improve their reputations, their ability to attract and retain talent and manage their relations with investors as well as the society at large.

A large number of corporate representatives and foreign dignitaries including the Sh Anil Agarawal, former President ASSOCHAM, Mr. Bob Hiensch, Ambassador of Netherlands, Senior officials of the Embassies of UK and Germany, Team from World Bank, President of ICAI, Vice President of ICSI, Members of the Board of Governors of IICA were present on the occasion.

Recent Initiatives taken by the Ministry of Corporate Affairs



The Indian economy has expanded at a rapid rate during the current decade and the corporate sector has been the biggest contributor in this growth story.  A significant feature of this growth is the increasing integration of the Indian corporate economy into the global business environment.  While the Ministry of Corporate Affairs is working towards reforming the enabling environment for effective functioning of the corporate sector, simultaneously, there is a strong argument for fostering sensitivity to community and social concerns as a part of the broader objective of inclusive growth. It has been our constant endeavor at the Ministry to consult all the stakeholders in true spirit of our democratic values while undertaking these reform initiatives. The Ministry is also encouraging the corporate sector to take into account the concerns of stakeholders beyond their investors and to demonstrate that responsible business governance can generate value for all the stakeholders. In the long run, this collaborative effort between the government and the corporate sector will become a key multiplier in helping the ‘Aam Aadmi’ participate in the India’s growth story. 

Ministry of Corporate Affairs has been working towards repositioning itself as a significant facilitator in creating a positive and healthy environment for doing business in India by offering an enlightened regulatory regime and efficient services so that the entrepreneurial energies are utilized in creating value for the stakeholders and are not spent in un-knotting the bureaucratic red tapes. A number of initiatives have been taken by the Ministry on legislative, regulatory, service delivery and capacity building sides.



CSR initiatives:

The Ministry has formulated “National Voluntary Guidelines on Social, Environmental and Economic responsibilities of Business” that will mainstream the subject of business responsibilities. The guidelines, released by Mr Murli Deora, Hon’ble Minister for Corporate Affairs on July 8, 2011, are a refinement over the Corporate Social Responsibility Voluntary Guidelines 2009.  These guidelines have been formulated keeping in view the diverse sectors within which businesses operate, as well as the wide variety of business organizations that exist in India today – from the small and medium enterprises to large corporate organizations.  The Guidelines are applicable to all such entities, and are intended to be adopted by them comprehensively, as they raise the bar in a manner that makes their value-creating operations sustainable.

The Guidelines are not prescriptive in nature, but are based on practices and precepts that take into account the realities of Indian business and society as well as the global trends and good practices adapted to the Indian context.  It urges businesses to embrace the “triple bottom-line” approach whereby its financial performance can be harmonized with the expectations of society, the environment and the people it interfaces with, in a sustainable manner. The adoption of these Voluntary Guidelines would also improve the ability of businesses to enhance their competitive strengths, improve their reputations, their ability to attract and retain talent and manage their relations with investors as well as the society at large.

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Recent initiatives on legislative, regulatory, service delivery by the Corporate Affairs Ministry of India

Ministry of Corporate Affairs of India has been pursuing the agenda of providing an effective regulatory framework to the Indian corporate sector that enables them to freely exploit their entrepreneurial energies while contributing to the overall growth of the society. In order to cut time lines in service delivery and give further ease to the stakeholders, we have undertaken various initiatives in the recent past. Some of major initiatives are as under: --

(1)  Green Initiatives in the Corporate Governance :  The Ministry has allowed paperless compliances by the companies and Registrar of Companies under the provisions of the Companies Act, 1956 such as : -

(a)  Allowing service of Documents including Balance Sheets and Auditors report etc through e-mail addresses :   In order to reduce cost of posting and speedy delivery of documents, service of documents through electronic mode has been permitted under section 53 of the Companies Act, 1956 in place of  service of document under certificate of posting.  Similarly, to reduce the consumption of papers and speedy secure delivery,   service of copies of Balance Sheets and Auditors Report etc., to the members of the company as required under section 219 of the Companies Act, 1956 has been allowed to be served through electronic mode by capturing their e-mail addresses available with the depositories or by obtaining directly from the shareholders.

(b) Participation by Directors and shareholders in meetings through video conferencing : In order to provide larger participation and for curbing the cost borne by the Company, Directors, and shareholders to attend various meetings under the provisions of the Companies Act, 1956, participation through video conferencing has been permitted subject to certain compliances.

(c) Voting in General Meeting of Companies through electronic mode :  In order to have secured electronic platform for capturing accurate electronic processes, Central Depository Services (India) Ltd (CDSL)  and National Securities Depositories Limited (NSDL) are being given approval by the Ministry of Corporate Affairs to provide their electronic platform for capturing accurate electronic voting in General meetings of the company.

(d) Issue of Digital Certificates by Registrar of Companies: The Registrar of Companies has to issue a number of certificates to the companies and other stakeholders as required under the provisions of the Companies Act, 1956. In order to cut timelines and an another step towards “Green Initiative”, it has been decided that all certificates and standard letters issued by the Registrar of Companies will now be issued electronically under the Digital Signatures of the Registrar of Companies.

(2)  Simplification in Procedures and Process under Companies Act, 1956: The Ministry has taken following steps to simplify the procedures for the corporate are as under : --

(a)  Incorporation of new Company within 24 hours by end of July, 2011

                i.     Allotment of Director Identification Number (DIN) has been made online by the system once the particulars of the applicant are verified by the practicing professionals.

              ii.      The Ministry is issuing revised guidelines for allotment of name of the company. The name shall be made available online, if the application has been certified by the practicing professional that the proposed name is in conformity with the guidelines. The guidelines shall be implemented by end of July, 2011.

            iii.     A separate e-form is being developed for the Memorandum and Articles of Association and incorporation process will be totally paperless. 

(b)    Issue of License under section 25 (non profit companies) of the Companies Act, 1956 : - Work relating to issue of license under section 25 (non profit companies) has been delegated to ROCs and condition for publication of notice for 30 days in the newspapers  before issue of license have been dispensed with.

(c)       The Director's Relatives (Office or Place of Profit) Amendment Rules, 2011:-   Limit of Directors relatives salary has been enhanced from Rs. 50,000/- per month to Rs. 2,50,000/- per month. Now onwards, for remuneration for relatives of the Directors within the enhanced limit, company need not to approach Ministry for approval.

(d)      Marking a company as having management dispute by Registrar of Companies under MCA-21 system : In order to have uniform practice in all Office of ROCs, clarification has been issued that unless there is a order of the court or the Company Law Board, no company is to be marked as having management dispute by the ROCs.

(e)       Various E-forms are approved online : A number of e-forms which are informative in nature have been processed and approved/ recorded by the Registrar of Companies online and are made available for inspection to the  public immediately.

(f)       Registration of place of business by a foreign company: Registration of place of business by a foreign company has been made priority item and it is registered by ROC on same day.

(g)       Appointment of LLPs of chartered accountants as auditor: After making amendment in definitions of body corporates, Limited Liability Partnerships of chartered accountants will not be treated as body corporate for the limited purpose of section 226(3A) of the Companies Act, 1956, hence they can be appointed as auditor of a company.

(h)  Allotment of Designated Partner Identification Number (DPIN) :Designated Partner Identification Number issued under Limited Liability Partnership (LLP) Act, 2008 has been integrated with DIN. Now (w.e.f. 09.07.2011) only DIN will be allotted under Companies Act, 1956 and the same will be used as DPIN for LLP Act, 2008.

(i)       New Guidelines for Fast Track Exit of defunct Companies : The Ministry has issued guidelines for Fast Track Exit mode to give opportunity to the defunct companies to get their names struck off from the Register under section 560 of the Companies Act, 1956 in time bound manner.

(j)  Special drive to clear pendency: A large number of e-forms filed prior to implementation of revised Regulation 17 are pending for want of action by the companies/stakeholders. Without any response from the companies, ROCs cannot  process the said forms. As per Regulation 17, these forms have become time barred. To reduce the pendency of such e-forms, Ministry has decided to re-open all such pending forms for reviewing by ROCs and disposing them by 7th July, 2011.

(k)      To improve compliances by the company : In order to ensure corporate governance and proper compliances by the companies, it has been decided that w.e.f. 3rd July, 2011, no e-forms shall be accepted by ROC from such companies which have not filed their updated Balance Sheets and Annual Returns since 2006-07. The Directors of such defaulting company shall also be debarred for filing any document unless they make the default good.     

(3) e-Payments in the Ministry:  The payment of filing fee by the companies has been made completely online.

(4)  International Financial Reporting Standards (IFRS) : In the field of financial reforms, convergence of Indian Accounting Standards called Indian AS’s with International Financial Reporting Standards (IFRS) has been approved by the Ministry in February, 2011. The date of coming in force of Indian Accounting Standards will be notified shortly.

(5) Investor awareness programmes : In order to channelize the significant household savings available with the Indian households into the corporate economy, the Ministry has decided to launch investor awareness programmes in 300 districts in association with ICAI, ICWAI ICSI, Stock Exchanges, RBI, SEBI, Trade Chambers, etc.

(6) The Companies Bill, 2011  : The Companies Bill, 2009 was introduced in the Parliament on 3rd August, 2009 after an extensive stakeholders’ consultation. It was subsequently referred to the Department related Parliamentary Standing Committee on Finance for examination. The report and the recommendations of the aforesaid Standing Committee have been examined in the Ministry and a revised draft Companies Bill, 2011 prepared in consultation with Ministry of Law (Legislative Department), has been circulated to the various Ministries and Departments for views and comments. Once the consultation with Ministries and Departments are completed, a revised Bill as Companies Bill, 2011 is proposed to be introduced in the next session of the Parliament after obtaining due approvals. Consequent upon introduction of the Companies Bill, 2011, the Companies Bill, 2009, pending in the Lok Sabha, will be withdrawn.

(7) Reorganisation of field offices : For better administration and faster service delivery, the Ministry created a new office in the form of Regional Director (SER), Hyderabad in May 2011. The field offices of the Ministry are now organized in six regions. Similarly, it is planned to restructure the cadres in the Ministry for better service delivery to public and better promotional prospects to existing personnel.

(8) Easy Exit Scheme, 2011 : With a view to reduce the number of defunct /inoperative companies, the ministry of Corporate Affairs has launched Easy Exit Scheme, 2011 providing them an easy route for closure. Under the scheme, till now, more than 29,000 defunct /inoperative companies have been struck of.

(9) Indian Institute of Corporate Affairs (IICA) : The Indian Institute of Corporate Affairs (IICA) has started functioning from its new office and building at Manesar. A large number of new initiatives, capacity building etc. are planned at IICA.

Following improvements are planned in the functioning, service delivery and regulatory work of the Ministry:

(1)  Limited Liability Partnership Act : The e-Governance project for Limited Liability Partnership Act, (LLP Act) is running. However, to improve the working of LLP Act, it is planned to take up the registration of LLPs as a full e-Governance project on the same platform as MCA21.

(2)  Extensible Business Reporting Language (XBRL) : Extensible Business Reporting Language (XBRL) is being introduced in e-filing of Balance Sheet, Profit & Loss Accounts, etc. to have compatibility with international accounting and for data mining and analysis. The taxonomy of XBRL has been finalised after extensive consultation with all stakeholders – ICAI, Trade Chambers, etc. This taxonomy has been placed on the website of Ministry for information of all.

(3)  National Foundation for Corporate Social Responsibility (NFCSR) : It has been decided to establish National Foundation for Corporate Social Responsibility (NFCSR) at IICA.

(4)  National Company Law Tribunal (NCLT) : To cut short the time delays in liquidation of companies. The Ministry is in process of establishing National Company Law Tribunal (NCLT) which will replace High Courts and BIFR for liquidation and rehabilitation of companies.

(5) Guidelines for unpaid and unclaimed dividends:  The Ministry is formulating guidelines for unpaid and unclaimed dividends. It is also in the process of implementing a functionality whereby the names of such investors who have not claimed amounts due to them shall be displayed on the website of the Ministry for the benefit of all.

(6)  New  Bills on Multi State Societies and Multi State Partnerships

        The Ministry is considering to bring legislations on Multi State Societies and Multi State Partnerships to regulate their business activities.

India is in the mission to study Black Carbon for Global Warming

There is an emergence of interest in the role of Black carbon in global warming since aerosols may modify the planetary albedo. The issue has engaged the attention of scientists and experts in addressing the scientific questions associated with sources, transport and impact of Black Carbon worldwide. The latest scientific studies indicate positive contributions to global warming. However the magnitude of the impact of aerosol on climate remains uncertain.

Aerosols are suspended particulates in the atmosphere. The composition of aerosols varies depending on the sources and temporal and spatial variations. Sulphate aerosols cool the atmosphere. Black carbon (BC) is the soot released in the atmosphere due to indoor combustion of bio-fuels such as wood, dung and crop residue in cook stoves and in outdoors, it is released from combustion of diesel, coal and open biomass burning (forest fires, cut and slash burning in forests, and crop residue burning on fields). The lifetime of black carbon in the atmosphere is small compared to the Greenhouse gases. Black carbon sources vary by regions. On a global basis, approximately 20 per cent of black carbon is emitted from burning bio-fuels, 40 per cent from fossil fuels and 40 per cent from burning biomass in the open.

The knowledge and understanding on aspects such as vertical distribution and mixing of Black Carbon with other aerosols, effects of cloud cover and monsoon still remains uncertain and incomplete. There is thus a need to have better understanding on the following science questions :

• The contribution of black carbon aerosols to regional warming.
• Role of black carbon on atmospheric stability and the consequent effect on cloud formation and monsoon.
• Role of black carbon in altering the ability of hygroscopic aerosols to act as cloud condensation nuclei.
• Role of BC-Induced low-level temperature inversions and their role in formation of fog especially over northern India.
• Role of black carbon on Himalayan glacier retreat.

With the launch of INCCA in October 2009, the Minister of Environment & Forests of the Government of India had announced a comprehensive study on Black carbon not only to enhance the knowledge and understanding of the role of Black carbon in the context of global warming but also to address the sources and impacts of the black carbon on melting of glaciers.

The Black Carbon Research Initiative builds on the existing work and sets out the science programme to respond to the scientific questions. The science plan has been developed through an intensive consultative process and with the involvement of experts in the subject and builds upon the work of ISRO, MoES and other experts countrywide. The initiative is visualised as an ambitious programme with the involvement of over 101 institutions with 65 observatories nationwide.

The study would lead to long-term monitoring of aerosols; monitoring of impact of BC on snow and; estimating magnitude of BC sources using inventory (bottom-up) and inverse modeling (top-down) approaches and modeling BC atmospheric transport and climate impact. The major expected outcomes are understanding the effect of change in albedo due to black carbon on seasonal snow and glacier melt; estimation of albedo and; reflectance of seasonal snow and glacier, glacier depth and mass balance, using airborne sensors like laser altimeter, ground penetrating radar and pyranometer; modeling effect of enhanced melting on glacier mass balance and retreat and; development of snow/glacier melt runoff models to understand the influence of changes in snow and glacier melt pattern.

Indian Government has earmarked $135 m for Forest Management

Government of India has earmarked Rs. 600 crores for the Intensification of Forest Management Scheme during the 11^th Five Year Plan with a 10 per cent participation from the State governments. The rest 90 per cent grant-in-aid would be provided by the central government from the scheme.

A Ministry of Environment and Forests sources said that the Intensification of Forest Management Scheme has resulted in bridging the gap in developing forest infrastructure in States/UTs.  Earlier known as Integrated Forest Protection Scheme, it is a centrally sponsored scheme of Ministry of Environment and Forest which gives financial assistance to States/Union Territories to take up various activities essential for protection of existing forests.

Sources said that the financial assistance given to the State Forest Departments is used to strengthen their forest protection machinery by way of infrastructure development , use of modern technology, improved mobility by way of deployment of new field vehicles, improved communication and providing arms ammunition to the frontline forestry force.

It added that the scheme also provides financial assistance for developing infrastructure for forest fire control and management; survey, demarcation and preparation of Working Plans. The Scheme was formulated by merger of the two Schemes (Forest Fire Control Management and Infrastructure Development for North Eastern Sector) in all States and Union Territories during the 10th Five Year Plan. It was last revised during 2009 to broaden its objectives by adding four new components.

All State /UT Government provide State share of funds to match the Central share in proportion as stipulated in the Scheme for the approved Annual Plan of Operations of a financial year. The State Government also required to provide necessary funds for maintenance of the assets created under the Scheme and to provide financial and manpower resources for utilization of the assets so created.  

Sources said that the funding pattern is on cost sharing. The scheme is a grants-in-aid based on 90:10 (Central: State) funding pattern in respect of all the North Eastern States including Sikkim and special category states of Jammu and Kashmir, Himachal Pradesh, Uttarakhand, and 75:25 (Central: State) funding pattern for all other States/UTs.

The State Government also required to provide necessary funds for maintenance of the assets created under the Scheme and to provide financial and manpower resources for utilization of the assets so created.  

Main Components of the Scheme are forest fire control and management, strengthening of infrastructure, survey and demarcation/working plan preparation, protection and conservation of sacred groves, conservation and restoration of unique vegetation and ecosystems, control and eradication of forest invasive species and preparedness for meeting challenges of Bamboo Flowering and Improving Management of Bamboo Forests.

Many interventions are carried out under this scheme which include creation and maintenance of fire-lines, engagement of fire watchers, construction of water harvesting structures; watch towers; office and residential buildings for frontline staff and improvement of forest road, providing the fire fighting equipments and vehicles, training and capacity building, awareness campaigns, assistance to Joint Forest Management Committees (JFMCs) to ensure involvement of local communities, Wireless and communication network, fire arms to the frontline forest protection staff, modernization of office equipments and survey and demarcation and preparation of working plans.