Business and Poverty: The Indian approach to corporate sustainability

(20 minutes)

SLIDE 1 – Title page

The title of this presentation is ‘Business and Poverty: The Indian approach to Corporate Social Responsibility.’ My research has two central, intertwined elements, firstly, I reviewed the current situation within the project finance industry and the general move in recent years to ‘responsible lending’- however, as we all know ‘responsible lending’ has taken on a whole new meaning in recent months because of the global financial crisis. Emerging from my work on responsible lending in India, is the second element, the more general commitment to CSR within the Indian context. Indian corporations have a long history of social responsibility, predominantly linked with deep rooted religious obligations and acts of philanthropy. This presentation brings together empirical evidence to show how traditional, sporadic corporate commitments will buckle under the pressure of the global financial crisis, whilst integrated, creative development initiatives will continue to contribute to poverty alleviation and sustainability on a local scale.

SLIDE 2 – Outline Background to my research

Being a responsible corporate – the Equator Principles

My interest in CSR

Background to CSR in India

Case study 1: SUPPORT

Case study 2: AIS Glass

CSR and the financial crisis

Concluding remarks

SLIDE 3 – Background to my research

Before I move onto look at CSR in India, I will provide a context to my research. In 2006, prior to starting my PhD I did some RA work, exploring and collating information on NGO reaction to oil and gas exploration off Sakhalin Island, Russia. Criticism was focused on the offshore pipelines interfering with the natural habitat and the migration path of the western Grey whale. In addition, the financiers of this development were in fact signatories to the Equator Principles, violating their voluntary commitment to the environmental and social lending guidelines.

At this stage it is necessary to clarify what I mean by project finance. This is the money lent by banks to development and infrastructure projects around the globe. Historically, public sector funds have financed these projects, however, in the 1970’s and 1980’s, commercial banks became a major source of lending to development projects in the global south, banks were eager to find new lending opportunities. The types of development encompassed under project finance are for example, dams, gas pipelines, mining developments, transport and large scale infrastructure projects. On June 4th 2003 the project finance industry was revolutionised. Ten of the world’s largest financial institutions from seven countries voluntarily adopted a set of standards known as the Equator Principles. By becoming signatories, banks were committing to supporting the environment on a voluntary basis. Banks could no longer afford to be funding projects that had significant environmental implications, their corporate reputations were being compromised. Since the launch of these standards, it has become increasingly apparent that financial institutions have an important role to play in sustainable development. At the start of the research 32 financial institutions from across the globe had voluntarily adopted the principles. However, it should be noted that sustained shareholder activism and reputational damage caused by non-compliance have been suggested as the primary drivers for a bank to adopt the principles.

During the initial months of the research, a number of conferences organised by the Ethical Corporation were attended. At the Sustainable Finance Summit there was the general consensus that one of the greatest challenges for the Equator Principles was the gaining of support from the majority market banks. There was a sense of frustration and irritation from current signatories that Indian and Chinese banks were not committing to the international lending guidelines and the reasons for the lack of adoption in these regions were unknown. This research sought to ask Indian banks their reasoning behind their lack of Equator adoption.

SLIDE 4: Being a responsible corporate: the Equator Principles

On this slide I am going to provide a brief overview of the Equator Principle guidelines. Development projects which require funding must be categorised according to their type, location, sensitivity and scale. Projects categorised as A – are deemed to have significant adverse environmental impacts; such applications predominantly include almost any new major development scheme. Category B is applied to projects thought to pose potential for less adverse environmental impacts on human populations or environmentally important areas and category C is low risk, these projects are thought to have minimal or no adverse environmental or social impact.

Subsequent to categorisation there are then 8 principles which lenders must adhere to if they are seen to be acting responsibly, relating to the implementation of Environmental Assessments, consultations with indigenous people and the employment of independent environmental experts to offer additional monitoring.

It was recognised early on in the research that it is imperative that Indian and Chinese banks adopt the principles, to hold a level playing field for sustainable finance globally and to protect vulnerable environments and communities. 56 interviews were conducted last year with the CEO’s and Managing Directors of India’s leading financial institutions and other influential organisations to ascertain their thoughts on the Equator Principles and responsible finance.

SLIDE 5: My interest in CSR

Whilst on the research trip it became apparent that responsible lending cannot be looked at in isolation, therefore I decided to review the broader commitment to CSR in India. Much of my work has focused on the lack of commitment from Indian banks to international lending standards. In order for them to recognise the importance of the Equator Principles in infrastructure finance, a wider commitment to environmental and social issues is needed in the Indian corporate sector, CSR, a responsible approach to all aspects of business. First I will provide an overview of CSR trends in India and then move on to present two contrasting case studies of CSR in action. The final slide will touch upon the future of CSR in India given the current financial turmoil.

SLIDE 6: Background to CSR in India

India has a diverse and distinguished history of CSR. In the early 1900’s it was viewed as more of a religious commitment, whereas today it is characterised partly by India’s traditional attachment with philanthropy but also the integration of ‘western’ CSR approaches into Indian business models. From the analysis of the interview material, four themes are evident with reference to the current state of CSR in India, ranging from a Friedman inspired egotistical approach to a positive altruistic attitude.

– 1. The role of business is to maximise profits

Friedman (1962) suggests that the social responsibility of business is to maximise profit. Several of the interviewees favoured this approach to business; however, of the four themes, proponents of this attitude were in the minority. The Chairman and CEO of a large infrastructure finance company proclaimed that, ‘a company should be responsible to its shareholders and not look at the amount of pollution generatedﾉ leave companies to do what they are supposed to do, that is maximise profits.’

– 2. Philanthropic commitment

Much of the literature surrounding CSR in India suggests that it is deeply rooted in a philanthropic historical context (Mohan 2001; Chahoud et al 2007). However the literature and a number of the respondents believe that, whilst acts of philanthropy certainly do make a positive contribution to worthy causes, there is the general consensus that philanthropy does not encourage independence or innovation. As Visser 2009 suggests – companies and their leaders should be judged on who they trample on and what they destroy in the process of making money, not who they keep once they have succeeded at all costs. Writing cheques is easy, running a sustainable and responsible business is hard.

– 3. CSR behind closed doors

Whilst CSR might not be as visible as in the developed world, certain Indian companies are responding to societal needs through their CSR agendas. Prior to each interview an internet search was conducted to see if the particular firm was engaging with CSR. On the majority of websites no public commitment could be found, but on numerous occasions CSR was alive within the organisation occurring ‘behind closed doors.’ These respondents felt that their companies were social development agents, but felt no drive to publicise their acts of good, in these cases the companies are doing it because they have to.

– 4. Integration- a new business generation

The fourth theme suggests that although historically India has a long tradition of CSR, Indian business is currently in a transition phase whereby iconic business leaders are further embracing CSR, adopting a more sustainable CSR approach to their business strategy. This research has identified several beacons of integrated CSR, encouraging independence, innovation and development.

I will now present two case studies; the first examines the organisation SUPPORT, dedicated to fighting AIDS and drug abuse amongst the street children of Mumbai and reliant on staff volunteerism, donations and business advice offered by a number of India’s businesses and financial institutions which I interviewed. However, SUPPORT and similar organisations are already struggling during this period of economic uncertainly as corporations are cutting back on their philanthropy budgets.

SLIDE 7 - Case study 1: Support

SUPPORT was founded in 1985 and they work with street children and homeless youths to combat drug addictions and to prevent the spread of HIV/AIDS. The organisation offers medical, emotional and physical support to ‘children who are addicted to drugs and have run away from their homes for a variety of reasons; these are children living in extreme poverty. SUPPORT is one of the few organisations in India which offers a residential rehabilitation programme for street children. An employee from SUPPORT explained that the children get on a train from their village and the last stop is Mumbai, they end up here and other children pick them up. On day one they may share their food, but on day two they say you have to fend for yourselves, beg and steal. The children are soon exposed to solvents, heroin, cannabis, tobacco and alcohol. The organisation operates several day care centres on the platforms of two of Mumbai’s largest stations, CST and Dadar, supporting in the region of 70 children per day. The children are provided with a mid-day meal, clothes and access to a doctor. The staff are trained to encourage and motivate the children to undertake the SUPPORT rehabilitation programme. There are two rehabilitation centres, one for girls and one for boys, caring for 130 in total. At the end of the six month programme, the children are either sent to school, work, vocational training, become peer educators or are sent back to their homes.

Without the financial and volunteer support from several of the companies which participated in the research, this project would cease to exist. The cost of caring for each child is between ｣ 28 and ｣ 41 per month. In addition, the organisation has to cover the rent of the centres. Space is at a premium in Mumbai and rental prices are equivalent to cities such as New York and London. One company assists financially with the day to day running of SUPPORT through their employee donation scheme which is matched by the company. Whereas other companies provide good volunteer systems. A number of children have been housed at the centre for 10 years, now educated and trained in a skill their chance of employment is much improved. Several of the older residents are now employed to motivate and encourage their peers. In addition, the cooks now working at support have also been through the rehabilitation programme. As we all know, donations and funding as a form of CSR has been criticised in the literature, however, in this case, the money is certainly making a difference to the lives of the Mumbai railway children and society in general.

SLIDE 8: Case Study 2: AIS Glass

In contrast, the second case study shows a market-based approach to sustainability and development; whereby a leading corporation is working in conjunction with the development sector to achieve sustainability both internally and externally. AIS Glass, one of the largest Indian glass manufacturers, has connected their business objectives to wider social goals. Unlike other large Indian companies, like Tata, they are unknown for their commitment to CSR. AIS has been operational in the Delhi region for the past 25 years and the board recognised that in order for their business to survive and grow in the long term, considerations have to be given to the environment and society within which they operate. Currently, their CSR agenda is focused on the headquarters, located in Gurgaon, employing 1000 workers. However, there are plans to extend this to their other plants and surrounding communities. Their strategy is termed the AIS Integrated Community Development Programme (ICDP) aiming to enhance the quality of life and well being in the community by providing services and enabling community participation and leadership to mobilise government.

AIS focuses on 5 areas, environment, health and safety, education, water supply and sanitation. The practicalities and the day to day running of the programme is operated through an external Delhi based NGO, Youth Reach, a model which is becoming increasingly popular in India. In 2004, AIS focused their efforts towards a 2 phase development plan as seen on the slide.

As one of the respondents commented: ‘you have got to develop the area around you, this has got to be part of your long term business strategy ﾉAIS are thinking of the local people.’

Education

In 2006, AIS, in association with the local community utilised a community-owned building to provide free schooling to girls from the village. Girls commonly fail to complete their formal education, predominantly due to: parental objection of female education, marriage at an early age and often the location of the school being too great a distance from their village. Through the ICDP scheme, a woman from Bawal village has completed her teacher training and she is now educating twenty one girls from the village for four hours each day between 10am and 2pm. As one respondent explained, ‘she is the brightest lady in the village and has a master’s degree, she is paid for by AIS glass, per month she gets 6,500Rs [ ｣ 85.00].’

In addition to the education centres, AIS also provides five buses which transport 475 students daily from 34 villages, to and from school. As previously highlighted, students often drop out of education due to the long distances involved. The furthest village from the government run school is 16Km. The buses have now been operational for three years; however, there are plans to introduce a small fee for each child of Rs.50/month [ ｣ 0.65]. As AIS recognises, ‘it is important for the community to realise that these things are not free ﾉ it gives them ownership over the project and gives the project sustainability.’

Women’s co-operatives

In the village of Bawal, since 2004, ninety four women and farmers’ groups in fifty eight villages have been formed. Each group has twelve to fifteen members, each eligible to receive loans from AIS glass (up to four times the amount that collectively the group has saved). They are required to save Rs.50 to Rs.200 per month. As recognised by one respondent, ‘the self-help group plays a major role in sustainability ﾉ it enables women to feel empowered ﾉ teaches them how to work in a group and how to manage accounts.’ As one cooperative group member remarked, ‘at first my husband was not happy about me joining, but we have been able to buy a water tank and a toilet, so now he is pleased, I now have a sense of purpose’ (Translated).

Water and sanitation

Using the AIS co-operative grant, seven community water tanks, thirty two family tanks and two groundwater recharge systems have been built. In addition, 163 families now have toilets, 105 of which were possible because of the AIS grant. In total, 367 families have been supported through the loan system. Women in the groups have also used the loans for agricultural activities, livestock, trading, production and service based enterprises.

Demonstrations

Demonstrations and training sessions have also been organised in the villages, particularly to educate about general water issues and rainwater harvesting. In total, thirty one villages have been taught the ‘soak pit technique,’ a method to deal with waste water in the village. In addition, regular meetings with the women are held to address issues of a social and political nature, including ‘violence against women, proliferation of liquor vending, sanitation issues and microfinance’ (AIS, 2007).

AIS collaborates with Youth Reach in achieving its CSR goals. As part of the agreement, there is a Youth Reach worker situated at AIS glass monitoring the sixty villages, they need to have someone permanently based on site. The Manager of Youth Reach corporate programmes explained that, ‘AIS to some extent wants visibility within the local community but not too much as this can cause problems with local politicians ﾉ in addition, the local expectations of the local population increases, and people start to expect and want things for free.’ This is a fine balance, and for the time being AIS glass is achieving community development, however for the long term sustainability of these projects, like in the case of the local school teacher, the communities need to take ownership.

SLIDE 9: CSR and the Financial Crisis

Wayne Visser in his initial analysis of the global financial crisis and its impact on CSR suggested that philanthropic donations will be the first to be halted as companies cut back spending in hard times. This is certainly true in the Indian context, the Manager of Youth Reach has already noticed a decline in philanthropic spending; current company donations are being cut and new clients do not want to commit during this period of uncertainly. However, those with ingrained CSR commitments such as AIS glass, are continuing with their programmes.

SLIDE 10: Concluding remarks

Corporate Social Responsibility, as recognised in the literature can take several forms; this is evident from the various ways in which companies are supporting the NGO which provides a rehabilitation programme for Mumbai’s railway children and AIS through its well designed and planned system of integrated community development programmes. Although some of the initiatives could be viewed purely as philanthropy, community development is very much alive and these companies are making a difference to their local communities. One Vice President explained that before companies engage with CSR, ‘first [they] have got to understand the need of the communities which [they] serve,’ this, without a doubt is what AIS has done in the case of Bawal, they are not engaging with the community for the sake of enhancing promotional material, they are doing it because it is their corporate responsibility to do so. Whilst, there may be a number of Indian companies that have jumped on the CSR publicity bandwagon, this presentation has highlighted that there are also those who are being responsible not just because of the reputational value such acts bring.

In India, large corporations and a number of financial institutions are alive to their social responsibilities; some are doing it in fits and starts, sporadically, whereas others have integrated social welfare into their business model. This presentation has highlighted several projects are thriving from corporate social commitment. Particularly the case with AIS Glass, through short and long term projects, focusing on education, health, water and sanitation they are supporting the local village communities inhabited by the majority of their employees. Cutting back in hard times for AIS Glass is not an option. This is an example of business and society working together and where the local community is benefiting through far more than funding, by being given the tools for sustainable long term development