Understanding ESG, CSR, and Sustainability

Good morning everyone. I'm really pleased to be here in this panel. And it's very heartening that everyone is before time and I came in late. It's typically the other way around in the regular classrooms. So thank you very much for being here. This ESG CSR sustainability, we use Similar words for somewhat dissimilar type of concepts. But for today's session, we would consider everything as same and proceed. And it's something which everyone is talking about. So it has caught the attention of everyone, be it regulators, popular media, business schools, corporations, everyone. And I just wanted to take some 10-15 minutes to lay out what we understand so far. what research we are doing at ISB, and then open it up for the panel to share their views. And I have some questions for them. It's an umbrella term comprising of three different aspects, environment, social and governance. Within each, depending on who you talk to, there would be hundreds of different indicators and parameters. And at the end of the day, I mean, if you want to concise it, we are looking for companies to do something non-financial in nature also. To have certain impact on the society around them, the various stakeholders also. The expectation is not only companies should make profits and do financially well, they should also do good socially. That's the expectation that we are living in today. So... Where does the role of regulation come into it is a big question and that's the topic for today. So far the understanding is the CSR or ESG is something voluntary. People do that, companies do that, even though there is no regulation forcing that. Yet across the world, be it EU, China, Australia, South Africa, US to some extent, governments are intervening. And the most popular mechanism so far has been mandatory disclosure, wherein companies will say, this is what we have done in the space of ESG or CSR. At best, they will say that we have done nothing, but they need to disclose. And the idea is the invisible hand of market would work, because with this information, all the stakeholders would be able to see what the company is doing. Those who are doing well socially would... also be rewarded in terms of the contracts or various opportunities they have to interact with the society and therefore their implicit contracts would be favorable to them and this competitive advantage would force the companies which were not doing anything on ESG CSR space to pick up the slack and start doing in that area. There is a mixed evidence in this in terms of international findings. Invariably, whenever these type of regulations are imposed, the profitability or stock price of the companies hurt, but the social causes do pick up. Across the world, people have seen that once you start forcing companies to disclose what they're doing with emission norms or economic inequalities, those indicators pick up. So even in China, once this mandatory disclosure was imposed, the emission norms or the level of pollution kind of declined in the areas where the companies were very powerful and doing a lot in the est space india took a very drastic step by coming up with a new regulation which is more like a game changer we are not asking companies to disclose what you are doing in 2013 a rule came that you have to spend not just talk you have to spend two percent of your profits if certain conditions financial conditions are met in terms of certain size profitability book value right and thankfully thankfully there is some discretion at the companies how to spend that and that responsibility is given to the board and therefore the question that can boards help in achieving this objective this experiment as such is having enormous potential with so many companies around there. The estimate is roughly about $2 billion would be spent in this sphere. And therefore, if you think in terms of externalities with so many of NGOs out there, they all will be strengthened by the way of partnerships. And therefore, some social good can come out of it. That's the hope. That's the expectation. The question is, would it work? And we at ISB have looked at this experiment, a policy experiment, and tried to answer some of the questions which so far in research it's extremely difficult to answer. The first and foremost is a paper of mine with another colleague at Columbia, Siva Rajgopal, where we are looking at the shareholder implications of this regulation. If all of paper with another of my finance colleague, Prasanna. They are looking at the social side of it. Would it hurt the motivation of the companies? And then currently, I'm also engaged in a work which is the topic of today. Can we really force the companies to be socially good? So broadly, the first question is, does CSR affect firm value? And there are two schools of thoughts here. And this is not a new topic. I mean, the ESG is very popular today. But I mean, if you Look at what is inside ESG, take care of your employees, your community, environment. There's nothing new. It's just a repackaging. Way back in the 70s also, the Nobel laureate Milton Friedman said that the social responsibility of the business is to make profits. Make profits, give dividends, give the money to the shareholders, and then decide what they want to do. We as businesses don't need to do it. On top of that, From voluntary CSR, once we move to mandatory, it creates a lot more problems. There is a pressure on companies to pick up stuff which government likes. There could be threat that the government might further impose more conditions. Various interest groups might put more lobbying effort on that. And at the end of the day... None of the companies are also trained in doing this. So the implementation would also take a lot of effort. You need to have that in-house department. At the end of the day, when you're spending a lot of money, you want to do it in the right way. And that requires certain preparation also. So for all these reasons, the argument is the CSR can hurt the company. On the other side, since 1867, people have been advocating the stakeholder. theory wherein companies should look at the interests of everyone who is associated with them or everyone who is affected by them. By doing so, companies can attract better employees, loyal customers. They will have some goodwill that in case something goes wrong, the punitive action by the regulators would also have a softer blow as compared to anything else. While these two theories have been established, who wins or what comes on top is an empirical question which only data can tell. Everyone can have an opinion and that's where academic research would differ from opinion pieces or thought pieces. We would let the data speak for itself. And the biggest problem is that there are more than 200 papers, academic papers on that and the evidence is mixed. Some say that if you do... Good socially, you will also do financially, and some don't find that finding. And the biggest challenge is this econometric notion of reverse causality. If you look at top 10 companies in India who do well socially, and if you look at top 10 companies of India who are doing well profitably or market cap wise, there is going to be huge correlations. So is it the availability of resources and profitability that is driving CSRs? Or is it the other way around that those who are doing socially well are being rewarded and they are getting chicken and egg story which cannot be broken down. And that's where our research comes in and that's where this entire identification comes in. An experiment where you are saying that if you make 5 crore you spend on CSR otherwise don't. So that gives us an experimental setting. If you pick a company who is making 4.9 crore profit and another company is doing 5.1 crore profit, we can argue that both are inherently similar. There is not much to choose between them, except for the fact that one is forced to spend, other is not. And therefore, if you look at the outcomes, how the stock market reacts to the news that they are spending or forced to spend, that will give us an idea that on the whole would stock market appreciate these things or not. And our findings, not surprisingly, is that when these bills were being debated in the parliament, we identified some even dates where the probability of this legislation passing increases. Around those days, the stock market reacted negatively for the affected firms, which led us to conclude that this ESG or CSR is a social burden on companies'shareholders. This helped us kind of settle a very long-lasting debate that what is the impact of this ESG on the financial performance or the stock market performance of the companies. But if you if you look at the intent of the regulation intent of regulation is not to increase the stock price or anything it is to improve the social impact and therefore we had to move forward with next set of studies to look at the big picture because why the regulation was introduced was not for financial reasons for societal reasons so were those objectives met and The fundamental critique is how can you make something mandatory when it is voluntary in nature. Even worse, for political flavors, you can donate to a pet project of whichever government is ruling. A more sophisticated view is those who really want to do something good. Now you are forcing. If you even don't put the conditional donate, but if you say that now you donate and these are the areas where you have to donate, then as an individual, as a company, my motivation to do good would be hurt. And that's what this paper by Prasanna and Shiva find, that those who were spending way above 2% before the regulation, they have cut down their spendings. They are now just doing around 2% so that they can comply with the regulation. Nothing more, nothing less. That kind of troubled me. I thought that this cannot be the whole truth. And therefore, I started another project where we are saying that, okay, it might be true. The regulation hurts the inherent motivation of some companies. But what about others? Because this regulation now brings this aspect of CSR to so many other companies which earlier they were not engaging. So therefore, what happens to them is the question that we are addressing. And the argument is while all the critiques of mandatory spending is... absolutely correct. There is other side of the story also in the sense that it's a soft regulation. There is a big list of activities where companies can spend. They can write a check to PM care fund or whatever that is a CSR but they can also pick up lot of activities which could have environmental aspects, how we treat your employees, poverty elevation, education aspects, sports, culture. So there is a vast variety of menu which the government has given to companies to pick and choose what is close to their heart. There is also flexibility in terms of how you want to do. I mean, you don't need to reinvent the wheel. There are plenty of NGOs out there who are doing excellent work. So you can partner with them. You can start your own foundation or you can have your own employees do this. How it is being done is totally up to the company. And that's where the board comes into picture. picture. The other aspect is there is this thought of learning. The fact that now there is a board, there are sustainability officers, there are former partnerships with the NGOs, it imbibes that culture of learning. Earlier, there would be mistrust that if I give a donation, what would happen? Would that be misused or would that be properly put in place? With a common understanding of what who we are doing, who are the various players involved. It inculcates a system, a formal system where companies can contribute and the mistrust that the money would be wrongly utilized would go away. For these reasons, we believe that there might be some good out of it after all. And to test that, what we do is we look at the ESG ratings and that's where things get tricky for us. How do you measure social impact? That depends on what you have in mind, what is close to your heart, right? And it's extremely difficult to measure that. And as a more parsimonious measure, we look at the ratings, ratings given by independent agencies about how a company is doing along these three dimensions. And we compare these ratings of Indian companies which are affected by this regulation with the company's rest of the world. where there is no such regulation. These companies are coming from US, EU, China, Australia, across the world. And what we find is across the world, the ratings or the performance measurement is kind of stable over time. But in India, the ratings have gone up. That means there is some real impact and it's not across the board. OK, so the increase in ratings is more pronounced in the companies which were not spending earlier. because those who are spending those who continue to do so there is nothing changing there so we don't find any result there those who were not spending before and afterwards also they are just explaining it away that we can't do it for whatever reason again there is no change in rating but those who were not spending before and have significantly ramped up that's where we see a increase in these ratings we also find that if a company is doing this CSR via some opaque trusts, that's where there is no increase in ratings. But if they are partnering with established NGOs or they are doing it directly, that's where we see some improvement in ratings. And finally, we do find that whichever companies have engaged ESG experts as their board members, that's where we see a more impact. So to sum it up, Can firms be forced to be socially responsible? Partly yes, partly no, is what our research indicates. It depends. The context matters. What measures we are using to capture the outcome, that matters. The granularity of data matters. So just a broad stroke statement saying that it works or it doesn't work, that's not the way we would want to think about this process. There is some good, yes, there are some limitations. is what we find. So that's from the academic side of this topic and we would now solicit views from our panelists. Given that this industry is at the peak of its popularity and the expectations are changing that companies should do financially well as well as contribute in this sphere, is this goal realistic? What are some of the challenges? What's the role of the board in all these? These are some thoughts we want to learn from our esteemed panelists. What I would do is I would first invite all three of my panel members, Deepak, Nixon, and Ratna to provide their opening remarks. Then we would follow it up with some questions which will probe deeper into these areas. I'll invite my panelists. Who do you want to go first? Anyone, I mean whoever wants to have a first shot. Okay, so first of all, thank you so much. This is welcome. Yeah. First of all, thank you so much to ISB and for inviting me to your first Insights Forum. I think that's a privilege and I feel honored. To take off, you know, you've listed a whole host of facts, including the fact that the legislative mandate for CSR, the fact that ratings have gone up for those companies that haven't done CSR in the past but post the mandate they have started implementing because their arms were gently twisted. Then you know the issue about trust, the trust deficit between agencies, the corporate India basically that has to do this kind of... spending and the NGOs that are doing this so rather than go into the whole plethora I think I just touch on these three things now firstly I think having a mandate for CSR spending is a double-edged sword in yes it's good because it's meant for development it's meant for societal good and a whole host of things but let's not forget the fact that What ends up happening is driven by the reality of company interest, shareholder interest, stakeholder interest and when I say stakeholder I mean the larger polity and other such interests. So although it is a noble mandate, what drives it may not really come from a place of similar nobility. That's why. Secondly, in terms of having to spend. is what is the reason that has spawned so many foundations and that underlies the fact that there is an inherent distrust that not-for-profit organizations induce, particularly the smaller ones who work at the ground level. The big ones are okay. They have their process. in place, they have all their finance and HR and all the other stuff in place so you don't mind dealing with them because you know they have capacity to deliver to what you want them to report on. But the ones who do the real hard work at the ground level are not the ones who are being funded directly in any way because you are concerned that they may not be able to do it in the way that you want them to do it. but also not making the effort to build their capacity to be able to do so right, the easier option is to run your own foundation or to give it to well recognized agencies which forms a clique of sorts, so it's like you know me I know you so let's do this together and so I'm not sure how it lends itself to strengthening civil society which is what inherently it was meant to do Thirdly, as far as the increase in ratings is concerned, it's like you're being penalized for having done this earlier. So because you've done this earlier, guys, hey, what's the big deal? But you haven't done it? Well done. Now you're going up the rank. So I'm not sure that's even a, you know, competitor for looking at performance in terms of rating. So it isn't something that I would hold a great deal of store by. So for me, you know, mandating CSR. It comes from a good place. Where it heads is driven by a you know several nuanced layers of who is in it for what right and that is what we need to step back and look at when we look at a subject like this and like I keep saying ESG is flavor of the month right we've had millions of cops you What happens post then? And for me, the irony is at every COP, you have thousands of people coming in from all across the world, flying in, using transport, living in hotels with hot water and air conditioning, and then we talk about carbon emissions. Thank you. So at the outset I thank ISB for this invite. I am highly honored. As regards mandatory CSR, as the moderator already told, it is a contradiction. But then what these actors helped facilitate is that Corporates have come to know that they have to adopt sustainable practices, they have to be inclusive and they should be socially responsible. So this is a result of this mandatory CSR. I will not tell that because of this CSR mandate, companies have suddenly become socially responsible. It's like we are having dowry prohibition act and all. Still dowry continues. So this cannot make any corporate immediately socially responsible. Government regulation, consumer demand, investor pressure, all these are ways in which companies can become socially responsible and here we have made mandatory CSR. Of course, from being a philanthropy item or not a board item, now it has become a board item and the board has been made responsible for implementing CSR. But what I find is it is evolving in India and therefore most of the projects which we are funding or implementing are only resulting in the 2% being spent. Most of the activities we don't study about what change this CSR is effecting. I will just share one experience. Once a corporate had told that government schools are not having drinking water facility. The board was telling the government that we should do CSR, why don't we divert CSR funds there. And immediately all the branches were told, you give aqua guard facility to all the government schools. Within a month, we don't know what has happened. Many of the schools didn't know what to do with this. Water, even supply of water was not there. Aquaguard maintenance was not happening. Electricity was not there. What happened was that everyone was happy even at the board level that we have supplied thousands of aqua guards to government schools. Photo ops were there, optics was very nice. Everyone was happy that this CSR money was spent. So now if you ask what has happened to this, the answer is no one will be able to give a proper information on what has happened to these equipments. I am not telling this is applicable to every activity being done. Lot of good activities being done. But then, my view is that most of the things are being done with a short term aim only. As long as my duration as chairman or board directors are there, I will have some CSR activity to be done. The impact of CSR funds is not being studied at all. And if CSR, like if mandatory CSR has come, if it has to be effective, then the ecosystem itself should change. We are implementing it through NGOs, non-profit organizations. What is the capacity of these organizations? Also, though corporates are starting their own foundations, they are implementing it through NGOs only. So, NGOs as you know, they can't afford quality human resource and therefore the capacity available is also quite restrictive and foundations are implementing their activities through NGOs. Even impact study, we don't have a good agency which is cost effective to study these impacts independently. And even at the foundation level, since CSR is evolving in India, what I have observed is the learnings, Levels even foundations is also not very great. I was in a jury for CSR social impact awards and the most almost 200 of the largest CSR foundations corporates the that applied for this award, many of them couldn't understand the difference between output outcome and impact. So this is coming from foundations and foundations have this complaint that at the NGO level quality is very poor. But what I find is like the entire ecosystem has to change if this mandatory CSR has to become effective. And then it seems it is almost become like since. Ministry of MCA is we have to submit reports and all it is just becoming a check off thing in most cases and at board level we require leaders were passionate about the course which is not happening because most of the board of directors are focused on profit and Thinking how much profits will increase really the CSR becomes only a part-time thing in the board and Therefore, unless board members who are very passionate to bring change, this mandatory CSR will not help. In many cases, I have found this is the thing, board members want some project to be implemented and without even knowing, even conducting need based study, whether the community request it, we design some project and implement it. With the result there is no ownership of the product project later also. There are various examples and also many projects when we design and when we fund it, we do it since there is a project we will spend 2 percent. But then we do not go into various aspect of it. See everything looks good in a power point. Any project looks very good in a PowerPoint, but when it is implemented, we find there are lot of gaps there. There was a project where we had to support, a project where visually challenged people were to be trained and placed in shopping complex, hospitals etc. It was very, like PowerPoint looked very good. 200 of them will be trained, 70% will be placed and their livelihood improves everything. It looks very fine and any funder will fund it. This is a very good project and also there is an element of compassion. We are helping visually challenged people. But then implementation or in reality it is different. Therefore, when CSR becomes mandatory, even if it is board level, that reality has to be understood by those who are taking decisions. Otherwise, here in this case, what happened is that it was very difficult to mobilize 200 visually challenged people in one place. And even when they were mobilized, they were not willing to remain there for two, three months training. And after I think attrition of CSR. 20 or 30 percent, 70 percent, 140 were trained. Finally, only 30 percent could be placed. Many of them were not willing to work in the cities. And even those who were placed, there was no accessibility in the cities to accommodate them. And what about the training for those who are already in the working situation? All these are not considered in the project. we think about the money which can come only and the board also wants this money to be spent. Before March 31st we have to spend therefore it goes in that way. So, these are aspects which we have to consider when we think about mandatory CSP. And I feel it's a good initiative in the sense that corporates who are not earlier spending are asked to spend. And I am very optimistic in the sense that it evolves. And lot of focus comes on change and all. This will really result in something good happening in India. And many cases why it is not having the desired impact is because everyone is having short-term outlook only at the board level or anything. Even I have said I have congratulated Rotary Club for their social service activities everything and all. But then I find every year since office bearers change the focus is only one year and therefore what happens to the amount invested in CSR activities all these are not accounted for or anyone held. responsible. We are happy when the 2% is spent. This is something I wanted to tell as the opening remarks. Thank you very much, Nixon. Thanks a lot. First of all, I really wish that I was as articulate as all of you, but let me give it a shot. There's a word in Hindi called sum. Can anybody tell me the meaning of that? Sum. Sum. Hindi me. Not English. Not S-U-M. Sa or ma. Please. It's about balance, it's about balance and so yes good so let me also begin with the story now and I will come back to why I asked this question when I can So, this is a small story, I will not go into the exact detail, there was an experiment done many years back when a monkey and a monkey's baby was thrown into a water pond and water was continuously poured, so the till the time the monkey could save the child. child, the monkey saved, tried to save and eventually he realized that only one could survive and the monkey decided to drop the baby and then jump out of the that box of full of water. So that is precisely the story of how ESG is working now. And I will take a very peculiar example, a most recent one. She rightly spoke about COP23, many global conferences. The moment there was a crisis in the world on crude oil, and I, by the way, come from an oil and gas industry. industry, so I know that crisis very well. Suddenly everybody stopped talking about green energy, solar power, wind etc etc, everybody stopped talking, why? Because that survival became most important otherwise you would not have survived the next day. And that's a fact the crude prices at were at 140 150 under no circumstances India would have Indian economy would have survived. So you had to take a certain hard decision overlook all your ESG commitments say that 2060 is not happening now let's talk of 2070 and God forbidden if there is another crisis like this which happens 10 years down the line. So We will have this conversation later. So that's a fact of life when it comes to survival when it comes to profit. It's a very convenient argument to overlook everything else. Again I will build on the argument later but as we get into certain questions. Coming to the third point, there is a history to CSR, not just the 2013 rule and so Chandigarh also has DAV colleges, they were all built by some philanthropist, some businessman who was nice gentleman decided to feel good out of charity and then decided to do something. So philanthropy has been there. What has happened is that there is a structure given to it now. Now there is a challenge to the structure which I think both of them highlighted quite well. I will also add couple of points over there. So there is a history. There is a history of doing philanthropy, social good, buy businesses for People, so I will stop over here. That's the third point which I want to do it the fourth point as an outcome of this There is a schedule 7 that came and obviously as you are saying continues to evolve whenever the government feels that if we want to do Namami Gange then we will do it. If the water is not good then we will get water filters in the school. So it keeps changing. New governments, new bosses, new directors, everybody will have their own opinion and it will continue to evolve. So that's a fact of life. But again you just turn the wheels exactly 100 years from now. 2019 when the ILO was formed. So look at ILO's charter, look at schedule 7, look at the priority of the government of India, look at the social priorities of any of the governments in the world. Everybody talks about social. Everybody talks about human good, human welfare, health, education etc. So what has changed? It has essentially said that now let the corporate sector formally give me a helping hand. So as he rightly said one step forward. Good or bad we will come to that conclusion much later. But that's the fourth point which I wanted to make. Fifth point ESG versus CSR, you highlighted lots and lots of paradoxes. Two simple examples ESG is you confined to your four walls whatever you want to do within that improve any efficiency, reduce emissions, reduce water footprint, all that is ESG. Anything that is outside the wall which doesn't impact your business is clearly CSR. So, that is a basic distinction and let us stick to that, let us not get into too much complicated arguments because there is an argument to everything and we can spend full day on that. So, within this again one more point which I wanted to make on CSR over here, you look at. the websites of different companies in the world and I take one example of let's say a car company based in Germany, you talk to them about CSR, will they ever talk about doing education giving water filters in Germany as a part of their CSR, they will never do it but you look at India, they will do it because our reality is different from their reality. So that was the fifth point which I want to do it. Sixth point, we spoke about governance. Two railway tracks never meet. Governance as understood by under the Companies Act with the kind of stringent regulations that everybody has with the kind of adherence which the board has to follow as rightly said and repeated by all board does not understand the basic characteristic of an NGO how it works because they have never done it. Nobody has gone to the field soil their hands been to a poor man's house. house, ever tasted the water, ever tasted how it food looks like other than politicians who once in a while do it for fancy thing but nobody does it. So that's the reality of life. So for us to expect that suddenly just because they are charitable they will understand and they will appreciate whatever is happening. It requires far more effort than that. So there is a gap definitely over there. And let me also add one more piece over here, and I will take the example of all of us in this room. I have done my management not from as illustrious school as ISB, very small one. But then the fact of life is, if I look at my own career, I am now 52. Am I absolutely sure that I will be employed for the next 5 years, 6 years, 10 years with my qualification, with my background, my pedigree working in the top 20 companies of India? I am not sure. So why do we expect that a 6 month training program given to a villager, he will be now sustainable successful for his life. So I think we are being stupid over there. So I will keep raising arguments and I will keep provoking you so that you ask more and more questions. Thank you. One question which you had raised was about choice of activities. Human rights, child rights is a very fancy word which social sector understands very clearly. I have worked in the UN for 9 years so I understand that fairly well. And corporate sector doesn't understand. Rights is not a word, rights means activism. So whenever you are an activist, I don't want to see your face. It's clearly that. So my governance metrics, your governance metrics, your priority, my priority is different. I have seen numerous examples where a corporate sector CEO became the CEO of an NGO. But have you seen any reverse example? None, if that happens I will be the happiest person but it is not happening. So again provoking lots of thoughts, question of ratings and evaluation. There are clearly laid metrics, you can evaluate any project, success, failure. But the moment you try to do it for 3 years, 4 years, 5 years, I cannot have even a single person from the villages around my area come to ISB. Unless I decide to support for 20 years. The loss is 3 years, maybe one more relaxation. Let's stop at that. So I will have to leave it over there. Beyond that, I can't think of supporting that person. So there are challenges that we also realize. I spoke about impact. Okay. Yeah. Okay. So coming to my concluding remark, why did I speak about sum? Everything is required in balance. Profits required in balance, if you don't have profits, how do you spend money on CSR? If you don't understand CSR or at least don't appreciate bit of it, you will not be doing justice to your investment. And that is one idea of not doing justice to the money that you spend is something where every board is very risk averse. So you have to sometimes bolster their ego and you tell them you don't know enough, you are okay. Okay, maybe stupid. So you will get probably little more encouragement to do things. So everything happens in balance your CSR activities need to happen in balance your social sector engagement needs to happen in a balance as a corporate entity you need to understand the social dimension of imbalance will my ESG being compliant or being better result in better profit. answer is mixed there are plenty of people who are in this room come from financial background and now everybody has been talking of impact bonds everything now who is bringing in that impact it is the social sector eventually which will bring in that impact. But NGOs don't have capability. Fact of life is that when COVID came, the first thing that the Prime Minister remembered was the NGO sector. That the social sector should step in. That was one of his opening statements. So that means that the capability of the social sector is recognized very well and appreciated very well. We may not be moving fast enough in that direction. But again, coming back to my original statement, that there is everything that needs to happen in balance. Whether the... After the good ESG companies have survived, there are many examples across the world which decided to be more responsible, not profitable, didn't survive. ESG, one more point which was made about ESG is the flavour of the month. I have been in this profession for more than two decades now and I have, this is the third cycle of flavour that I am seeing in the last 20 years of ESG. I will conclude over here. Thank you very much. So in the interests of time, maybe I'll just have one or two follow-up questions with you because all three of you have spoken excellently and covered a lot of stuff which I wanted to ask. And then I will leave the floor open to the audience. My question is, while we are still grappling with this mandatory CSR requirement, There is another regulation on the horizon which is about the business responsibility and sustainability reporting. It's a daunting 35-page report with more than 150 questions in it, capturing hundreds of indicators. And sooner or later, it will also be forced to be audited. So how prepared are they? I mean, are we going for an overkill? That's one side of it. The other side is because real money is being committed in these causes, we need to be sure that this money is being utilized properly. So therefore, it is necessary. How do you view these two different ideas? So I think there's a dichotomy here and I'll tell you why because you see your CSR spending currently line of vision is one year right the moment I as a corporate because I sit on corporate board CSR committees and this is why I'm saying this. The moment I give money to an agency as far as MCA is concerned, I have fulfilled my CSR mandate, right? When I was at UNDP, we actually worked with MCA and which is why now you have the wherewithal that that money can be kept aside for three years because we said there's so much money there, it has to be spent, there is no line of vision or there's no line of sight on where it's going. I as a corporate, the moment I give an NGO my money, I have finished my mandate. Now, where the NGO is using it, where is the impact, is not being looked at by MCA. And so I think the dichotomy in the CSR Act is, on the one hand, you want agencies to do CSR spending, but on the other hand, you're not really... looking at report and i think that's where sebi decided oh there's so much money here now let's see what they're doing with it so these two agencies need to talk to each other as well right so sebi can't get up one day and say bsr i mean business social responsibility report but now half the agencies and since i work with some of them don't really know what to do with it right which is where your tick boxing comes in he will ask and do you know so where is the I mean you put in place you know structures all with good intent not doubting intent but unless agencies of government mandating these various layers and foundations that they put in place unless they all talk to each other if you are seriously looking at driving impact if you are seriously looking at measuring impact is not really going to happen very soon Right? But what it ends up doing is putting a burden on corporate entities who think that why am I being saddled with this? And like I think what Deepak said, unless you know, if you've seen globally, who are the most efficient corporate entities? Those with very deep pockets. right because the deep pockets can then finance social responsibility because it's not really going to hit my bottom line at a point and so i can afford the luxury of it number one number two the moment you start talking about you know responsible consumption your prices go up of those commodities that are being responsibly you know produced then who ends up using them not the world at large it's people who can afford it so then again it becomes a rarefied kind of a you know a thing so i think there are a lot of things that are done in isolation and whether it's globally or here for instance china is judicially mandated people are terrified which is why they're doing it right at least here it's a legislation so i think you need to look at it step back look at all the floating pieces and then try to make some sense of it and unless I think what misses in everything that social responsibility is looking at is how. The biggest question is how and unless you are able to answer the how of things, it will just be like this. There will be newer things coming, each government will bring in their version of what they think is important and I think unless all of these legislations and acts and reports start talking to each other, reduce the burden on corporate India, make it more viable for them to actually report because they want to report, we will be floating like this for the next god knows how many decades. I agree with whatever Mr. Etna has told. Bringing out this social responsibility business, social responsibility report etc. or various reports to MCA, I think the intention is that they want to see that things are complied with. whatever regulations have been told about CSR or ESG and all are complied with in that way. The intention is good but then this 50-40 pages report and all finally it goes into a checkbox thing only. It becomes more complaints oriented than really bringing social change. So, I also believe that. The social sector itself is very complex. Change to be brought about is again takes lot of so many steps. Many years and all, it cannot be brought within three years and all. they are given village development programs. There are many foundations which have it for 2 years, 3 years and all. What happens to the money invested after 2 years? And whether 2 years, 3 years is enough to make that village development project sustainable? These are not captured in the reports. Report captures only whether this much money has been done, which sector you have invested etc. So these are loopholes in the reporting format. our reporting structure and all but i say like a government from the government side i think such reporting it's a fair on their side to us but then the change to be made i think we have to like from the corporate level corporate side or who are implementing all this they have to think about the change what change i am going to make and whether we will bring make that change so it requires the like a lot of interaction with the corporate with the implementing agency etc to see that the real change is happening now we give the amount to the NGO and then be interested to the NGO for implementing and corporate is happy because they can submit the report properly then here only unless this becomes a mainstream thing Now it is only though it even though it is a board item how much of time is spent for a CSR or ESG I don't know it it's not too much even I find even like MBA curriculum also CSR, corporate governance all these are included but then how much of marks or how much of percentage we are giving to this that is also to be told like MBA finance we have MBHR whether we are having MBA CSR, no that is not there. The main stream is HR, finance, marketing, all these. CSR, ethics, governance, all these are in the background, though we tell that these are very important. So like what government wants to or SEBI wants to tell is ESG social responsibility is very very important, it is relevant. But then we have not captured it that much. And this reporting also over a period of time, I hope that the change which is being made also will be captured. Thank you very much. I think completely agree with both of you. Just couple of lines, thoughts over here. Those who belong to my generation will remember a very famous ad, Bhala uski saadi meri saadi se safed kaise hai. So MCA comes up with something and SEBI says, oh, now it is my chance. SEBI comes up with something and MCA will say, oh, now it is my chance. And you will see things keep changing. Now, the paradox over here is, for every single change that you need to make in your annual CSR plan, you need to go to the board. And public sectors generally leave it slightly open. Private sectors give financial approvals line item wise. And supposing at the middle of the year, there is a cyclone and somebody, the government says, okay, now you can support cyclone. How do you do it? You can't do it. So while completely agree that, yes, Getting in a structure of reporting is fine because it puts some thought into you, at least it tells you that at the end of the year that, oh, this is where I was good, this is where I was not good. The bigger challenge when you're doing social activities is how do you really be adaptable to crisis like situations. That flexibility is sometimes not there. So I think the appreciation required by both SEBI and MCA is on this flexibility part of it that social sector things do not work in boxes on straight lines. on mechanics, on just simple board approvals, on mechanical linear line based activities, it doesn't work like that. So that's the limited point that I wanted to make over here, rest I think everything else has been stated quite well by both of them.

This ESG CSR sustainability, we use Similar words for somewhat dissimilar type of concepts. But for today's session, we would consider everything as same and proceed. And it's something which everyone is talking about. So it has caught the attention of everyone, be it regulators, popular media, business schools, corporations, everyone. And I just wanted to take some 10-15 minutes to lay out what we understand so far.

what research we are doing at ISB, and then open it up for the panel to share their views. And I have some questions for them. It's an umbrella term comprising of three different aspects, environment, social and governance. Within each, depending on who you talk to, there would be hundreds of different indicators and parameters.

And at the end of the day, I mean, if you want to concise it, we are looking for companies to do something non-financial in nature also. To have certain impact on the society around them, the various stakeholders also. The expectation is not only companies should make profits and do financially well, they should also do good socially. That's the expectation that we are living in today.

So... Where does the role of regulation come into it is a big question and that's the topic for today. So far the understanding is the CSR or ESG is something voluntary. People do that, companies do that, even though there is no regulation forcing that.

Yet across the world, be it EU, China, Australia, South Africa, US to some extent, governments are intervening. And the most popular mechanism so far has been mandatory disclosure, wherein companies will say, this is what we have done in the space of ESG or CSR. At best, they will say that we have done nothing, but they need to disclose.

And the idea is the invisible hand of market would work, because with this information, all the stakeholders would be able to see what the company is doing. Those who are doing well socially would... also be rewarded in terms of the contracts or various opportunities they have to interact with the society and therefore their implicit contracts would be favorable to them and this competitive advantage would force the companies which were not doing anything on ESG CSR space to pick up the slack and start doing in that area. There is a mixed evidence in this in terms of international findings. Invariably, whenever these type of regulations are imposed, the profitability or stock price of the companies hurt, but the social causes do pick up.

Across the world, people have seen that once you start forcing companies to disclose what they're doing with emission norms or economic inequalities, those indicators pick up. So even in China, once this mandatory disclosure was imposed, the emission norms or the level of pollution kind of declined in the areas where the companies were very powerful and doing a lot in the est space india took a very drastic step by coming up with a new regulation which is more like a game changer we are not asking companies to disclose what you are doing in 2013 a rule came that you have to spend not just talk you have to spend two percent of your profits if certain conditions financial conditions are met in terms of certain size profitability book value right and thankfully thankfully there is some discretion at the companies how to spend that and that responsibility is given to the board and therefore the question that can boards help in achieving this objective this experiment as such is having enormous potential with so many companies around there. The estimate is roughly about $2 billion would be spent in this sphere. And therefore, if you think in terms of externalities with so many of NGOs out there, they all will be strengthened by the way of partnerships. And therefore, some social good can come out of it.

That's the hope. That's the expectation. The question is, would it work?

And we at ISB have looked at this experiment, a policy experiment, and tried to answer some of the questions which so far in research it's extremely difficult to answer. The first and foremost is a paper of mine with another colleague at Columbia, Siva Rajgopal, where we are looking at the shareholder implications of this regulation. If all of paper with another of my finance colleague, Prasanna.

They are looking at the social side of it. Would it hurt the motivation of the companies? And then currently, I'm also engaged in a work which is the topic of today. Can we really force the companies to be socially good? So broadly, the first question is, does CSR affect firm value?

And there are two schools of thoughts here. And this is not a new topic. I mean, the ESG is very popular today.

But I mean, if you Look at what is inside ESG, take care of your employees, your community, environment. There's nothing new. It's just a repackaging.

Way back in the 70s also, the Nobel laureate Milton Friedman said that the social responsibility of the business is to make profits. Make profits, give dividends, give the money to the shareholders, and then decide what they want to do. We as businesses don't need to do it.

On top of that, From voluntary CSR, once we move to mandatory, it creates a lot more problems. There is a pressure on companies to pick up stuff which government likes. There could be threat that the government might further impose more conditions.

Various interest groups might put more lobbying effort on that. And at the end of the day... None of the companies are also trained in doing this. So the implementation would also take a lot of effort.

You need to have that in-house department. At the end of the day, when you're spending a lot of money, you want to do it in the right way. And that requires certain preparation also. So for all these reasons, the argument is the CSR can hurt the company.

On the other side, since 1867, people have been advocating the stakeholder. theory wherein companies should look at the interests of everyone who is associated with them or everyone who is affected by them. By doing so, companies can attract better employees, loyal customers. They will have some goodwill that in case something goes wrong, the punitive action by the regulators would also have a softer blow as compared to anything else.

While these two theories have been established, who wins or what comes on top is an empirical question which only data can tell. Everyone can have an opinion and that's where academic research would differ from opinion pieces or thought pieces. We would let the data speak for itself. And the biggest problem is that there are more than 200 papers, academic papers on that and the evidence is mixed.

Some say that if you do... Good socially, you will also do financially, and some don't find that finding. And the biggest challenge is this econometric notion of reverse causality. If you look at top 10 companies in India who do well socially, and if you look at top 10 companies of India who are doing well profitably or market cap wise, there is going to be huge correlations.

So is it the availability of resources and profitability that is driving CSRs? Or is it the other way around that those who are doing socially well are being rewarded and they are getting chicken and egg story which cannot be broken down. And that's where our research comes in and that's where this entire identification comes in.

An experiment where you are saying that if you make 5 crore you spend on CSR otherwise don't. So that gives us an experimental setting. If you pick a company who is making 4.9 crore profit and another company is doing 5.1 crore profit, we can argue that both are inherently similar.

There is not much to choose between them, except for the fact that one is forced to spend, other is not. And therefore, if you look at the outcomes, how the stock market reacts to the news that they are spending or forced to spend, that will give us an idea that on the whole would stock market appreciate these things or not. And our findings, not surprisingly, is that when these bills were being debated in the parliament, we identified some even dates where the probability of this legislation passing increases.

Around those days, the stock market reacted negatively for the affected firms, which led us to conclude that this ESG or CSR is a social burden on companies'shareholders. This helped us kind of settle a very long-lasting debate that what is the impact of this ESG on the financial performance or the stock market performance of the companies. But if you if you look at the intent of the regulation intent of regulation is not to increase the stock price or anything it is to improve the social impact and therefore we had to move forward with next set of studies to look at the big picture because why the regulation was introduced was not for financial reasons for societal reasons so were those objectives met and The fundamental critique is how can you make something mandatory when it is voluntary in nature. Even worse, for political flavors, you can donate to a pet project of whichever government is ruling. A more sophisticated view is those who really want to do something good.

Now you are forcing. If you even don't put the conditional donate, but if you say that now you donate and these are the areas where you have to donate, then as an individual, as a company, my motivation to do good would be hurt. And that's what this paper by Prasanna and Shiva find, that those who were spending way above 2% before the regulation, they have cut down their spendings.

They are now just doing around 2% so that they can comply with the regulation. Nothing more, nothing less. That kind of troubled me. I thought that this cannot be the whole truth.

And therefore, I started another project where we are saying that, okay, it might be true. The regulation hurts the inherent motivation of some companies. But what about others? Because this regulation now brings this aspect of CSR to so many other companies which earlier they were not engaging. So therefore, what happens to them is the question that we are addressing.

And the argument is while all the critiques of mandatory spending is... absolutely correct. There is other side of the story also in the sense that it's a soft regulation. There is a big list of activities where companies can spend. They can write a check to PM care fund or whatever that is a CSR but they can also pick up lot of activities which could have environmental aspects, how we treat your employees, poverty elevation, education aspects, sports, culture.

So there is a vast variety of menu which the government has given to companies to pick and choose what is close to their heart. There is also flexibility in terms of how you want to do. I mean, you don't need to reinvent the wheel. There are plenty of NGOs out there who are doing excellent work. So you can partner with them.

You can start your own foundation or you can have your own employees do this. How it is being done is totally up to the company. And that's where the board comes into picture.

picture. The other aspect is there is this thought of learning. The fact that now there is a board, there are sustainability officers, there are former partnerships with the NGOs, it imbibes that culture of learning.

Earlier, there would be mistrust that if I give a donation, what would happen? Would that be misused or would that be properly put in place? With a common understanding of what who we are doing, who are the various players involved.

It inculcates a system, a formal system where companies can contribute and the mistrust that the money would be wrongly utilized would go away. For these reasons, we believe that there might be some good out of it after all. And to test that, what we do is we look at the ESG ratings and that's where things get tricky for us.

How do you measure social impact? That depends on what you have in mind, what is close to your heart, right? And it's extremely difficult to measure that.

And as a more parsimonious measure, we look at the ratings, ratings given by independent agencies about how a company is doing along these three dimensions. And we compare these ratings of Indian companies which are affected by this regulation with the company's rest of the world. where there is no such regulation.

These companies are coming from US, EU, China, Australia, across the world. And what we find is across the world, the ratings or the performance measurement is kind of stable over time. But in India, the ratings have gone up.

That means there is some real impact and it's not across the board. OK, so the increase in ratings is more pronounced in the companies which were not spending earlier. because those who are spending those who continue to do so there is nothing changing there so we don't find any result there those who were not spending before and afterwards also they are just explaining it away that we can't do it for whatever reason again there is no change in rating but those who were not spending before and have significantly ramped up that's where we see a increase in these ratings we also find that if a company is doing this CSR via some opaque trusts, that's where there is no increase in ratings. But if they are partnering with established NGOs or they are doing it directly, that's where we see some improvement in ratings. And finally, we do find that whichever companies have engaged ESG experts as their board members, that's where we see a more impact.

So to sum it up, Can firms be forced to be socially responsible? Partly yes, partly no, is what our research indicates. It depends.

The context matters. What measures we are using to capture the outcome, that matters. The granularity of data matters. So just a broad stroke statement saying that it works or it doesn't work, that's not the way we would want to think about this process. There is some good, yes, there are some limitations.

is what we find. So that's from the academic side of this topic and we would now solicit views from our panelists. Given that this industry is at the peak of its popularity and the expectations are changing that companies should do financially well as well as contribute in this sphere, is this goal realistic?

What are some of the challenges? What's the role of the board in all these? These are some thoughts we want to learn from our esteemed panelists. What I would do is I would first invite all three of my panel members, Deepak, Nixon, and Ratna to provide their opening remarks. Then we would follow it up with some questions which will probe deeper into these areas.

I'll invite my panelists. Who do you want to go first? Anyone, I mean whoever wants to have a first shot.

Okay, so first of all, thank you so much. This is welcome. Yeah.

First of all, thank you so much to ISB and for inviting me to your first Insights Forum. I think that's a privilege and I feel honored. To take off, you know, you've listed a whole host of facts, including the fact that the legislative mandate for CSR, the fact that ratings have gone up for those companies that haven't done CSR in the past but post the mandate they have started implementing because their arms were gently twisted. Then you know the issue about trust, the trust deficit between agencies, the corporate India basically that has to do this kind of... spending and the NGOs that are doing this so rather than go into the whole plethora I think I just touch on these three things now firstly I think having a mandate for CSR spending is a double-edged sword in yes it's good because it's meant for development it's meant for societal good and a whole host of things but let's not forget the fact that What ends up happening is driven by the reality of company interest, shareholder interest, stakeholder interest and when I say stakeholder I mean the larger polity and other such interests.

So although it is a noble mandate, what drives it may not really come from a place of similar nobility. That's why. Secondly, in terms of having to spend.

is what is the reason that has spawned so many foundations and that underlies the fact that there is an inherent distrust that not-for-profit organizations induce, particularly the smaller ones who work at the ground level. The big ones are okay. They have their process. in place, they have all their finance and HR and all the other stuff in place so you don't mind dealing with them because you know they have capacity to deliver to what you want them to report on.

But the ones who do the real hard work at the ground level are not the ones who are being funded directly in any way because you are concerned that they may not be able to do it in the way that you want them to do it. but also not making the effort to build their capacity to be able to do so right, the easier option is to run your own foundation or to give it to well recognized agencies which forms a clique of sorts, so it's like you know me I know you so let's do this together and so I'm not sure how it lends itself to strengthening civil society which is what inherently it was meant to do Thirdly, as far as the increase in ratings is concerned, it's like you're being penalized for having done this earlier. So because you've done this earlier, guys, hey, what's the big deal?

But you haven't done it? Well done. Now you're going up the rank. So I'm not sure that's even a, you know, competitor for looking at performance in terms of rating.

So it isn't something that I would hold a great deal of store by. So for me, you know, mandating CSR. It comes from a good place.

Where it heads is driven by a you know several nuanced layers of who is in it for what right and that is what we need to step back and look at when we look at a subject like this and like I keep saying ESG is flavor of the month right we've had millions of cops you What happens post then? And for me, the irony is at every COP, you have thousands of people coming in from all across the world, flying in, using transport, living in hotels with hot water and air conditioning, and then we talk about carbon emissions. Thank you. So at the outset I thank ISB for this invite.

I am highly honored. As regards mandatory CSR, as the moderator already told, it is a contradiction. But then what these actors helped facilitate is that Corporates have come to know that they have to adopt sustainable practices, they have to be inclusive and they should be socially responsible. So this is a result of this mandatory CSR.

I will not tell that because of this CSR mandate, companies have suddenly become socially responsible. It's like we are having dowry prohibition act and all. Still dowry continues. So this cannot make any corporate immediately socially responsible. Government regulation, consumer demand, investor pressure, all these are ways in which companies can become socially responsible and here we have made mandatory CSR.

Of course, from being a philanthropy item or not a board item, now it has become a board item and the board has been made responsible for implementing CSR. But what I find is it is evolving in India and therefore most of the projects which we are funding or implementing are only resulting in the 2% being spent. Most of the activities we don't study about what change this CSR is effecting.

I will just share one experience. Once a corporate had told that government schools are not having drinking water facility. The board was telling the government that we should do CSR, why don't we divert CSR funds there. And immediately all the branches were told, you give aqua guard facility to all the government schools.

Within a month, we don't know what has happened. Many of the schools didn't know what to do with this. Water, even supply of water was not there. Aquaguard maintenance was not happening.

Electricity was not there. What happened was that everyone was happy even at the board level that we have supplied thousands of aqua guards to government schools. Photo ops were there, optics was very nice.

Everyone was happy that this CSR money was spent. So now if you ask what has happened to this, the answer is no one will be able to give a proper information on what has happened to these equipments. I am not telling this is applicable to every activity being done. Lot of good activities being done.

But then, my view is that most of the things are being done with a short term aim only. As long as my duration as chairman or board directors are there, I will have some CSR activity to be done. The impact of CSR funds is not being studied at all. And if CSR, like if mandatory CSR has come, if it has to be effective, then the ecosystem itself should change. We are implementing it through NGOs, non-profit organizations.

What is the capacity of these organizations? Also, though corporates are starting their own foundations, they are implementing it through NGOs only. So, NGOs as you know, they can't afford quality human resource and therefore the capacity available is also quite restrictive and foundations are implementing their activities through NGOs. Even impact study, we don't have a good agency which is cost effective to study these impacts independently.

And even at the foundation level, since CSR is evolving in India, what I have observed is the learnings, Levels even foundations is also not very great. I was in a jury for CSR social impact awards and the most almost 200 of the largest CSR foundations corporates the that applied for this award, many of them couldn't understand the difference between output outcome and impact. So this is coming from foundations and foundations have this complaint that at the NGO level quality is very poor. But what I find is like the entire ecosystem has to change if this mandatory CSR has to become effective. And then it seems it is almost become like since.

Ministry of MCA is we have to submit reports and all it is just becoming a check off thing in most cases and at board level we require leaders were passionate about the course which is not happening because most of the board of directors are focused on profit and Thinking how much profits will increase really the CSR becomes only a part-time thing in the board and Therefore, unless board members who are very passionate to bring change, this mandatory CSR will not help. In many cases, I have found this is the thing, board members want some project to be implemented and without even knowing, even conducting need based study, whether the community request it, we design some project and implement it. With the result there is no ownership of the product project later also. There are various examples and also many projects when we design and when we fund it, we do it since there is a project we will spend 2 percent. But then we do not go into various aspect of it.

See everything looks good in a power point. Any project looks very good in a PowerPoint, but when it is implemented, we find there are lot of gaps there. There was a project where we had to support, a project where visually challenged people were to be trained and placed in shopping complex, hospitals etc. It was very, like PowerPoint looked very good. 200 of them will be trained, 70% will be placed and their livelihood improves everything.

It looks very fine and any funder will fund it. This is a very good project and also there is an element of compassion. We are helping visually challenged people. But then implementation or in reality it is different.

Therefore, when CSR becomes mandatory, even if it is board level, that reality has to be understood by those who are taking decisions. Otherwise, here in this case, what happened is that it was very difficult to mobilize 200 visually challenged people in one place. And even when they were mobilized, they were not willing to remain there for two, three months training.

And after I think attrition of CSR. 20 or 30 percent, 70 percent, 140 were trained. Finally, only 30 percent could be placed.

Many of them were not willing to work in the cities. And even those who were placed, there was no accessibility in the cities to accommodate them. And what about the training for those who are already in the working situation?

All these are not considered in the project. we think about the money which can come only and the board also wants this money to be spent. Before March 31st we have to spend therefore it goes in that way. So, these are aspects which we have to consider when we think about mandatory CSP.

And I feel it's a good initiative in the sense that corporates who are not earlier spending are asked to spend. And I am very optimistic in the sense that it evolves. And lot of focus comes on change and all.

This will really result in something good happening in India. And many cases why it is not having the desired impact is because everyone is having short-term outlook only at the board level or anything. Even I have said I have congratulated Rotary Club for their social service activities everything and all. But then I find every year since office bearers change the focus is only one year and therefore what happens to the amount invested in CSR activities all these are not accounted for or anyone held. responsible.

We are happy when the 2% is spent. This is something I wanted to tell as the opening remarks. Thank you very much, Nixon.

Thanks a lot. First of all, I really wish that I was as articulate as all of you, but let me give it a shot. There's a word in Hindi called sum.

Can anybody tell me the meaning of that? Sum. Sum. Hindi me.

Not English. Not S-U-M. Sa or ma. Please. It's about balance, it's about balance and so yes good so let me also begin with the story now and I will come back to why I asked this question when I can So, this is a small story, I will not go into the exact detail, there was an experiment done many years back when a monkey and a monkey's baby was thrown into a water pond and water was continuously poured, so the till the time the monkey could save the child.

child, the monkey saved, tried to save and eventually he realized that only one could survive and the monkey decided to drop the baby and then jump out of the that box of full of water. So that is precisely the story of how ESG is working now. And I will take a very peculiar example, a most recent one. She rightly spoke about COP23, many global conferences. The moment there was a crisis in the world on crude oil, and I, by the way, come from an oil and gas industry.

industry, so I know that crisis very well. Suddenly everybody stopped talking about green energy, solar power, wind etc etc, everybody stopped talking, why? Because that survival became most important otherwise you would not have survived the next day.

And that's a fact the crude prices at were at 140 150 under no circumstances India would have Indian economy would have survived. So you had to take a certain hard decision overlook all your ESG commitments say that 2060 is not happening now let's talk of 2070 and God forbidden if there is another crisis like this which happens 10 years down the line. So We will have this conversation later.

So that's a fact of life when it comes to survival when it comes to profit. It's a very convenient argument to overlook everything else. Again I will build on the argument later but as we get into certain questions. Coming to the third point, there is a history to CSR, not just the 2013 rule and so Chandigarh also has DAV colleges, they were all built by some philanthropist, some businessman who was nice gentleman decided to feel good out of charity and then decided to do something. So philanthropy has been there.

What has happened is that there is a structure given to it now. Now there is a challenge to the structure which I think both of them highlighted quite well. I will also add couple of points over there.

So there is a history. There is a history of doing philanthropy, social good, buy businesses for People, so I will stop over here. That's the third point which I want to do it the fourth point as an outcome of this There is a schedule 7 that came and obviously as you are saying continues to evolve whenever the government feels that if we want to do Namami Gange then we will do it. If the water is not good then we will get water filters in the school.

So it keeps changing. New governments, new bosses, new directors, everybody will have their own opinion and it will continue to evolve. So that's a fact of life. But again you just turn the wheels exactly 100 years from now.

2019 when the ILO was formed. So look at ILO's charter, look at schedule 7, look at the priority of the government of India, look at the social priorities of any of the governments in the world. Everybody talks about social. Everybody talks about human good, human welfare, health, education etc.

So what has changed? It has essentially said that now let the corporate sector formally give me a helping hand. So as he rightly said one step forward.

Good or bad we will come to that conclusion much later. But that's the fourth point which I wanted to make. Fifth point ESG versus CSR, you highlighted lots and lots of paradoxes.

Two simple examples ESG is you confined to your four walls whatever you want to do within that improve any efficiency, reduce emissions, reduce water footprint, all that is ESG. Anything that is outside the wall which doesn't impact your business is clearly CSR. So, that is a basic distinction and let us stick to that, let us not get into too much complicated arguments because there is an argument to everything and we can spend full day on that.

So, within this again one more point which I wanted to make on CSR over here, you look at. the websites of different companies in the world and I take one example of let's say a car company based in Germany, you talk to them about CSR, will they ever talk about doing education giving water filters in Germany as a part of their CSR, they will never do it but you look at India, they will do it because our reality is different from their reality. So that was the fifth point which I want to do it.

Sixth point, we spoke about governance. Two railway tracks never meet. Governance as understood by under the Companies Act with the kind of stringent regulations that everybody has with the kind of adherence which the board has to follow as rightly said and repeated by all board does not understand the basic characteristic of an NGO how it works because they have never done it.

Nobody has gone to the field soil their hands been to a poor man's house. house, ever tasted the water, ever tasted how it food looks like other than politicians who once in a while do it for fancy thing but nobody does it. So that's the reality of life. So for us to expect that suddenly just because they are charitable they will understand and they will appreciate whatever is happening. It requires far more effort than that.

So there is a gap definitely over there. And let me also add one more piece over here, and I will take the example of all of us in this room. I have done my management not from as illustrious school as ISB, very small one. But then the fact of life is, if I look at my own career, I am now 52. Am I absolutely sure that I will be employed for the next 5 years, 6 years, 10 years with my qualification, with my background, my pedigree working in the top 20 companies of India?

I am not sure. So why do we expect that a 6 month training program given to a villager, he will be now sustainable successful for his life. So I think we are being stupid over there.

So I will keep raising arguments and I will keep provoking you so that you ask more and more questions. Thank you. One question which you had raised was about choice of activities.

Human rights, child rights is a very fancy word which social sector understands very clearly. I have worked in the UN for 9 years so I understand that fairly well. And corporate sector doesn't understand. Rights is not a word, rights means activism. So whenever you are an activist, I don't want to see your face.

It's clearly that. So my governance metrics, your governance metrics, your priority, my priority is different. I have seen numerous examples where a corporate sector CEO became the CEO of an NGO. But have you seen any reverse example?

None, if that happens I will be the happiest person but it is not happening. So again provoking lots of thoughts, question of ratings and evaluation. There are clearly laid metrics, you can evaluate any project, success, failure.

But the moment you try to do it for 3 years, 4 years, 5 years, I cannot have even a single person from the villages around my area come to ISB. Unless I decide to support for 20 years. The loss is 3 years, maybe one more relaxation.

Let's stop at that. So I will have to leave it over there. Beyond that, I can't think of supporting that person.

So there are challenges that we also realize. I spoke about impact. Okay. Yeah. Okay.

So coming to my concluding remark, why did I speak about sum? Everything is required in balance. Profits required in balance, if you don't have profits, how do you spend money on CSR?

If you don't understand CSR or at least don't appreciate bit of it, you will not be doing justice to your investment. And that is one idea of not doing justice to the money that you spend is something where every board is very risk averse. So you have to sometimes bolster their ego and you tell them you don't know enough, you are okay. Okay, maybe stupid.

So you will get probably little more encouragement to do things. So everything happens in balance your CSR activities need to happen in balance your social sector engagement needs to happen in a balance as a corporate entity you need to understand the social dimension of imbalance will my ESG being compliant or being better result in better profit. answer is mixed there are plenty of people who are in this room come from financial background and now everybody has been talking of impact bonds everything now who is bringing in that impact it is the social sector eventually which will bring in that impact. But NGOs don't have capability. Fact of life is that when COVID came, the first thing that the Prime Minister remembered was the NGO sector.

That the social sector should step in. That was one of his opening statements. So that means that the capability of the social sector is recognized very well and appreciated very well. We may not be moving fast enough in that direction.

But again, coming back to my original statement, that there is everything that needs to happen in balance. Whether the... After the good ESG companies have survived, there are many examples across the world which decided to be more responsible, not profitable, didn't survive.

ESG, one more point which was made about ESG is the flavour of the month. I have been in this profession for more than two decades now and I have, this is the third cycle of flavour that I am seeing in the last 20 years of ESG. I will conclude over here.

Thank you very much. So in the interests of time, maybe I'll just have one or two follow-up questions with you because all three of you have spoken excellently and covered a lot of stuff which I wanted to ask. And then I will leave the floor open to the audience. My question is, while we are still grappling with this mandatory CSR requirement, There is another regulation on the horizon which is about the business responsibility and sustainability reporting. It's a daunting 35-page report with more than 150 questions in it, capturing hundreds of indicators.

And sooner or later, it will also be forced to be audited. So how prepared are they? I mean, are we going for an overkill?

That's one side of it. The other side is because real money is being committed in these causes, we need to be sure that this money is being utilized properly. So therefore, it is necessary. How do you view these two different ideas?

So I think there's a dichotomy here and I'll tell you why because you see your CSR spending currently line of vision is one year right the moment I as a corporate because I sit on corporate board CSR committees and this is why I'm saying this. The moment I give money to an agency as far as MCA is concerned, I have fulfilled my CSR mandate, right? When I was at UNDP, we actually worked with MCA and which is why now you have the wherewithal that that money can be kept aside for three years because we said there's so much money there, it has to be spent, there is no line of vision or there's no line of sight on where it's going. I as a corporate, the moment I give an NGO my money, I have finished my mandate.

Now, where the NGO is using it, where is the impact, is not being looked at by MCA. And so I think the dichotomy in the CSR Act is, on the one hand, you want agencies to do CSR spending, but on the other hand, you're not really... looking at report and i think that's where sebi decided oh there's so much money here now let's see what they're doing with it so these two agencies need to talk to each other as well right so sebi can't get up one day and say bsr i mean business social responsibility report but now half the agencies and since i work with some of them don't really know what to do with it right which is where your tick boxing comes in he will ask and do you know so where is the I mean you put in place you know structures all with good intent not doubting intent but unless agencies of government mandating these various layers and foundations that they put in place unless they all talk to each other if you are seriously looking at driving impact if you are seriously looking at measuring impact is not really going to happen very soon Right? But what it ends up doing is putting a burden on corporate entities who think that why am I being saddled with this? And like I think what Deepak said, unless you know, if you've seen globally, who are the most efficient corporate entities?

Those with very deep pockets. right because the deep pockets can then finance social responsibility because it's not really going to hit my bottom line at a point and so i can afford the luxury of it number one number two the moment you start talking about you know responsible consumption your prices go up of those commodities that are being responsibly you know produced then who ends up using them not the world at large it's people who can afford it so then again it becomes a rarefied kind of a you know a thing so i think there are a lot of things that are done in isolation and whether it's globally or here for instance china is judicially mandated people are terrified which is why they're doing it right at least here it's a legislation so i think you need to look at it step back look at all the floating pieces and then try to make some sense of it and unless I think what misses in everything that social responsibility is looking at is how. The biggest question is how and unless you are able to answer the how of things, it will just be like this.

There will be newer things coming, each government will bring in their version of what they think is important and I think unless all of these legislations and acts and reports start talking to each other, reduce the burden on corporate India, make it more viable for them to actually report because they want to report, we will be floating like this for the next god knows how many decades. I agree with whatever Mr. Etna has told. Bringing out this social responsibility business, social responsibility report etc. or various reports to MCA, I think the intention is that they want to see that things are complied with. whatever regulations have been told about CSR or ESG and all are complied with in that way.

The intention is good but then this 50-40 pages report and all finally it goes into a checkbox thing only. It becomes more complaints oriented than really bringing social change. So, I also believe that.

The social sector itself is very complex. Change to be brought about is again takes lot of so many steps. Many years and all, it cannot be brought within three years and all.

they are given village development programs. There are many foundations which have it for 2 years, 3 years and all. What happens to the money invested after 2 years?

And whether 2 years, 3 years is enough to make that village development project sustainable? These are not captured in the reports. Report captures only whether this much money has been done, which sector you have invested etc. So these are loopholes in the reporting format. our reporting structure and all but i say like a government from the government side i think such reporting it's a fair on their side to us but then the change to be made i think we have to like from the corporate level corporate side or who are implementing all this they have to think about the change what change i am going to make and whether we will bring make that change so it requires the like a lot of interaction with the corporate with the implementing agency etc to see that the real change is happening now we give the amount to the NGO and then be interested to the NGO for implementing and corporate is happy because they can submit the report properly then here only unless this becomes a mainstream thing Now it is only though it even though it is a board item how much of time is spent for a CSR or ESG I don't know it it's not too much even I find even like MBA curriculum also CSR, corporate governance all these are included but then how much of marks or how much of percentage we are giving to this that is also to be told like MBA finance we have MBHR whether we are having MBA CSR, no that is not there.

The main stream is HR, finance, marketing, all these. CSR, ethics, governance, all these are in the background, though we tell that these are very important. So like what government wants to or SEBI wants to tell is ESG social responsibility is very very important, it is relevant. But then we have not captured it that much. And this reporting also over a period of time, I hope that the change which is being made also will be captured.

Thank you very much. I think completely agree with both of you. Just couple of lines, thoughts over here. Those who belong to my generation will remember a very famous ad, Bhala uski saadi meri saadi se safed kaise hai.

So MCA comes up with something and SEBI says, oh, now it is my chance. SEBI comes up with something and MCA will say, oh, now it is my chance. And you will see things keep changing. Now, the paradox over here is, for every single change that you need to make in your annual CSR plan, you need to go to the board.

And public sectors generally leave it slightly open. Private sectors give financial approvals line item wise. And supposing at the middle of the year, there is a cyclone and somebody, the government says, okay, now you can support cyclone. How do you do it?

You can't do it. So while completely agree that, yes, Getting in a structure of reporting is fine because it puts some thought into you, at least it tells you that at the end of the year that, oh, this is where I was good, this is where I was not good. The bigger challenge when you're doing social activities is how do you really be adaptable to crisis like situations. That flexibility is sometimes not there. So I think the appreciation required by both SEBI and MCA is on this flexibility part of it that social sector things do not work in boxes on straight lines.

on mechanics, on just simple board approvals, on mechanical linear line based activities, it doesn't work like that. So that's the limited point that I wanted to make over here, rest I think everything else has been stated quite well by both of them.

Transcript for:Understanding ESG, CSR, and Sustainability

Transcript for:
Understanding ESG, CSR, and Sustainability