An Empirical Study on Green Initiatives by S&P BSE SENSEX Companies in India at the Outlet of Companies Act, 2013

An Empirical Study on Green Initiatives by S&P BSE SENSEX Companies in India at the Outlet of Companies Act, 2013

Dipayan Singha (Lalbaba College, India), Megnath Routh (Sonarpur Mahavidyalaya, India) and Amit Majumdar (Bijoy Krishna Girls' College, India)
DOI: 10.4018/978-1-5225-8547-3.ch016

Abstract

Considering the necessity to build up corporate social responsibility (CSR) activities in general and sustainability in particular under statutory obligations, Ministry of Corporate Affairs, Government of India had notified in Companies Act 2013 (section 135) that every public limited company and private limited company having net worth of more than 500 crore or turnover more than 1000 crore or net profit more than 5 crore needs to comply with CSR rules (i.e., contributing 2% or more for the welfare of society following the prescribed guidelines under Schedule VII). The chapter focuses on CSR activities of companies registered under BSE SENSEX and evaluating their current status in CSR activities from the perspective of the broad heading of planet and people. A detailed analysis is done to highlight the current situation of the companies towards sustainable development through corporate sustainability index and statistical tools like Kruskal-Wallis test and Mann-Whitney U test to represent the contributions of these companies towards the environmental responsibilities. The study of CSR reveals the endeavors of surveyed companies towards the holistic development covering the noteworthy issue of environmental protection and sustainability; however, a continuous vigil from the regulatory bodies is the need of the hour to ensure that adherence to CSR practices should not only be in mere form but in true spirits.
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Introduction

Corporate social responsibility under the new Companies Act 2013 has brought a bundle of changes in Indian corporate business. CSR introduction in Section 135 is referred as a give and take policy, as the companies are taking resources from the society it needs to reduce the gap by providing something back the society. The concept goes way back in 1994 when John Elkington coined the need or Triple Bottom Line which was based on 3 pillars namely people, planet and profit. Ministry of corporate affairs notified Section 135 and schedule VII and the provisions regarding Companies (Corporate Social Responsibility Policy) Rules, 2014 or generally known as CSR rules which came into effect from 1st April 2014. Companies now need to share a part of their profit on CSR activities as a contribution to the society, and these expenses cannot be claimed as business expenses. The guidelines issued by MCA on social, environmental and economic responsibilities of business mandated adaptation of CSR by the companies having the following yardsticks during any financial year.

  • 1.

    Companies with a net worth of Rs. 500 crore or more, or

  • 2.

    Companies having turnover of Rs.1000 crore or more, or

  • 3.

    Companies achieving a profit of Rs. 5 crore or more

And these companies shall constitute a CSR committee on the board. Composition of corporate social responsibility committee is subjected to disclosure under sub section (3) of section 134. These companies must constitute of minimum 3 directors containing an independent director. SEBI also mandated a top hundred listed companies at BSE and NSE on the basis of market capitalization for proper inclusion and disclosure of business responsibility report in their annual report. The CSR committee formulates and recommends about the CSR policy to the board and the amount of expenditure to be incurred in these activities. Monitoring these activities and policies are also another important function of CSR committee.

With great powers come great responsibility that is why CSR committee is bound to some responsibilities which are:

  • Recommendations of the CSR committee are approved by the board which eventually becomes the CSR policy and disclosure of the contents of such policy in company report and website is required. Rule 9 of the CSR rules clarifies that a company qualifying under section 135 shall include a CSR report along with board report.

  • The company must spend at least 2% of the average net profits of three years immediately preceding financial year. Computation of net profit is as per section 198 of the companies act, MCA clarifies that profit means profit before tax.

Companies may engage in various activities notified are: (l) In Schedule VII, for items (i) to (x), the following items and entries shall be substituted, namely:

  • 1.

    Eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation and making available safe drinking water:

  • 2.

    Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

  • 3.

    Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centers and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

  • 4.

    Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water;

  • 5.

    Protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional and handicrafts:

  • 6.

    Measures for the benefit of armed forces veterans, war widows and their dependents;

  • 7.

    Training to promote rural sports, nationally recognized sports, Paralympic sports and Olympic sports;

  • 8.

    Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities and women;

  • 9.

    Contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government

  • 10.

    Rural development projects.

Key Terms in this Chapter

Corporate Sustainability Index (CSI): Corporate sustainability index is the index prepared based on their performance on various sustainability issues as laid down in the Companies Act, 2013 and United Nations Sustainable Development Goals (SDGs). this index is created with a view for sustainable development through environment compatible investment and to encourage corporations to be ethically responsible.

BSE GREENEX: BSE GREENEX or green index is India’s first carbon efficient live index which was developed in 2012 by BSE in collaboration with IIM Ahmedabad for the green purpose of measuring carbon emission by companies. This index provides its benefits to socially concern and profit concerned investors, industries and government by encouraging energy efficient practice. The index is calculated considering top ranking companies of different sectors like power, steel, cement etc. The index is measured on the terms of energy efficiency by gradual decrease in energy consumption, waste reduction, adaptation of renewable energy and costs incurred on energy. The index provides significance to business as well as investors also.

Triple Bottom Line (TBL): The idea of triple P also known as triple bottom line stands on the base of three pillars namely people, planet and profit which measures the impact of the company on local and global scale via sustainability. Measuring the input that these companies take from the society will give the requirement to return to the society.

Standard and Poor Bombay Stock Exchange’s Sensitivity Index (S&P BSE SENSEX): Standard and Poor Bombay Stock Exchange’s Sensitivity Index or Sensex is the first and most popular index from the house of India’s oldest stock exchange. The S&P BSE SENSEX 30 measures its index through a free float market capitalization weighted index. Free-float market capitalization is determined as the market value of total shares of the company which are readily available for trading in the market. Sensex simply defines the current market position of major listed companies.

Mann-Whitney U Test: Mann-Whitney is a non-parametric test that resembles t-test which compares two independent population means. In the study Mann-Whitney U test is conducted compare the public sector unit and non-public sector unit of BSE SENSEX companies considering corporate sustainable index as dependent variable.

Corporate Sustainability (CS): CS is referred as the corporate management paradigm which subordinates traditional profit maximization and aims in achieving social goals for sustainable development. Corporate sustainability includes sustainable development, corporate social responsibility, stakeholders theory, and corporate accountability.

New Companies Act: Companies Act 2013 has brought a bundle of changes in Indian corporate business. It is basically the rules and guidelines that every company needs to follow to operate in India. Section 135 and schedule VII and the provisions regarding companies (corporate social responsibility policy) rules, 2014 or generally known as CSR rules which came into effect from 1st April 2014.

BSE CARBONEX: BSE CARBONEX was launched in 2012, is a carbon-based thematic index that values an organization’s commitment to climate change. That aims at providing a benchmark as well as awareness to the dangers imposed by climate change. The assessment of these companies is made on the basis of carbon emission and carbon efficiency.

Kruskal-Wallis Test: Kruskal-Wallis Test is a nonparametric test that assesses for significant differences on a continuous dependent variable by a categorical independent variable. In which the null hypothesis is considers that the samples are from identical population whereas the alternate hypothesis assumes that the samples are from different populations.

Sustainability: Sustainability is the efficient use of resources to meet the present needs without compromising the future. Environmental sustainability under corporate social responsibility act is a major game changer in green initiatives. Major initiatives under environmental sustainability are waste management, emission control, maximizing energy efficiency and productivity. An emphasis on sustainability today will contribute to a better future tomorrow.

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