Corporate Social Responsibility | A case study on Larsen & Toubro

By Garima Saxena, 3EA
Corporate Social Responsibility | A case study on Larsen & Toubro

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society including economic, social, and environmental. To engage in CSR means that, in the normal course of business, a company is operating in ways that enhances society and the environment, instead of contributing negatively to it.

The CSR provision requires affected companies to spend at least 2 percent of their average net profits made in the preceding three years on CSR. Companies must set up a "CSR Committee" including at least one independent director who will be appointed to the company's board. They must also include a report within the company's annual report which details CSR activities, the amount of funding earmarked for CSR, the composition of the CSR committee, and, if they have failed to spend the required amount, detailed reasons explaining the failure to comply.

Larsen & Toubro Limited, also known as L&T, is an Indian multinational conglomerate headquartered in Mumbai, Maharashtra, India. The company has business interests in engineering, construction, manufacturing goods, information technology, and financial services, and also has an office in the Middle East and other parts of Asia. The Company addresses critical needs in key sectors - hydrocarbon, infrastructure, power, process industries and defence. L&T has always been a socially and environmentally conscious company. CSR is not an unfamiliar concept within the company. In the year 2012, it was ranked 4th by Newsweek in the global list of green companies in the industrial sector.

The campus of the main office in Mumbai is a green campus. They are working towards improving their other campuses and making the Powai campus a role model campus for the other campuses and seeing how their businesses impact the environment in the least possible way. When the new Companies Act came into effect in April 2014, the 75-year-old firm saw an opportunity to take a re-look at its social sector spending, which was so far centred mostly around its facilities. L&T has 12 independent companies and over 130 subsidiaries. Every independent company has its own independent CSR department. All these departments work in conjunction with head the CSR team, which is located in the Powai campus in Mumbai.

They also have a charitable trust called the L&T Public Charitable Trust, which has been in existence since the past 30-40 years, much before the concept of CSR came out. They take a share out of their profits to do charity and make donations to organisations. This charitable trust is a separate entity and does not involve with the activities of the CSR department. It utilizes its own funds to engage in philanthropic activities. L&T is focusing its CSR activities in four key areas: water and sanitation, healthcare, education and vocational training. It is already present in the last three. It has kicked off the first initiative by mapping out and identifying water stressed areas in the country where it can intervene and help to improve availability of water.

Key Areas in Which the CSR Activities Are Conducted

The four key areas in which CSR activities are conducted by L&T are education, skill building, health and environment.

Education: The CSR department has partnered with various NGOs to provide education to children in municipal schools. They also provide free infrastructure support to these schools.

Skill development: They have established the Construction Skills Training Institute (CSTI) where they provide vocational training to unskilled workmen, free of cost. Once the training has been completed, they also provide them with job opportunities.

Health: L&T has eight health centres, two of which are in Mumbai and Thane, where treatment is provided to people at highly subsidised rates or free of cost. They also conduct medical camps and blood-donation drives, among many other initiatives.

Environment: The Mumbai campus is a green campus. They want to make the Mumbai campus a role model campus for all the other campuses all over India and turn them into green campuses as well. They are also in the process of undertaking a project to improve ground water levels in water stressed areas.

The Flagship Program

L&T has recently launched a new program to provide health and sanitation to people in underdeveloped areas. Under this, they have a research team which has been outsourced. This team has identified water stressed areas in India. These include two places in Tamil Nadu, and one place each in Maharashtra, Gujarat and Rajasthan. Through community development itself they want to improve the ground water levels and improve the water condition in these areas, because until they do that, there would be no use in providing toilets and sanitation to the people residing in these areas. After they complete the water program, they will look at the sanitation conditions in the village and work towards improving community based as well as individual household toilets. Once the sanitation has been taken care of, they will go ahead and provide facilities in other key areas, namely, education, skill development, and healthcare. Thus this program is planned to be an integrated model of all the initiatives that L&T wants to take up, consolidated into one single project.

At the same time, they are also looking to partner with multiple organisations at the locations that have been identified. It is possible that the local partner who has partnered with them for water sanitation might not have an expertise in education and health. So it may happen that they will have multiple partners in a particular location. There would be a parent partner and multiple partners who would help the parent partner to do the community development project over a period of 4-5 years. This is the flagship program which has been launched recently and is going to take up almost 50% of the CSR spend. This is how they plan to eventually channelize the funds.

Currently the main focus of the CSR department is the flagship program for health and sanitation. They want to expand it to the extent where current projects, other than the flagship projects, would not be expanded in the near future. The ongoing activities will continue as they are being undertaken right now. However, the plan is to focus more on the flagship program. The main reason for this is that it is an integrated model which includes everything that the company wants to do.

The 2% mandate across companies does not make much of a difference to L&T since it had been contributing a substantial amount to CSR activities much before the 2% mandate. According to Corporate Social Initiatives Department at L&T Mumbai, "One of the major differences that have come about is how structured it has become now. With the enforcement of the Companies Act, reporting has improved. There is a mandatory report which needs to be submitted by every company indulging in CSR activities, which should explain in detail as to how it has utilised its 2% CSR spend. This report is audited on an annual basis. If a company fails to submit the report showing its 2% spend, it has to give an explanation for the same. Thus there has been no major change for L&T except that the process of reporting has become more structured as compared to before".

Corporate social responsibility is a broad concept that can take many forms depending on the company and industry. Through CSR programs, philanthropy, and volunteer efforts businesses can benefit society while boosting their own brands. As important as CSR is for the community, it is equally valuable for a company. CSR activities can help forge a stronger bond between employee and corporation; they can boost morale; and can help both employees and employers feel more connected with the world around them.

In order for a company to be socially responsible, it first needs to be responsible to itself and its shareholders. Often, companies that adopt CSR programs have grown their business to the point where they can, and want, to give back to society. Thus, CSR is primarily a strategy of large corporations. Also, the more visible and successful a corporation is, the more responsibility it has to set standards of ethical behavior for its peers, competition, and industry.

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Article by: Garima Saxena, 3EA