Consentia on Law - VOl - II

CORPORATE SOCIAL RESPONSIBILITY : MINING INDUSTRY AND SUSTAINABLE DEVELOPMENT

INTRODUCTION

According to Friedman the one and only responsibility of the business is to maximise profit.[1] There has been a transgression from the past where the economic criteria cannot solely justify the working and existence of the business organisations.[2] Various other factors have gained importance. If a company wants to survive in the long run it must contribute or sacrifice a portion of the profits to the other stakeholders than the owner.

Social responsibility is a significant feature of every business in the present times. For a long time in the past maximisation of profit was the sole business objective it does fall in place in the present scenario.[3] However simultaneously there were various business giants like the Tata’s and Birla’s were engaged in philanthropic activities such as providing relief and providing assistance in form of endowments and scholarships and asset building of various education institutions.[4] Business enterprises have thus evolved as an institution that helps to solve the broader issues like poverty, illiteracy, pollution, etc.  Corporate Social responsibility refers to responsibility of the business enterprises to maintain a line of action in accordance with the objectives and value system of the society. It also seeks to protect and improve the welfare of the society alongside their interest.[5] It is also an expression that an organization is taking accountability for the consequence of its activities upon its employees, customers, community and the environment.[6]

India is renowned as a nation well endowed in natural mineral resources. India ranks fourth amongst the mineral producing countries in the world. It is an exceptionally important sector and contributes majorly to our GDP. Mining is interlinked with industrial development and availability of raw material is of prime importance. However for the locals abundance of available natural resources does not always mean prosperity.  The States like Jharkhand, Orissa, Andhra Pradesh, Rajasthan, Chhattisgarh, Madhya Pradesh and Karnataka are rich in mineral resources but are relatively backward. These seven big mining states also account for a third of India’s population but at the same time is extremely poor. The Indian mining industry is passing through a vital phase, especially in the last two years and is witnessing negative growth which had impacted the economy as a whole. The need of the hour is an evolving and growth oriented mineral development and mining policy that can foster systematic and sustainable growth in the sector.

ENVIRONMENT AND MINING INDUSTRY

According to the UN General Assembly Declaration in 1986 there is existence of a right to development. The right was implicit in the Universal Declaration of Human Rights and also the covenant on Civil and Political Rights. Right to development is considered to be an inalienable right available to every individual in which one has the freedom to enjoy economic, social and cultural rights. [7]

There is an evolution of a new approach toward recognising the right of other stakeholders rather than only the shareholder. The employees who have invested their human capital are classic example of a stakeholder who is not a shareholder. It is the power of this group that influence the behaviour of the company. Post Independence with the Brundtland Commission Report in 1987 defined Sustainable Development. Sustainable development was advocated by various academicians, business groups as well as political counterparts as the company must be accountable to the stakeholders i.e. the environment and future generations who cannot be directly represented at that point in time.[8]

The mining industries have resulted in soaring degree of environmental degradation which has led to diverse human rights violations like labour rights, land rights, environmental rights, etc. This gave rise to the debate of mining development vis -a- vis sustainable development. Mining projects in developing countries are increasingly expected to deliver sustainable benefits to local, regional, and national stakeholders.

Mining activity impacts the environment as well as the socio-economic set-up. Therefore, ensuring that the adverse impacts are minimized and the benefits from mining to the impacted community are optimized becomes critical for mining to be being carried out in a sustainable manner. The governments and companies have been considering the use of foundations, trusts, and funds as vehicles for sharing the benefits of mining operations with the surrounding communities.

Mining results in erosion, creation of sinkholes, contamination of surface water, groundwater, soil, loss of biodiversity and this is just legal mining. According to Greenpeace bad mining practices can ignite coal fires, which can burn for decades, release fly ash and smoke laden with greenhouse gasses and toxic chemicals.[9] Mining releases coal mine methane i.e. a toxic gas 20 times more powerful than carbon dioxide. Black lung disease is caused by coal dust inhalation.  Mine accidents kill thousands every year. The High Court and Supreme Court has heavily penalised mining companies for environmental degradation in and around the mines/plants. In a recent decision the court has imposed fine of Rs.100 crore for polluting the vicinity of the plant.[10]

EMERGING ISSUES

Stakeholder’s Perspective

Mining causes displacement and resettlement and is a highly diverse socioeconomic issue. It is a major human rights issue as well. Mining caused displacement is associated with loss or considerable reduction of access to basic resources on which communities depend. As pointed out by Theodore E. Downig only in India mining development displaced more than 2.55 million people between 1950 and 1990.[11] The people are forced to leave their home and settle elsewhere. The displacement agreements take a lot of time due to long lasting negotiations. Big companies or enterprises provide for adequate compensation making provision for money as well as employment to the displacees in the mines.[12]The indigenous people like who live in areas rich in minerals are forced to move elsewhere despite of protests. A nun was brutally murdered by the coal mafia in Jharkhand as she was protesting for the rights of these people.[13] Under the Forest Conservation Act and The National Environment Policy and Forest Right Act, Adivasis would be protected by preserving their habitat, nonetheless human rights of these people are infringed upon. Displacement is not the sole concern, their cultures are also at risk of becoming extinct.[14] Most of the displaced are from the poorest sections, the majority are tribal and do not succeed in raising their voice against the mistreatment.

The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 [15] regulates land acquisition and laid down rules for granting compensation, rehabilitation and resettlement to the affected persons in India. The Act has provisions to provide fair compensation whose land is taken away. The Act establishes regulations for land acquisition as a part of India’s massive industrialisation drive driven by public-private partnership. One of the major issues with mining and indigenous people is to see whether companies are sharing in profits from the exploitation of resources.[16] With the technological development taking the forefront there is increased need for skilled labourers and the people from rural underdeveloped region has minute chances of   employment in the mines as do not possess the required  skills thereby leading to joblessness and poverty.

The United Nation has made a rapid move towards offering a global platform for profit making companies to contribute towards CSR activities known as the “Global Compact”.[17] CSR standards as laid down by the UDHR also emphasised on the CSR activities in areas of Human Rights complying with basic rights like freedom, justice, peace, right to collective bargaining, ban on forced labour. It also sought to ensure health services to all and minimum of food shelter, sanitation and safe drinking water which shall ensure sustainability of the local communities.

Company’s Perspectives

It is not only the individual that but the business entity faces also the diverse problems. Few of the difficulty emanate from the local community and some by the other competitors. Some of the major problems faced by the mining companies are given below:

  1. Social License to operate– It was first coined by Jim Cooney (a Canadian mining Executive) in 1990. It essentially refers to acceptance or approval level by the local community and the stakeholders of the mining companies to be effected by their activities. This notion is based upon the broader idea of Corporate Social Responsibility wherein the companies are demanded to integrate more sustainable practice in their scale of operations.[18] Social licence cannot be acquired by paying the fees but it takes much more. Social licence to operate is a dynamic notion that varies with the success of CSR programmes of the mining companies. However in case of land acquisition the Government mandated to conduct Social Impact Assessment which has to be made public in regional language so that the local people can comprehend it and make objection to such acquisition.[19] It is also obligatory to be approved by 80% of the land owner thus making it complex for the mining companies to setup at any particular place.
  2. Sharing benefit- The mining companies are deemed to share the benefit earned by them with the impacted community i.e. people living close enough to a mine that their livelihood, way of living, or environment is directly or indirectly affected by the mining project. Benefits are shared in form of infrastructure development like schools, hospital, by providing compensation in case of displacement or resettlement. It becomes increasing difficult for the company to accommodate additional costs within the budget scheme.[20]
  • Competition for land use: As mineral rich land resources are scare and more people aim to make use of the same, it leads to competition amongst the potential mining business companies to operate on the same piece of land.
  1. Infrastructure Access: Most of the mining regions fall in the interior and remote location due to which there is poor infrastructure or no infrastructure to start up business of mining. In the process thereof they built up infrastructure in that location.
  2. Regulation & Capital Project Execution: In several occasion mining industry suffers from ill defined project scope and execution resource as a consequence deficiency in the engineering and project controls projects. Occasionally the cost of establishment turns out to be very high as compared to the productivity due to delay in start up, agitation by the local community, etc.

CORPORATE SOCIAL RESPONSIBILITY: INDIAN SCENARIO

Indian Government has introduced the concept of mandatory CSR by introducing the landmark provision in the Companies Act, 2013 i.e. section 135. India has pioneered by implementation of the new law and unlike the trend where any new law is generally tried and tested by other developed nations and then adopted in India. CSR has become mandatory across all business sectors. This provision mandates eligible companies having net worth of rupees five hundred crores or more or turnover of one thousand crore or more or net profit of rupees five crores or more during any financial year shall contribute 2% of its average net profits towards CSR activities. By inclusion of this section in the Companies Act, 2013 India has become the first nation ever where CSR is statutorily mandated transversely to all industries.[21] There must not distinction between charity, religious donations and sustainable philanthropy models for the purpose of delineating what mandatory CSR spending is.[22]

The mandate dictates setting up a CSR committee which shall consist of 3 or more directors with at least one Independent Director. The committee is entrusted with policy formulation in accordance with schedule VII of the Act. It is also responsible for regulating and monitoring the expenses incurred on various activities like promotion of education, promoting gender equality, eradicating extreme hunger and poverty, empowering women, reducing child mortality, ensuring environmental sustainability to mention a few.[23] The board of directors have to play an active role in the CSR initiative at various stages which includes identification of the activities, approving the policy, and disclosing its contents in the board’s report and on the company website. It is left at the sole discretion of the company to decide in the manner in which the company want to spend the CSR funds. So If an IT company want to spend the resources towards technical education and later recruit the graduates there is nothing to restrict such spending under the current framework.  The paper further deals in the subsequent sections how the mining companies are taking key steps towards the CSR in line with the themes under Schedule VII of the Companies Act, 2013.

MINING INDUSTRY IN DEVELOPING INFRASTRUCTURE VIA CSR

With the coming into being of the new Companies Act, 2013 the eligible companies[24] falling within the bracket has to mandatorily contribute 2% of the net profit in the financial year to CSR activities which focuses on the wellbeing and infrastructure development in the local vicinity of the mine.[25] Various mining companies have contributed enormously towards the cause. The various companies have contributed enormously towards development via CSR activities. The following are few examples:

  1. ADITYA BIRLA GROUP:

Aditya Birla Group is engaged in diverse businesses across the sectors, mining being one amongst them. They have opened Aditya Birla Memorial Hospital which conducts lectures on public health, hold health camps, organise blood donation drives and also facilitate organ donation. Aditya Birla also provides scholarships to meritorious students belonging to the backward classes. Aditya Birla Schools are providing education to the children of their employees through their employee wellness programme which is helping in building infrastructure surrounding the local community.

  1. VEDANTA:

As part of their CSR activities Vedanta Group initiated “KHUSHI – Care for the Underprivileged Children” with the mission to fulfill the objective of taking care of the children – their Nutrition – Education – Health and overall development. It is aimed to bring in together like minded people to spread this awareness amongst colleagues, friends, relatives and people around, through word of mouth or through e-medium in a way it will be useful. Vedanta also use environmental friendly processes for achieving sustainable development.[26]

  • BHARAT ALUMINIUM CO LTD:

Balco is dedicated to reduce the impact of its activities on the environment through optimum utilisation of natural resources and constant improvement in their processes.[27] BALCO is constructing Bio-Gas Plants in association with Chhattisgarh Renewable Energy Development Authority (CREDA) to reduce the reliance of villagers on forest firewood and making available an environment friendly, cooking gas. Till now, BALCO has constructed 169 Bio-Gas Plants in its operational villages. Every year afforestation drives are carried out with the involvement of local people and a thick green belt has been developed in the Plant Area, Township, Mines and surrounding areas. It provides the local brick manufactures with tonnes of Fly Ash free of cost and has also set up Fly Ash brick manufacturing plant and provide assistance to local people for the same. Special training has been imparted to the villagers and they make their own livelihood by selling fly ash bricks in the local market.[28] They have constructed check dams, garland drains, water bodies for rainwater harvesting at Mainpat and Kawardha Captive Bauxite Mines (Chhattisgarh) these are few activities carried out by the Company towards conserving the environment. A Wild Life Conservation Plan of Rs 300 Lakhs, in consultation with The Forest Department of Chhattisgarh Government, is under implementation in South Surguja, Dharamjaigarh and Kawardha Forest Divisions.

  1. HINDUSTAN COPPER LTD:

The Business Responsibility Report of the company highlights engagement of the company in activities Water Management, Solar Energy Program, Health & Sanitation, Infrastructure Development & Renovation Work, Plantation & Improved Diversified Agriculture, Livelihood etc.

  1. HINDUSTAN ZINC LTD:

As part of their CSR activities they foster self- sufficiency through providing education, vocational trainings, integrated village development programme, empowerment of women and social mobilization.

MANDATORY CSR: BOON OR BANE?

One of the major issues is to ascertain whether CSR activities should be voluntary or mandatory. The majorly accepted notion is that CSR should be voluntary however with inclusion of Section 135 in the Companies Act, 2013 the companies are mandated to contribute a 2% of the net profit in a financial year “Voluntarily”.[29] If CSR becomes mandatory there is high chance of excess exploitation of the natural resources. It cannot be argued by the company that as it has de-polluted a stream previously it can pollute in later. It has to be understood that mandatory CSR does not bypass legal obligations under other legislations. The Companies are free to choose any of the activities from the Schedule VII of the companies Act and the Government shall not intervene in any such matter. It is felt by some Businessmen that the contribution should be voluntary and should not forced upon as these business giants are already spending heavily on philanthropic activities and 2% is a huge amount in a situation when they are competing with the counterparts in the market.[30] This has to be understood in the light that the mandate is to dictate those companies which are not taking sufficient steps to ensure sustainability.

Mandatory CSR has high risk of diluting the profits of the company and the company may not be willing to spend it. It may also lead to decrease in wages to the labourer, comparatively lower dividend to the shareholder. The company must henceforth prioritise the order and it should not negatively affect their desire to assume CSR. [31]Mandatory CSR funds would provide impetus to the welfare of the labour class as CSR is a beneficial legislation as compared to labour laws where the labour’s welfare is on the benevolence of the employer. The use the word ‘may’ on the other hand Schedule VII of the Act indicates it to be directory in nature.

In it surprising to note that though the new Act has mandated contribution by the eligible companies towards CSR activities there is no stringent provision in place to ensure its non compliance. Moreover the only requirement in case for failure to comply is a disclosure report by the Board of Directors. The Act lacks precise penal provision in case of non compliance hence compliance is difficult to achieve. The Act however provides a general penal provision under Section 450 of the Companies Act, 2013 wherein in case of non compliance with any of the provisions of the Act the company or any officer of the company who has defaulted can be made to pay fine upto Rs.10,000. In event of continuing offence the fine to the tune of Rs.1000 per day can be levied till the default continues. Therefore even if there is so specific punitive provision section 450 can come to the rescue.

SUBSEQUENT AMENDMENT NECESSARY TO THE ACT

Schedule VII [32] uses ‘may’ which indicate that it is directory in nature. Another notable concern is “Corporate Social Responsibility” is not defined in the Act and this can lead to abuse by the companies. There shall be a supervisory authority or regulator overseeing the quality of investment in CSR activities of the company like IRDA for insurance companies. The role of the Government has reduced as it has shed its responsibilities and put it on the companies who are mandated under the act so it lacks the checks and balance that is required. Therefore the need for it must be filled in by subsequent amendment. The present Act lacks specific penal provision and the same must be in place at the instance of non-compliance with Section 135 else CSR will become a mere procedure.

CONCLUSION

The paper has discussed thoroughly the implications of mining industry and its contribution to sustainable development. The mining companies has developed infrastructure for betterment of the society as a whole. It is evident that although mining companies are taking initiative for development as a whole it is not adequate. So the initiative of making CSR mandatorily is necessary and required legislative pruning and cutting. Although if CSR becomes mandatory there is high risk of mindless exploitation of the natural resources, it has to be understood in light that mandatory CSR does not bypass legal obligations guaranteed under other legislations. It cannot be argued that a stream can be polluted as the company had previously de-polluted the same. There shall not be incidents where the activities done for the welfare of the employees is shown as the CSR activity of that particular company which in turn helps in increased and efficient productivity in the long run. Corporate Social Responsibility by the mining is the need of the hour for sphere heading welfare activities. .  The mining companies should focus on improving mother and child care facilities and reducing infant mortality rate. These philanthropic activities go a long way in aiding the companies to obtain social license from the local community. Mining companies has the potential to contribute enormously towards sustainable development by shifting to environment friendly process. CSR should be incentivised by declaring awards for excellence in multi- stakeholder projects. However the Government should portray a greater role in implementing such activities rather than shedding it on the companies.

[1] Arpita Ghosh, Mandatory Corporate Social Responsibility, in NEW COMPANY LAW- AN INSIGHT 182(CORPORATE LAW ADVISOR ed.,2013).

[2] VASISHTH NEETU & RAJPUT NAMITA, CORPORATE GOVERNANCE VALUES AND ETHICS 155-56 (ed.2010).

[3] Id.

[4] Arjun Bhagi, Corporate Social Responsibility in the New Companies Act: A critical Perspective,(2014) I KSLU-SLR.

[5] Id.

[6] Clarence J. Dias, Corporate Human Rights Accountability And The Human Right To Development: The Relevance And Role Of Corporate Social Responsibility, NUJS L. J., 6-7 (2011). available at http://www.nujslawreview.org/pdf/articles/2011_4/clarence-j-dias.pdf (last updated September 1,2014).

 

[7] Clarence (n 6) 9.

[8]Bhargava (Ed.) et al, Corporate Social Responsibility- A critical Dissection as laid down in Companies Bill,2012, in NEW COMPANY LAW AN INSIGHT 192 (Corporate Law Advisor ed.,2013).

[9] Anon, Mining Impacts, http://www.greenpeace.org/international/en/campaigns/climate-change/coal/Mining-impacts/ (last updated August 27, 2014).

[10] Sterlite Industries (India) Ltd. V. Union of India, JT 2013(4)SC 388.

[11] T.E. DOWNING,  AVOIDING NEW POVERTY: MINING-INDUCED DISPLACEMENT AND RESETTLEMENT, http://commdev.org/files/1376_file_Avoiding_New_Poverty.pdf  (last updated on August 29,2014.

[12] Bongumil Terminski, Mining induced displacement: social problem and human rights issue (A Global Perspective), available at http://re.indiaenvironmentportal.org.in/files/file/DIDR.pdf (last updated September 2, 2014).

[13]Anon, Jharkhand: Family blames mining mafia for nun Valsa Jonh’s Murder, available at http://indiatoday.intoday.in/story/kerala-mining-protest-nun-killed-jharkhand/1/160363.html (last updated September 2,2014).

[14] Mining out of control, available at http://www.dw.de/indian-mining-out-of-control/a-16033778 (last updated September 2,2014).

[15] Repelled the Land Acquisition Act, 1894.

[16] Bongumil (n.15) 9-10.

[17] Arjun (n.4) 52.

 

[18] Corporate Social Responsibility- Social License to operate a mine, available at

http://www.internationalresourcejournal.com/mining/mining_november_12/the_social_licence_to_operate_a_mine.html (last updated on August 26,2014).

[19] Section 6 The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013.

[20] Elizebeth Wall And Remi Pelon, Sharing Mining Benefit In Developing Country,(last updated September 3,2014),https://openknowledge.worldbank.org/bitstream/handle/10986/18290/624980NWP0P1160ns00trusts0and0funds.pdf?sequence=1

[21] Arjun (n.4) 52-53.

[22] Puja Mehra, Government Clarifies on CSR Spending, The Hindu, November 6, 2013, available at http://www.thehindu.com/business/Industry/government-clarifies-on-csr-spending/article5320157.ece  (Last Updated on September 10, 2013).

[23] Schedule VII Companies Act,2013.

[24] Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or net profit of rupees five crore or more in a financial year.

[25] Section 135, The Companies Act,2013.

[26] Available at http://www.khushi-creatinghappiness.blogspot.in/ (last updated September 8,2014)

[27]Available at http://www.balcoindia.com/sustainability/environment/environment-management.aspx (last updated September 7,2014).

[28] Supra (n.20).

[29] Aneel Karnani, Mandatory CSR in India: A Bad Proposal, Stanford Social Innovation Review, (May 2013).

[30]  Supra n.22.

[31] Vasisth (n.2) 168.

[32] The Companies Act, 2013.

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