Weekly Update: Mandatory CSR obligation could drive rooftop solar in India
Last week, the Companies Bill 2011 finally became law after it received the Rajya Sabha’s (upper house of the Parliament) approval. The Lok Sabha (lower house of the Parliament) had already passed it in June 2012. The key aspect of the bill is that it mandates large-sized corporations to spend 2% of their net profits on Corporate Social Responsibility (CSR) activities. Since, solar is considered such an activity, it is thus, likely to receive a significant push in the country.
- ‘Ensuring environmental sustainability’ is one of the nine activities that quantify as a CSR initiative
- Going solar also makes financial sense for such large-sized corporations
- The 2% mandate could possibly drive the market for rooftop solar in the absence of government subsidies
As per the Companies Bill 2011, companies with a profit of INR 5 billion or more, a turnover of INR 10 billion or more, or a net profit of INR 50m or more, in a fiscal year, are mandated to spend 2% of their net profit on CSR activities. ‘Ensuring environment sustainability’ is one of the nine activities that qualify as a CSR initiative, according to the bill’s directives. As a part of their overall CSR initiative, many companies are expected to look at environment sustainability to meet a part of their obligations. Within this, investing in solar power can prove to be one of the most effective tools as solar power is also commercially viable at many locations across India. Many global corporations including Wal-Mart and P&G have opted for going solar as a part of their CSR activities. Since 2008, Wal-Mart has set up solar installations on 31 of its facilities in California and Hawaii and has reduced energy costs by INR 50 m. In India, corporates such as DLF have already set up some small rooftop solar projects that are also considered for their CSR activity.
With delays in subsidies provided by the MNRE to encourage the adoption of rooftop solar, the distributed generation market has been suffering for several months now. This CSR mandate could prove to be a new driver. There has been a global trend in CSR where companies view CSR not as chequebook philanthropy but rather as a business strategy. With millions involved, it will be crucial for companies to decide how and where they spend this 2% of their profits.
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