HB 117: Corporate Social Responsibility (Special Provision, etc.) Bill, 2015

Bill Analysis:

SHORT TITLE

Corporate Social Responsibility (Special Provisions, etc.) Bill, 2015

OBJECTIVE OF THE BILL

The objective of the Bill is to make companies operating in Nigeria play fundamental role n the social, economic and environmental development of the nation

NUMBER OF CLAUSES/PARTS

The Bill has 25 Clauses including citation and explanatory memo

APPLICATION

The Bill applies to:

• Every company registered in Nigeria including its holding or subsidiary irrespective of their operational base whether in Nigeria or outside Nigeria;
• Every foreign company having a branch office or project office or operational office in Nigeria.

Exception to the Application Clause  

• Every company which ceases to be covered by the provisions of Clause 2 of this Bill (when it becomes law) for 3 consecutive financial years, till such time when it meets the criteria specified under Clause 2;
• Any company which suggests or is calculated to suggest that it enjoys the patronage of the Government of the Federation or the Government of any State in Nigeria or any Ministry or Department of Agency of Government;
• Foreign offices, projects and operations of a company registered in Nigeria;
• Any foreign company exempted under any treaty to which Nigeria is a party.

IMPLICATIONS OF THE BILL

When this Bill is passed,

1. Every company having a net profit of N500 million or profit turnover of N500 million during any financial year shall comply with the Corporate Social Responsibility Policy as provided under Clause 2 of the Bill (Clause 3);
2. Every company that meets the criteria provided under Clause 2 of the Bill is required to establish and constitute a corporate social responsibility Policy Committee (CSR Policy Committee) (Clause 4);
3. Every company is required to spend at least 1% of a company’s average net profit in every three immediately preceding financial years for its Corporate Social Responsibility Policy (Clause 4(3)(e));
4. There shall be established a Corporate Social Responsibility Fund designated for amount not spent by a company on Corporate Social Responsibility for that particular period. The Fund shall be managed by the CSR Policy department under the direct supervision of the Minister of Finance (Clause 5).

GENERAL PROVISIONS OF THE BILL

      1         Duty to Maintain a Corporate Social Responsibility Policy: -

Clause 4 provides that every Company shall establish and constitute a Corporate Social Responsibility Policy Committee (CSR Policy Committee).

     2          Functions of CSR Policy Committee: -

The CSR Policy Committee shall -

• Create, formulate and recommend to the company’s board, a Corporate Social Responsibility (CSR) Policy which shall indicate the activities to be undertaken by the company;
• Recommend to the Company’s Board, the amount of expenditure to be incurred on the CSR Policy activities;
• Monitor periodically the activities of CSR Policy of the Company;

    3          Board Response to CSR Policy Committee’s Recommendation: -

After receipt of the CSR Policy Committee recommendations the Board shall: -

• Scrutinize and thereafter approve the CSR Policy of the company for the immediate proceeding 3 years;
• Disclose the approved contents of the CSR Policy in its Pre-Performance Report to the Minister not later than the last day of the month of April of the three immediately preceding financial years;
• Place the company CSR Policy contents on the company’s website or any such manner as may be prescribed;
• Ensure that the approved CSR Policy contents are part of the activities of the company’s Corporate Social Responsibility Policy which must be executed and undertaken by the company;
• Ensure that the company spends at least 1% of the average net profit of the company in every 3 (three) immediately preceding financial years for its Corporate Social Responsibility Policy;

Provided that preference shall be given to the local community and immediate environment it operates, in spending the amount earmarked for CSR activities.  

    4          Execution of a Company’s CSR Policy: -

The company shall:

• Before the company’s execution of its CSR Policy, notify the Minister of Finance and the Minister shall delegate officials of his Ministry from the department of CSR Policy to take briefings, to observe and witness the execution;
• After the spending and execution of the company’s Corporate Social Responsibility Policy, the company shall be required to present a CSR Performance Report to the Minister of Finance.

If the company fails to spend such amount specified in its Corporate Social Responsibility Policy, the Board of the company shall, in its CSR Performance Report specify the reasons for not spending the full amount.

On receipt of the CSR Performance Report, the Minister shall either:

• Approve the CSR Performance report, if the company gives sufficient and convincing reasons to justify its action, after which the Minister shall within 30 days of receipt of that report, direct that the amount not spent on the CSR Policy for that period be carried forward to add to the amount the company will earmark for the next 3 years expenditure of its CSR Policy; or
• Within 30 days of receipt of the company’s CSR Performance Report, if not convinced of the reasons proffered by the company for not spending the total amount earmarked for CSR Policy execution direct the company with a Letter of Displeasure to remit and pay the amount not spent on Corporate Social Responsibility Policy for that particular period to a designated account called “Corporate Social Responsibility Fund”.

If the company fails to pay or remit the amount stated within 30 days, the company and every officer of that company shall be guilty of an offence and liable on conviction by a court of competent jurisdiction to a fine not less than N100,000 for every day the offence subsists.

    5     Certification of Performance: -

If the Minister of Finance is of the opinion that the CSR Performance Report of a company is fully and well executed in accordance with the CSR Policy of the company and the CSR Policy laid-down guidelines, the Minister shall issue a Certificate of Performance to the company within 30 days of receipt of the report.

   6      Management of the CSR Fund: -

The CSR Fund is to be managed by the CSR Policy department under the direct supervision of the Minister of Finance. A company in default of not spending the complete amount earmarked for CSR activities for a particular period and the Minister of Finance is not satisfied with the reason provided by the company; the company shall pay in the unspent amount to the CSR fund (Clause 5).

Defaulting companies are to pay-in their fines and outstanding sums to the CSR fund. Moneys in that fund are to be used to execute CSR Policy in the immediate environment and local communities of the companies that paid-in any sum.

   7        Approval by the National Assembly: -

Approval of each House of the National Assembly is required for spending money from the fund on a yearly basis. The Minister of Finance shall forward copies of each company’s CSR Performance Report for scrutiny and record purposes.

   8        Companies’ Liability for Agents’ Negligent Act -

Clause 6(1) provides every company shall be liable if it fails to include in its CSR Policy contents, a statement or a Clause that prohibits its employees, agents, contractors, subcontractors from acting in ways that could:

• Damage the social, economic and environmental lives of the people;
• Adversely affect the standard of living of its area of operation and the host communities;
• Violate the rights of the people; and
• Facilitate the corruption of public officials.

   9.       Liabilities

           a.          Non-Compliance: -

Where a company fails to include in its CSR Policy, a statement or clause that prohibits employees, agents or contractors from conducts that could damage the environment or violate the rights of people, the company and every officer of the company in default shall be guilty of an offence and liable on conviction to a fine not less than N100,000 for everyday during which non-compliance subsists (Clause 6(2)).

Clause 6(3) provides that after 6 months of the Bill becoming law and thereafter, companies in breach of any provision shall not be allowed to trade on any stock exchange or capital trade point in Nigeria or to make any public offer or sale of securities or any financial instrument, during the period in which it is in breach.

          b.           Duty of Care: -

Clause 7(1) provides that every company shall ensure that its employees, agents, servants, suppliers, contractors and sub-contractors are adequately informed or where necessary properly trained or equipped to comply with and without fear of reprisal, report to the management, any breaches of its CSR Policy.

Where Clause 7(1) is not complied with, such company and every officer in default shall be guilty of an offence and liable to a fine of N100,000.

A company shall take care to carry on its operations in a way that does not damage the person, property, land, health and other asset of any individual or community (Clause 8(1).

Where a company fails in its duty of care, it shall be liable to the party suffering damage, provided that, the damage of whatever nature has been suffered by the party or parties bringing the action, and such damage has directly resulted from the operations of the company (Clause 8(2)).

        c.          Standard of Care: -

Clause 9(1) provides that relevant provisions of existing laws shall govern the liability of a company for the acts of its agents or service providers, provided that such company shall be held to the standard of care stated under Clause 9(2) in cases involving –

• violent and abusive conduct by Security Forces employed;
• corruption of its officials, agents and/or servants of the company

Clause 9(2) provides:

A company shall not be liable for acts of its officials, agents, and/or servants … unless:

• It expressly or implicitly authorized such acts;
• It expressly or impliedly condoned such acts;
• It expressly or impliedly held out the agent and/or servant involved as having the authority of the company to act in that manner; or
• It fails to show the prior existence of things, put in place as part of its routine business practice and CSR Policy, to prevent, direct and punish such acts.

The Restoration Fund shall be held by the Local Government and disbursed by the Board of Trustees in line with the disbursement process set out under Clause 6 of this Bill to ameliorate the effects of pollution and environmental hazards in affected communities.

     d.            False Reporting on CSR Performance:

Clause 11 provides that if a company is found to have presented a false report regarding its CSR Performance Report, the company shall be guilty of an offence and liable on conviction to a fine not less than the amount the company is expected to spend in executing the CSR Policy for that period, in addition to any other sanction that the court may impose.

     e.           Failure to Execute Policy:

If a company fails to execute its CSR Policy as provided by this Bill (when it becomes law), the Minister shall direct the company to pay 1% of the company’s annual net profit before tax to the Corporate Social Responsibility Fund within 60 days.

     f.          Failure to Establish the Policy:

After 6 months of coming into force of this Bill (when it becomes law), any company that fails to comply and establish a CSR Policy or constitute a CSR Policy Committee, the Minister of Finance shall direct the Corporate Affairs Commission (CAC) to strike out the name of the company from the list of registered companies in Nigeria and the company shall cease to operate as a corporate entity under the Companies and Allied Matters Act (Clause 12).

10.           CSR Performance Report Contents: -

A company’s CSR Performance Report shall contain the following:

• Composition of the CSR Policy Committee;
• Average net profit of the company for the last 3 financial years;
• Overview and detail analysis of projects, programs and activities undertaken for the CSR Policy;
• Targeted beneficiaries of the CSR Policy i.e. children, youths, women, aged ones, disabled, etc.
• Part(s) of the country that benefitted from the CSR Policy;
• The level of success of the CSR Policy;
• Future projections for the next three years execution during the implementation of the CSR Policy;
• This Report shall contain a Business Responsibility Statement of the Company CSR Policy Committee that the implementation and monitoring of CSR Policy, is in compliance with CSR Policy objectives of the company.

11.           Other CSR Policy Activities

• Clause 16 provides that a company may collaborate with other companies for undertaking or executing its CSR Policy provided they are in a position to report separately on their CSR Performance Reports;
• The CSR Policy shall be undertaken by every company in accordance with provisions of this Bill (when it becomes law), excluding activities undertaken pursuant to the company’s normal course of business;
• The Board of a company may decide to undertake its CSR Policy activities approved by the company’s policy committee, through a registered trust or a registered society or company established by the company or its holding or subsidiary/associate company;
• Policy projects or programs or activities undertaken in Nigeria only shall amount to the CSR Policy Expenditure;
• The Policy projects or programs that benefit only the employees of the company and their families shall not be considered as Policy activities in accordance with the Bill (when passed into law);
• Contributions or donations to a political party shall not be considered as CSR activity;
• Clause 20 provides that the CSR Policy Committee shall institute a transparent monitoring mechanism for implementation of the Policy projects or programs or activities undertaken by the company

12.         CSR Policy Projects: -

Clause 21 lists some of the CSR Policy projects and activities that a company may engage in: -

• Contribution towards educational development of the people in the communities;
• Infrastructure development;
• Contribution towards rural electrification and road construction projects;
• Reducing Green House Gas (GHG) emissions;
• Promoting sustainable energy consumption;
• Funding for research and innovation program;
• Collaboration in projects with local governments on staff training
• Environmental stewardship and protection mechanism;
• Construction and improvement of healthcare delivery system;
• Provision of pipe borne water and improvement of existing water projects and construction of borehole
• Agriculture development through skill and knowledge enhancement
• Sports facilities and structure development upgrade
• Provision of credit facilities to communities with low interest rate;
• Provision of employment to qualified youth in their communities
• Selling goods on credit, with soft mark-up, in the case of a manufacturing company.

13.          Objectives of the CSR Policy: -

The following are objectives of the CSR Policy as provided under Clause 22:

• Make companies contribute to the growth and development of nation building;
• Improve the community welfare and living condition of the people;
• Make companies show commitment towards ensuring that the immediate environment in which they operate feel the positive impact of their activities;
• Make companies socially responsible and accountable for their social actions;
• Ensure the companies are accountable not only to their employees and their trade unions but also to their consumers, host communities and to the wider environment;
• Ensure that companies impact its decisions and activities in society and the environment through transparent and ethical behavior that is consistent with sustainable development and the welfare of society;
• Enable companies to address key social, economic and environmental problems confronting any part or parts of the federation in which their operation and activities are prevalent;
• Show how businesses are managed to bring about an overall positive impact on the communities, culture, societies and environment in which companies operate;
• Make companies play a fundamental role in the economic development of communities in which they operate as well as fighting social exclusion and poverty;
• Focus on driving company’s strategy of growing responsibility, managing its skills and developing its relationship and engagement with customers, clients, communities and other stakeholders;
• Make companies to support local, national and global efforts to fulfill its purpose of making financial lives better for its customers, clients and communities;
• Make directors act in the interest of company’s shareholders but also take into account the wider interest of customers, employees, suppliers, impact on the local community and natural environment;
• Make companies realize that their duties extend beyond its shareholder, etc.

13.         Duties of the Federal Government on CSR Policy: -

Clause 23 outlines federal government’s duties on the CSR Policy as follows: -

• Rigorous enlightenment campaign and creation of awareness to the public on CSR policy through the media, publications, specialist journals, websites, etc;
• To enlighten members of the public on the need that, companies are socially responsible to the environment which they operate;
• Promote CSR Policy and create incentives that will help companies assume their social responsibility;
• Developing policies to encourage corporate organizations to undertake community engagement as part of CSR Policy;
• Ensuring that companies sponsor cultural and educational activities that offer added value to Nigeria’s socio-political and technological development;
• To mandate companies in Nigeria to submit their annual report on the social and environmental impact of their activities;
• To publish the annual report of the company’s social impact which consists of a regular, independent, systematic, documented and objective evaluable and yardstick;
• The rigorous assessment and management of a company’s impact across the entire business from the point of material supply to product disposal;
• Periodic review of CSR policy and its activities;
• Publication of policy guidelines and regulatory framework;
• Establishment and maintenance of good practice documents for the CSR Policy;
• Creation of monitoring and control department of CSR Policy;
• Reward companies that performed creditably well in their CSR Policy through incentives and benefits which may include but not limited to:
  • Presentation of awards
  • Tax deductions
  • Waiver and concessions on import of goods, equipment, raw materials, etc.
  • Granting aids
  • Bailout packages
  • Contracts from government
• Not to award public contracts to or invest Public Pension Funds or give incentives to any company in breach of any CSR Policy rules and guidelines

CONCLUDING NOTES

The Bill seeks to ensure that companies operating in Nigeria institute a Corporate Social Responsibility (CSR) Policy to guide the activities of the company with respect to its obligations to the communities they operate in. The Bill requires that a company’s interest should not only be limited to its shareholders, customers and employees, but also to the local community and environment in which they operate. The aim of the Bill therefore is to make companies play fundamental role in social, economic and environmental development.

Every company registered in Nigeria, having a net profit of N500 million or profit turnover of N500 million during any financial year shall be mandated to institute a CSR Policy and constitute a Corporate Social Responsibility Policy Committee. The CSR Policy would guarantee at least 1% of the average net profit of a company in every 3 immediately preceding financial years for its Corporate Social Responsibility. A penalty awaits any company meeting the relevant criteria but failing to comply with the requirements under Clause 4 of the Bill, as the Minister of Finance shall cause the Corporate Affairs Commission (CAC) to strike out the company’s name from the list of registered companies in Nigeria (Clause 12).

A company shall face several other penalties as listed under Clauses 7 – 13 of the Bill for non-compliance or breach of the provisions of the Bill. While Corporate Social Responsibility is an important component of social development, a government may appear dictatorial if it seeks to force companies to give up a portion of their net profit for it. Support to community/social development could be part of the agreement between a company and the local or federal government, depending on the terms of its establishment in Nigeria and not an enforceable right. This Bill can be reviewed to focus on regulating the way CSR is executed rather than compelling companies to abide by a CSR legislation.