Large businesses in India are struggling to deal with the Companies Act 2013 that requires corporates to set aside two percent of their average net profits earned over the previous three years for corporate social responsibility initiatives. The Act applies to companies that meet a defined benchmark of net worth, turnover, or profits.
It is estimated that 6,000 businesses, both Indian and multi-national, are affected by this regulation. The Act is not mandatory, but does require companies to “comply or explain.” Most companies are now drafting explanations. The lag in compliance is a result of two, related factors. One, there is considerable confusion over what qualifies as a CSR-spend and what does not. Secondly, businesses in India have not traditionally given CSR a high priority in their practices.
But there is evidence of change due to the Act. More companies are setting up board subcommittees chaired by a non-executive, independent director to review and define CSR policies. As the policies are developed, new approaches, strategies, and initiatives are emerging. Businesses in India are beginning to realize that social capital is a critical asset for corporate reputation.
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