In a period of little less than two years since the Corporate Social Responsibility law came into effect in April 2014, the entire gamut of CSR in India has taken a radical stride. Companies eligible under Section 135 of the Companies Act 2013 have embraced the law and initiated a number of CSR projects across the entire spectrum as defined within Schedule VII of the Act.
However, a reality check done by Bureaucracy Today reveals that there is a lack of awareness of CSR guidelines among corporates. For example, a company like PwC, which provides consultancy to public, private and Government clients in all markets across the world on important industry and finance issues, itself is performing tasks which do not come under the Indian Government CSR guidelines. Similar is the case with many other corporate, including Yes Bank, Dell India and the Fortis. An assessment of corporate CSR trends in India also raises a pertinent question: in a country having multiple politico-socio-economic challenges at various levels is Corporate India doing enough in the field of CSR? In this CSR-Special Edition, BT brings to light the gaps in the corporate CSR activities in India. At the same time, we also highlight the extraordinary CSR activities undertaken by the Indian corporate sector which are transforming the lives of the weaker sections of society and making the country a better place to live in.
On April 1, 2014, India became the first country in the world to mandate corporate social responsibility with the introduction of new CSR guidelines requiring companies to spend 2% of their net profit on social development.
The law applies to every company registered in India having a net worth of Rs 500 crore or more, or a turnover of Rs 1,000 crore or more or a net profit that exceeds Rs 5 crore in a given fiscal year.
THE CHANGING LANDSCAPE
Though the corporate sector then welcomed the law, it also expressed concern about the feasibility of its implementation. While some skeptics opined that the mandatory 2% spending could lead to “forced philanthropy” or “tokenism”, other believed that it could give rise to white collar crimes with companies “masking data to avoid having to comply with the guidelines.”
Even noted philanthropist corporate leaders like Ratan Tata, former Chairman of Tata Sons comapny, and Azim Premji, head of the IT services firm, Wipro, had voiced their concerns about the implementation of the CSR mandate. “We have a phenomenon which is meant to be good but is going to be somewhat chaotic … we don’t as yet know what kind of monitoring there’ll be in terms of how well this money is used,” Ratan Tata had said back then. In a similar vein, Azim Premji, had opined, “My worry is that the stipulation should not become a tax at a later stage… Spending 2% on CSR is a lot, especially for companies that are trying to scale up in these difficult times. It must not be imposed.”
Cut to the present times. Today, the Indian corporate sector has come a long way and is becoming an agent of transformation. According to experts, approximately 16,000 companies in India come under the ambit of Section 135 and about Rs 20,000 crore per year is the size of the CSR industry. In the financial year ended March 2015, India’s top 50 companies that make up the benchmark Nifty index at the National Stock Exchange claimed to have spent over Rs 4,600 crore on social initiatives.
ALIGNING CSR ACTIVITIES WITH LONG-TERM PROFITS
While making CSR investments, companies are also seeing that their social responsibility and market competitiveness are not at odds with each other. In fact, many companies have aligned the Government CSR guidelines to meet India’s socio-environmental challenges while enabling themselves to make long-term profits. For example, prominent Haryana-based car maker Maruti Suzuki conducts a “road safety” programme that provides training in driving skill and behaviour. For the initiative, the company has partnered with various State Governments to set up institutes of driving and traffic research and also with its dealers to set up Maruti Driving Schools. Further, the company is working with 88 Industrial Training Institutes (ITIs) spread across 21 States to upgrade automobile-related trades and create employment options for them in automobile service workshops.
Similarly, Asian Paints conducts livelihood enhancement projects in the form of basic and specialized painter training programmes for unemployed youth and painting applicators. Likewise, Godrej Consumer Products has launched a training programme in channel sales to help skill unemployed youth and build a talent pipeline for the fast moving consumer goods industry.
LACK OF AWARENESS
No doubt the Indian corporate sector is doing commendable CSR activities which are helping to build a green India, fostering hope among the underprivileged and turning around the face weaker sections of society, but there is still a lack of awareness in the corporate sector about what constitutes a CSR activity under the mandated guidelines.
Replying to a query by Bureaucracy Today on CSR activities, several companies have listed programmes which do not constitute CSR activity under the law.
PwC India, a unit of the top UK-based international consultancy firm, PricewaterhouseCoopers, has listed its Nepal earthquake relief operations as one of its CSR activities. However, the CSR law does not recognise funding for social causes by a company operating in India outside the country as CSR activity. Therefore, Nepal earthquake relief work by PwC India is not a CSR activity as per the Indian Government law.
Interestingly, Delhi-based Fortis Healthcare, a chain of superspeciality hospitals, too listed its Nepal earthquake relief operations under CSR activity.
As per the CSR guidelines, “one-off events such as marathons, awards, charitable contribution”would not be qualified as part of CSR expenditure.
However, surprisingly, Vodafone India listed ‘Mobile for Good Awards’ and Dell India listed the “New recycling model presented to the Government of India” and the “Women on boards” conference as part of their CSR activities.
The CSR law mandates that any activity undertaken by a corporate must directly benefit the weaker sections of society. But the Yes Foundation, the social arm of the Yes Bank, listed the awareness programme, YES! i am the CHANGE, as its Corporate Social Responsibility activity.
WHAT CONSTITUTES CSR ACTIVITY UNDER THE LAW?
The activities that can be undertaken by companies to fulfil their CSR obligations include eradicating hunger, poverty and malnutrition, promoting healthcare, education and gender equality, setting up homes for women, orphans and senior citizens, measures for reducing inequalities faced by socially and economically backward groups, ensuring environmental sustainability, ecological balance and animal welfare, protecting national heritage and art and culture, measures for the benefit of armed forces veterans, war widows and their dependants, training to promote rural, nationally recognized, Paralympic or Olympic sports, contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio economic development and relief and welfare of SC, ST, OBCs, minorities and women, contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and rural development projects.
It is also mandatory under the law that a company must spend 2% of its profit on social causes within India.
CSR TRENDS
A look at the CSR spending by companies reveals some interesting trends. According to a survey conducted by the Institutional Investor Advisory Services (IiAS), a major portion of the aggregated FY15 CSR spending by top 100 BSE-listed companies was in the health and education sectors followed by environmental and rural development projects. The IiAS provides corporate advisory services, offers independent opinion, does research, creates data on corporate governance issues and gives advice on investment in business.
A recent study of N100 companies by global auditor KPMG indicates another interesting trend. According to the study, the Indian origin companies spent more (89 percent) than non-Indian origin companies (57 percent) on CSR activities in the financial year 2014-15. The study also says that the energy sector accounts for the highest spending (39%) followed by the banking, financial services and insurance (BFSI) sector (13%), IT (13%), mining and metals (11%) and consumer goods (9%).
An interesting aspect can be noticed if we compare the CSR spendings of public sector undertakings and private corporate companies. As per Department of Public Enterprises guidelines, the PSUs have been required to spend on CSR activities since 2010. However, a close look at the CSR activities of the PSUs and the corporate sector reveals that in spite of the public sector undertakings having a head start, it was the non-PSUs which spent more on CSR activities in FY 2014-15.
THE NEGLECTED NORTHEAST
The Northeastern region of India which often complains of discrimination by the Central Government and the mainstream media is at the receiving end in CSR spending by Corporate Inc also. According to a KPMG study, the Northeastern States have received least attention in terms of number of CSR projects undertaken by private companies.
However, the Axis Bank seems to be an exception in the case. According to a report, while most of the companies routed their CSR spends in the area of their business operations, the Axis Bank spent the money across the country, including all the North-Eastern States. The bank spent Rs 123.22 crore of the allocated Rs 133.77 crore towards education, livelihood enhancement, skill development, rural development, healthcare, environmental sustainability and sanitation in the Northeastern States of Arunachal Pradesh, Manipur, Meghalaya, Nagaland and Mizoram as well as some other States.
Maharashtra has the highest number of CSR projects, followed by Karnataka, West Bengal, Tamil Nadu, Gujarat and Uttar Pradesh. Besides the Northeastern States, the Union Territories — Lakshadweep, Andaman and Nicobar Islands, Dadra and Nagar Haveli, Puducherry and Chandigarh — have also seen a few CSR projects.
NON-COMPLIANCE WITH RULES
Though the Government guidelines made it mandatory for corporates to spend 2 percent of their profits on CSR, an analysis of the spending of 72 companies, the data of which is available with Bureaucracy Today, reveals that 58 percent of these companies did not comply with the rule. As many as 42 companies spent below the mandatory 2% on social development activities. The defaulters include corporate giants like Bharati Airtel and Bosch Ltd which spent only 0.6 percent and 0.8 percent, respectively, of the 2 percent of their profit on CSR in 2014-15.
If a company fails to spend the prescribed amount of its profit, the board in its report is required to specify the reasons. Though some of the defaulters did not give any specific reasons, many of them committed to carry forward the unspent CSR amount to the next year.
However, there is a silver lining in the cloud. Of the 72 companies, 13 spent beyond 2 percent of the prescribed amount on CSR in 2014-15. These companies are Ambuja Cements (2.3%), Ashok Leyland (2.1%), Bharat Forge (3.2%), GMR Infrastructure (2.6%), Godrej Consumer Products (2.6%), Hindustan Unilever (2.1%), Jaiprakash Associates (2.5%), Jindal Steel and Power (2.1%), Reliance Industries (2.9%), Tata Global Beverages (2.1%), Tata Power Co (2.1%), Tech Mahindra (3.3%) and UPL (3.1%).
The Government has set out specific guidelines on how CSR activities should be handled. The guidelines stipulate that CSR activities need to be carried out by a CSR committee that includes the Independent Directors of a company. This committee will be responsible for preparing a detailed plan, including the amount of expenditure, the type of activities, roles and responsibilities of various stakeholders and a monitoring mechanism for CSR activities. The company board is required to approve CSR policy and disclose the contents in its report as well as putting the details on the company’s official website.
However, according to a KPMG study in 2015, only 34 percent of the 92 companies surveyed gave details regarding the amount spent on CSR activities in their Directors’ reports. These 34 companies spent 2% of their profits on CSR activities.
KEY CHALLENGES AND THE WAY FORWARD
Even before the statutory CSR norms were put in play, large companies in India were spending on social and environmental causes. However, CSR has been taken more seriously by corporate India after the Government made the 2% mandate. Propelled by this impetus, the sector is growing and a lot of good work is being done though much still needs to be done.
“In a country like India, there is no dearth of issues and causes that can be supported under the CSR law. While gauging the success of programmes we must be mindful of how much still needs to be done to make a difference,” says Brinda Malhotra, CSR-Head, Aircel.
She further says, “CSR initiatives should have inclusive plans involving the targeted community. The goal should be to focus on the long-term and not the short term. Research and insights should provide the backbone or the foundation for the development of all programmes. It is important to pick up projects that you know you can realistically achieve within a period of time. Too often, projects are abandoned because people are disorganized or genuinely bite off more than they can chew. Astute planning, discipline and perseverance and a certain amount of dedication to the task are necessary in having a successful CSR project – especially if one is working on the ground.”
Conceptualizing and implementing CSR projects is not as easy as it sounds. There are challenges faced by companies while executing such projects.
“A key challenge facing businesses is the need for more reliable indicators of progress in the field of CSR, along with the dissemination of CSR strategies. There is a need for capacity building of local non-governmental bodies as there is serious dearth of trained and efficient organisations that can effectively contribute to the ongoing CSR activities initiated by companies. This compromises scaling up of CSR initiatives and subsequently limits their scope,” says Radhika Kalia, Head of Corporate Affairs and CSR, Panasonic India.
She elucidates, “Besides, there is lack of well-organized non-governmental organizations in the remote and rural areas of India which should assess and identify the real needs of the community and work with companies to ensure successful implementation of CSR activities.”
Also monitoring and evaluating CSR projects in India is a big challenge. As Brinda Malhotra explains, “Monitoring and evaluation of programmes in the country is still at the nascent stage. The ecosystem needs to be empowered with the capacity to envision and execute on a larger scale. There is an important task of creating a more positive change per Rupee spent.”
The shift from periodic social service to strategic service is important in India. The companies should remember that philanthropic activities are only a small part of CSR, which otherwise constitutes a much larger set of activities entailing strategic business sustainability and responsibility. As Richard Rekhy, CEO of KPMG (India), puts in, “India Inc, ideally, needs to pledge to go beyond the existing boundaries of CSR programmes and reach out to society and the country at large. As an optimist, I would believe this is just a beginning for all of us.”
This article was taken from here.