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Study finds less than 40 percent public companies compliant even after five years of CSR Mandate

Five years has passed since the implementation of the “Companies Act, 2013” provision that requires a minimum corporate spending on social responsibility (CSR) initiatives, but less than 40 percent of qualifying public companies in India are fully compliant.

The time needed to search for and evaluate viable CSR projects, the phased rollout that many projects require, and the process for legal approval are among the reasons why many Indian businesses are still on a learning curve regarding the CSR Mandate. This is a key finding from a Director Notes India Series released by The Directors’ Collective, a partnership among The Conference Board, KPMG in India and Russell Reynolds Associates, in collaboration with St. Francis Institute of Management and Research, Mumbai.

The study was conducted based on disclosure documents published by a sample of 100 randomly selected Bombay Stock Exchange (BSE) listed companies, representing 18 different business sectors. Under the CSR Mandate, publicly traded companies with a net worth of at least INR 5 billion, a turnover of at least INR 10 billion, and a net profit of at least INR 50 million are expected to spend at least two percent of their average net profit on qualifying CSR initiatives. But what is truly mandated by the law is the disclosure of CSR expenditures, rather than the spending itself: If a company does not spend the prescribed amount, then it is required to explain the reasons for its non-compliance. As Indian corporations are clearly still grappling with the mandate, The Directors’ Collective publication is intended as a resource to recognize the progress made and the obstacles encountered so far.

 

The findings include –

About 85 percent of companies spent at least part of their CSR expenditure on promoting healthcare services—to reduce child mortality and improve maternal health, and to combat endemic diseases in India such as HIV and malaria. In fact, more than one-fourth (27 percent) of total CSR expenditures supported healthcare initiatives.

However, the category that received the highest median amount through the CSR mandate was education (INR 210 million). Companies also chose to fund initiatives on rural development, environmental sustainability, small entrepreneurship, and the promotion of gender equality.

The majority of companies have been selecting and overseeing their CSR spending through an outsourced agency (in most cases, a vetted NGO with a definite social purpose). Only a few companies have established their own trust/foundation for CSR activities.

Only a few companies have engaged their employees in their chosen CSR activities.

While some companies attributed their CSR Mandate non-compliance to an operating loss incurred in one or more of their prior fiscal years, other loss-making companies still chose to honor their CSR commitment. They include Tata Motors, United Spirits, and Sun Pharmaceutical Industries.

“The analysis on CSR expenses can enable decision makers to better appreciate the context in which many of these social activities are undertaken and what it takes for corporations to fully comply,” said Dr. G Ramesh, Professor and MMS Programme Head at St. Francis Institute of Management and Research, Mumbai, and author of the report.

“One of the major commitments undertaken by The Conference Board through The Directors’ Collective is to document and disseminate knowledge on emerging practices so that members of the business community can learn from the experience of their peers. In India and elsewhere, progress on sustainability and CSR is incremental, and so much has happened already,” said Matteo Tonello, Vice President and Managing Director of Corporate Leadership at The Conference Board.