Effective CSR Spending Needs a Mindset Change in Top Management: Praful Patel

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Interview with Union minister of heavy industries & public enterprises

Spending on CSR activities by central undertakings was mandatory since 2010. The passage of Companies Bill is expected to give further boost for public and private companies for effective spending on CSR. In an exclusive interview with Sanjay Jog, Union Minister for Heavy Industries & Public Enterprises Praful Patel speaks at length on the issue.

The department had taken an initiative making it mandatory spending by CPSEs on CSR. What is the experience so far?

indiacsr logoSpending on CSR activities was made mandatory for Central public Sector Enterprises (CPSEs) in the guidelines issued by Department of Public Enterprises’s (DPE) in April 2010. Further, news guidelines were issued from April 1 this year. Nevertheless, it has been a satisfying experience to see that CSR funds were generally well channelized for addressing social, economic and environmental concerns.  However, with the passage of the Companies Bill, the budgetary allocations for CSR activities would have to be revised in consonance with the provisions of the new Companies Act.

The new guidelines are very robust and comprehensive and two projects, one regarding development of backward regions identified by the Planning Commission under its Backward Region Grant Fund Scheme, and the other regarding environment sustainability have been specified as mandatory for CSR spending. CPSEs have been at the forefront in CSR activities and far ahead of more corporates.

Can you tell some of the examples of CSR activities being carried out by CPSEs?

Several CPSEs have taken up CSR and Sustainability projects in the areas of environment, education, health, development of backward areas, skill development, capacity building – aimed primarily at creating income generation capacity of weaker sections which includes SC, ST, OBC, minorities, women and children, physically challenged.

The list of examples of commendable work can be long and exhaustive.  However, two situations come to mind instantly. One is the natural calamity which struck Leh in 2010.  Due to a sudden cloud burst a large number of houses were demolished and thousands of people were rendered homeless.  Large scale destruction of property was witnessed in this case of nature’s fury.  Due to the prompt rehabilitation measures undertaken by CPSEs in close coordination with each other, the dwellings of the affected people were reconstructed in a very short span of time.  Similarly, in the unprecedented scale of destruction and loss of human lives in the recent tragedy in Uttarakhand, CPSEs have reacted instantly with massive contributions from their CSR funds for relief and rehabilitation measures in the areas ravaged by nature.  A change in the mind-set of top management is required and hopefully, the change will come about as expected, and it would result in transformation in the way business is conducted.

How Companies Bill will come handy to make CSR spending more effective?

Companies Bill is step in the right direction and it will benefit society at large. Under the new Companies Bill, which will soon to be enacted, only profit making companies above a particular threshold of profit are required to spend on CSR activities.  In comparison, DPE guidelines on CSR and Sustainability stipulate that all profit making CPSEs have to spend on CSR and Sustainability activities.  Although, as per DPE guidelines the slabs of expenditure prescribed for CSR activities for CPSEs are differentiated on the basis of profitability of CPSEs, with the passage of the Companies Bill and its enactment, the financial component for spending on CSR activities would have to be revised for CPSEs also in accordance with the provisions of the new Companies Act.  But, certainly with the enactment of the new Companies Act pressure would be built on all companies to take CSR activities more seriously and to incur expenditure as prescribed on such activities.

In fact, the present guidelines of DPE on CSR and Sustainability are more stringent in this regard.  Under the Companies Bill, the companies not spending the budgetary amount on CSR in a particular year will be required to explain the reasons for not doing so.  Whereas, in DPE guidelines, not only do the CPSEs have to tender an explanation for not utilizing the CSR funds on the CSR activities / projects planned for a particular year, but in event of their failing to spend the said amount on the planned activities in the next two years, the unspent amount would be transferred to a ‘Sustainability Fund’ to be created separately for CSR and Sustainability activities.  This creates greater pressure in CPSEs to spend the funds earmarked for CSR and Sustainability.

What is the monitoring mechanism put in place during the implementation of CSR by CPSEs and how can be replicated by corporates?

For overseeing the implementation of the new guidelines the mechanism has been further strengthened by having a two-tier structure within the companies. One is a Board level Committee, and the other is a team of officers below the Board level.  The composition of the Board level committee is similar to one envisaged in the new Companies Bill which is soon to be enacted.  It is hoped that this two-tier structure would have the necessary authority and influence to effectively implement the CSR agenda of a company.  Overseeing the performance of CPSEs, including implementation of its CSR activities is a task which is performed by the administrative Ministry / Department concerned. Larger corporates will have to put in place special mechanism.

However, CPSEs can also engage specialized agencies to help them in the task of monitoring. The performance of each CPSE is, in turn, monitored by its administrative Ministry / Department concerned.  In addition, through Memorandum of Understanding (MOU) signed with CPSEs, a mechanism is in place which evaluates the overall performance of CPSEs, including their implementation of CSR guidelines. The monitoring mechanism under the new guidelines is fairly elaborate and robust, and corporates other than CPSEs may like to borrow from our guidelines and learn from our experience in implementing them.

(Business Standard, 12 August 2013)

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