Corporate Social Responsibility – Misconstrued by Stakeholders ? I India CSR

By R S Sharat

Companies, business establishments, merchants and traders in our country have been engaged in philanthropy or social welfare activities over several decades; some, even before we achieved independence. Some of them believed that their businesses should have a positive impact on the communities and society at large, lest there would be no purpose for their businesses. Others responded to the needs of the poor and needy by extending their helping hand at times of calamities such as drought and deprivation. Companies addressing social problems has evolved into Corporate Citizenship or Corporate Social Responsibility (CSR) across the world in the last two decades. Companies have started extending their support to achieve the Millennium Development Goals (MDGs: 2000-2015) and the current Sustainable Development Goals (SDGs: 2015-2030) to alleviate social problems.

However, in India, Corporate Social Responsibility is seen by stakeholders as a solution to many problems that the country is facing. With less than Rs. 10,000 crores spent on development projects annually, mostly on education and health sectors through CSR funds, one would think that the importance given to Corporate Social Responsibility and its funds should reflect the reality.

Corporate Social Responsibility in our country

The purpose of Corporate Social Responsibility was not so much to transform India with the 2 per cent net profits of corporate houses but to inculcate responsible business conduct among them. This purpose is evident from the dialogue initiated by the Government of India with Indian Corporate houses during 2008 and 2009, which resulted in the Ministry of Corporate Affairs issuing the Voluntary Guidelines on Corporate Social Responsibility—2009. It was the first step in mainstreaming the concept of business responsibility, which was further refined as National Voluntary Guidelines for Social, Environmental and Economic Responsibilities of Business—2011. The National Voluntary Guidelines are essentially a set of nine principles that offer Indian business the understanding and approach to inculcate responsible business conduct. The nine principles are as follows:

Conduct and govern themselves with ethics, transparency and accountability.
Provide safe goods and services that contribute to sustainability throughout the life cycle.
Promote the well-being of all employees.
Respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised.
Respect and promote human rights.
Protect and make efforts to restore the environment.
Influence public and regulatory policy responsibly.
Support inclusive growth and equitable development.
Engage with and promote value to their customers and consumers in a responsible manner.

The guidelines are not prescriptive in nature, but seek to advise Indian business to take into account Indian social and business realities and the global trends, while promoting their business. Principle eight of the National Voluntary Guideline was subsequently translated into a mandatory provision of Corporate Social Responsibility in section 135 of the Companies Act 2013. The National Voluntary Guidelines are much wider in scope than section 135 and remain the guiding principles for corporates to conduct their normal business in a socially responsible and environmentally sustainable manner.

Corporate Social Responsibility Rules, on the other hand, prescribed corporates to undertake activities beyond their normal course of business. Unfortunately, the broader guidelines meant to inculcate responsible business conduct are reduced to a few community development initiatives in Schedule VII of the Companies Act 2013. Therefore, today Corporate Social Responsibility is understood more as Community or Social Development initiatives rather than responsible business conduct. Companies and stakeholders need to remember that Corporate Social Responsibility is more internal to the companies rather than external to the community.

Compulsory Corporate Social Responsibility

The Companies Act 2013 made Corporate Social Responsibility (CSR) obligatory for a certain category of companies (those companies have above Rs. 1000 crore turnover, over Rs. 500 crores net worth or net profit of above Rs. 5 crores in any of the preceding three years) to spend 2 per cent of their net profits on Corporate Social Responsibility through the introduction of Section 135. The Act also included a schedule (Schedule VII) listing out those activities to be undertaken by the companies and also framed Companies (CSR Policy) Rules 2014 to guide implementation of Corporate Social Responsibility activities.

The amount available for CSR in our country

Much hype and excitement were created about CSR in India after it was made compulsory by the Companies Act 2013. At the time of introduction of the Companies Act 2013, it was estimated that a minimum number of 16,000 Indian companies would fall under the ambit of the law and that entails approximately Rs. 28,000 crores of funds that would be pumped into the system. Against this backdrop, the third CSR Annual Tracker 2017 of the Confederation of Indian Industry (CII) revealed that the companies have collectively spent Rs. 8,897 crores against Rs. 9,680 crores to be spent based on the 2% of average net profit of last three years (FY 2014-16), which is about 92% of the total amount to be spent by companies in 2017. In reality, the amount available under CSR is very meagre and less than 1% of our GDP and one-fourth of the remittances made by Non-Resident Indians (NRIs), which stands around 4 per cent of our GDP.

How can we use the CSR money to get the optimum benefit?

India’s CSR reporting Survey 2017 conducted by KPMG revealed that the CSR amounts available in the country are not uniform, but begin to address the problems of the backward districts. Maharashtra, Tamil Nadu, Karnataka, Uttar Pradesh and Odisha have the highest number of CSR Projects. Manipur, Tripura, Daman and Diu continue to receive low priority. CII Tracker further revealed that one-third of the total amount was spent on education and skill development and twenty- five per cent was spent on health and sanitation. Similar trends are seen in other reports as well.

Governments, both at the Central and State level, are showing increased interest in developing partnerships with corporates to undertake development projects. Some state governments have developed mechanisms to access CSR funds for development work. Several other stakeholders such as National and International Non-Government Organisations (NGOs), Civil Society Organisations (CSOs), various government bodies, including Municipal Administration, District Administration, and line departments of State Governments have been trying to partner with corporates to leverage CSR funds. However, most of the companies preferred the implementing agencies to undertake their CSR projects. Several consultancy agencies have also emerged to manage the CSR funds for companies and create access to NGOs and other bodies.

Summits, conferences, workshops and various forums are promoting dialogue related to CSR between stakeholders.

Considering the meagre amounts available under CSR, the need of the hour is to increase the dialogue and partnerships between corporates. Corporates coming together and addressing a particular cause can undoubtedly make a difference, both in terms of scale and impact. Currently, CSR spend is spread thin across various sectors creating little impact on larger social problems. Also, corporate houses could contribute in identifying gaps in reducing poverty in the country despite India being the sixth wealthiest country in the world in terms of GDP, which will have wider and deeper impact in addressing the social issues relating to hunger, poverty and unemployment.