There are allegations and evidences of corruption and malpractices in the CSR sector, where some companies, NGOs, and intermediaries misuse or misappropriate CSR funds for their personal gains
In the pursuit of corporate social responsibility (CSR), many businesses strive to contribute to the welfare of the community. Yet, some areas within this sector have unfortunately been plagued by corruption. Discussions with several CSR leaders reveal that certain officials and agencies, tasked with implementing CSR initiatives, often fall prey to malpractices, especially within large corporates and public sector undertakings where substantial CSR funds are accessible.
Understanding Corporate Social Responsibility
Corporate social responsibility (CSR) is the idea that businesses should not only pursue profits but also contribute to the social and environmental well-being of society. CSR can take various forms, such as investing in education, health, the environment, gender equality, poverty alleviation, and other areas of public interest.
India’s CSR Regulatory Framework
India is the first country in the world to make CSR mandatory for certain companies, following an amendment to the Companies Act, 2013 in April 2014.
According to the law, any company that has a net worth of Rs 500 crore or more, or a turnover of Rs 1000 crore or more, or a net profit of Rs 5 crore or more in a financial year, has to spend at least 2% of its average net profit of the preceding three years on CSR activities. The law also specifies a list of activities that qualify as CSR under Schedule VII of the Act, and requires the companies to disclose their CSR policy, projects, expenditure, and impact in their annual reports.
Fostering CSR Responsibility and Transparency
The law aims to encourage the corporate sector to play a more active and responsible role in addressing the social and environmental challenges faced by the country. It also seeks to create a culture of accountability and transparency among the companies and their stakeholders. The law is regulated by the Ministry of Corporate Affairs (MCA), which issues guidelines and clarifications from time to time on various aspects of CSR implementation.
Criticism and Challenges in the Implementation of CSR Law
However, the law has also been criticised and challenged by various quarters for its effectiveness and implications. One of the major issues and debates surrounding the law is corruption and malpractices in the CSR sector, where some companies, NGOs, and intermediaries misuse or misappropriate CSR funds for their personal gains.
How corruption and malpractices occur in the CSR sector
Corruption and malpractices in the CSR sector can occur at various stages and levels of CSR implementation. Some of the common ways and examples are:
Falsifying or inflating CSR expenditure or impact reports
Some companies may report higher or lower amounts of CSR expenditure or impact than the actual figures, to evade taxes, avoid penalties, or gain goodwill. For instance, a study by KPMG found that 52% of the top 100 listed companies in India did not spend the mandated 2% on CSR in FY19.
Diverting or siphoning off CSR funds for non-CSR purposes
Some companies may divert or siphon off CSR funds for non-CSR purposes such as personal expenses, political donations, bribes, or illegal activities. For instance, a CBI investigation found that Hindustan Steelworks Construction Ltd (HSCL) had allegedly misused Rs 2.9 crore of CSR funds for renovating a bungalow owned by a former minister.
Colluding or favouring certain NGOs or intermediaries for CSR projects
Some companies may collude or favour certain NGOs or intermediaries for CSR projects based on personal or professional relationships, kickbacks, commissions, or other benefits.
Manipulating or exploiting beneficiaries or communities for CSR projects
Some NGOs or intermediaries may manipulate or exploit beneficiaries or communities for CSR projects by coercing them to participate, misinforming them about their rights and entitlements, withholding their benefits or payments, or violating their dignity or privacy.
CSR Scam
Police uncover a CSR funding scam in May 2019. Accused promised NGOs over Rs. 100 crore in name of IT firm Hexaware Technologies. Turbhe MIDC police began searching for unknown individuals accused of fraudulently posing as Hexaware Technologies. These individuals reportedly forged the company’s documents, offering over Rs. 100 crore in CSR funds to various charities and NGOs across India. The scam came to light in the previous November 2018 when an email was received by Gunjan Methi, a secretary at Hexaware, from Kanta Sengal Memorial Charitable Trust in Gurugram, reporting a dubious pledge of CSR funding from Rs. 100 to Rs. 240 crore, allegedly from Hexaware Technologies.
Why corruption and malpractices in CSR are harmful and unacceptable
Corruption and malpractices in the CSR sector are harmful and unacceptable for various reasons. Some of them are:
They undermine the purpose and spirit of CSR
Corruption and malpractices in the CSR sector undermine the purpose and spirit of CSR, which is to contribute to social good and well-being. They also violate the ethical values and principles of CSR, such as integrity, responsibility, accountability, and transparency.
They deprive the beneficiaries and communities of their rightful benefits
Corruption and malpractices in the CSR sector deprive the beneficiaries and communities of their rightful benefits from CSR projects. They also deny them their voice, participation, empowerment, and dignity.
They damage the reputation and credibility of the companies and NGOs involved
Corruption and malpractices in the CSR sector damage the reputation and credibility of the companies and NGOs involved. They also erode the trust and confidence of the stakeholders, such as the government, the regulators, the investors, the customers, and the public.
They hamper the social and environmental development
Corruption and malpractices in the CSR sector hamper the social and environmental development of the country. They also hinder the achievement of the Sustainable Development Goals (SDGs), which are the global agenda for social, economic, and environmental progress.
How corruption and malpractices in CSR can be prevented and tackled
Corruption and malpractices in the CSR sector can be prevented and tackled by various measures and actions. Some of them are:
Strengthening the legal and regulatory Framework for CSR
The legal and regulatory framework for CSR needs to be strengthened to ensure compliance, monitoring, evaluation, and reporting of CSR activities. The MCA should issue clear and consistent guidelines and clarifications on various aspects of CSR implementation, such as eligible activities, expenditure, impact, disclosure, audit, etc. The MCA should also enforce strict penalties and sanctions for non-compliance or violation of CSR norms.
Enhancing the governance and ethics of the companies and NGOs involved in CSR
The governance and ethics of the companies and NGOs involved in CSR need to be enhanced to ensure accountability, transparency, and integrity in CSR activities. Companies and NGOs should adopt and implement robust policies and procedures for CSR planning, execution, monitoring, evaluation, reporting, and audit. Companies and NGOs should also establish and follow a code of conduct and ethics for CSR activities, which should include zero tolerance for corruption and malpractices.
Promoting the participation and empowerment of the beneficiaries and communities in CSR
The participation and empowerment of the beneficiaries and communities in CSR need to be promoted to ensure their involvement, ownership, feedback, and satisfaction in CSR activities. The companies and NGOs should consult and engage with the beneficiaries and communities in identifying, designing, implementing, monitoring, evaluating, and reporting of CSR projects. Companies and NGOs should also respect and protect the rights and interests of the beneficiaries and communities in CSR activities.
Building the capacity and awareness of the stakeholders involved in CSR
The capacity and awareness of the stakeholders involved in CSR need to be built to ensure their knowledge, skills, attitude, and behaviour in CSR activities. The companies and NGOs should conduct regular training and awareness programs for their employees, partners, intermediaries, beneficiaries, communities, regulators, etc. on various aspects of CSR implementation, such as legal norms, ethical values, best practices, success stories, challenges, and opportunities.
Fostering collaboration and partnership among the stakeholders involved in CSR
The collaboration and partnership among the stakeholders involved in CSR need to be fostered to ensure their coordination, cooperation, and co-creation in CSR activities. The companies and NGOs should network and communicate with each other and with other stakeholders, such as government agencies, civil society organisations, academic institutions, media outlets, etc. on various aspects of CSR implementation, such as sharing information, resources, experiences, lessons learned, challenges faced, and solutions found.
Karnataka Political Row Over CSR Funds: Allegations and Counterclaims in Siddaramaiah’s Government (November 2023)
The political landscape in Karnataka witnessed a stir as the JD(S) and BJP accused the Siddaramaiah-led Congress government of a “cash-for-transfer CSR scam.” This followed the circulation of a video featuring Chief Minister Siddaramaiah’s son, Yathindra Siddaramaiah, discussing a “list” on a phone call.
While the government refuted the allegations, claiming the list pertained to CSR funds for school renovations in Varuna, Siddaramaiah’s constituency, the opposition raised suspicions.
In the video, Yathindra is heard conversing with his father about someone named Vivekananda and a person referred to as Mahadev, discussing a list and a limit of five names. Siddaramaiah and Deputy Chief Minister D K Shivakumar dismissed the scam allegations, emphasizing that the conversation was regarding the allocation of CSR funds for school infrastructure, not related to any transfers.
JD(S) leader H D Kumaraswamy, amplifying the controversy, posted a clip of the video and accused the CM’s office of being a hub for extortion. Demanding transparency, he called for the release of the discussed list to clarify the matter.
BJP leader Dr. C N Ashwath Narayan also chimed in, highlighting Yathindra’s undue influence in government affairs and demanding accountability for the alleged interference. The incident has sparked a political debate, with both sides standing firm on their narratives.
What is a CSR Fund?
CSR funds, thus, represent a significant way in which corporations can contribute positively to society and the environment, going beyond mere profit-making objectives.
Corporate Social Responsibility (CSR) funds refer to the financial resources allocated by companies for initiatives that contribute to societal welfare and sustainable development. The concept of CSR involves corporations taking responsibility for the impact of their activities on the environment, consumers, employees, communities, and other stakeholders, as well as integrating social and environmental concerns into their business operations.
Key aspects of CSR funds include:
- Voluntary Contributions: While some countries mandate CSR spending for certain companies, in many cases, it’s a voluntary initiative where businesses choose to contribute a portion of their profits to social, environmental, or community projects.
- Areas of Investment: Common areas for CSR initiatives include education, healthcare, environmental conservation, rural development, poverty alleviation, and disaster relief.
- Regulatory Framework: In some jurisdictions, like India, there are specific regulations governing CSR. For instance, the Companies Act in India mandates certain companies to spend a minimum percentage of their profits on CSR activities.
- Benefits for Corporations: Beyond the altruistic and ethical motivations, engaging in CSR can enhance a company’s brand, build consumer trust, improve employee satisfaction, and foster better relationships with governments and communities.
- Reporting and Accountability: Companies often report on their CSR activities, detailing the projects funded, the expenditure, and the impact created. This reporting is part of their annual reports or sustainability reports, ensuring transparency and accountability.
Key Learnings
- Corruption in the CSR sector hampers social development and undermines the public’s trust. It’s time for an immediate and effective response to eliminate these issues and ensure the true potential of CSR is realized for societal good.
- Adopting a culture of transparency is crucial. The public must have access to detailed information about the use of CSR funds. A transparent system can deter corruption by subjecting CSR activities to public scrutiny.
- Promote Ethical Practices: Businesses should be encouraged to promote and adhere to ethical practices. Ethics training programs can be implemented to educate employees about the importance of integrity in their operations.
About the Author
Rusen Kumar, the Founder and Managing Editor of India CSR, is a highly accomplished and seasoned media person and social thought leader in India. He was recently honored as a Social Impact Leader by ASSOCHAM.
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