Listed profit-making companies could spend up to Rs 8,000 crore on CSR activities if they are able to hit a target of 2% of net profits, stipulated in the new Companies Act approved by the Lok Sabha on Tuesday.
MUMBAI: Listed profit-making companies could spend up to Rs 8,000 crore on corporate social responsibility (CSR) activities if they are able to hit a target of 2% of net profits, stipulated in the new Companies Act approved by the LokSabha on Tuesday. The bill, which has to be passed by the RajyaSabha before it becomes law, says that corporates ought to spend 2% of net profits on CSR activities.
This is not mandatory but the company’s board will have to explain why spending has fallen short in a particular year. A study carried out by the ET Intelligence Group shows that bulk of this – nearly Rs 5,000 crore – will be spent by the companies constituting the Nifty 50 Index.
But India Inc will have to scramble to meet the target as only two companies in the Nifty – Ambuja Cement and ITC- currently spend 2% of net profit towards CSR.
A close examination of annual reports indicate that while most companies discuss CSR initiatives at great length only a handful have mentioned the amount spent, either in absolute terms or as a percentage of their sales or profit. Thirty eight companies of the Nifty companies mentioned CSR initiatives in their annual reports or exclusive sustainability reports, but there was no information on the amount spent.
In their annual reports some companies have mentioned the amount spent by the group of which they are a part. For instance, the Mahindra Group spent Rs 72 crore on CSR while the group’s net profit was Rs 5,410 crore, which translates to 1.3% of its net profit. The Vedanta Group spent Rs 230 crore on CSR when its net profit was Rs 13,130 , or 1.75% of its net profit.
“The performance of Indian companies in case of CSR has been pathetic as they have failed in their role of being a good corporate citizen. They are found to be doing more of lip service rather than actual initiatives in and around the areas of their operations,” says Anil Singhvi, chairman, Ican Investment Advisors.
Companies would do well to spend more on CSR says Singhvi.
“From my experience with Ambuja Cement, I can tell you we have benefited immensely from the goodwill that we generated because of engaging with the community around our operations.”
As a policy, Infosys contributes 1% of its PAT to the Infosys Foundation, which then spends the money on numerous CSR initiatives. And while not all Tata group companies have disclosed their expenditure on CSR, Tata Steel’s sustainability report mentions that the Tata group companies spend 4% of their net profit towards CSR.
Others such as Ultra Tech, ICICI Bank NTPC and SBI spent less than 1% of their earnings.
“Companies in India have not been able to link CSR with the sustainability of business and it is one of the reasons why companies are reluctant to spend on CSR,” says Sudhir Sinha, corporate head – CSR in CiplaBSE 1.57 %. While the company has not disclosed the amount it spends on CSR in its annual report, the company claims it to be far above 2% of its profit due to its various efforts linked to making low-cost life saving anti-HIV drugs available.
“It (not spending much on CSR) is also to do with the Indian attitude that if you can get away without doing something, it is best to avoid it,” says Singhvi. Opinions vary on whether the government should have made CSR mandatory in the first place.
“It’s not a good idea to make it mandatory. Companies who are doing it sincerely will continue to do it. And those who want to avoid doing it will find ways to do so,” says a sustainability and CSR consultant who did not wish to be named. But according to Rajesh Tiwari, CEO of the Indian Centre for CSR, by mandating CSR in the Companies Bill, the government has created a process whereby companies are forced to spend on social returns along with financial returns and they are forced to report on such spends.