Despite an increase in CSR spending, experts call for a comprehensive, long-term approach to ensure more productive outcomes.
In an era marked by increased social consciousness, the concept of Corporate Social Responsibility (CSR) has gained considerable attention. However, despite good intentions, regulatory restrictions surrounding budgets, timelines, and reporting coupled with an adherence to compliance is impeding a long-term approach to CSR spending, as per India Inc CSR heads and several social sector experts.
While CSR spending has nearly doubled from 2016 to 2021, the Ministry of Corporate Affairs (MCA) emphasizes the need for a comprehensive, long-term approach to garner productive results. Regulatory restrictions and a predominant compliance mindset affect the efficacy and long-term planning of CSR initiatives, according to insights from industry leaders featured in ET.
1. CSR Budget Dependence on Net Profit
Companies find it challenging to plan their CSR spending from a long-term perspective due to the CSR budget being tied to the net profit. This leads to an emphasis on meeting annual spending targets, often resulting in programs that lack long-term sustainability.
2. CSR Spending: A Risk-Averse Approach
According to the 2013 law, CSR spending should constitute a minimum of 2% of the average net profit of the previous three years. Such a profit-based budget pushes companies to be risk-averse, leading to short-term commitments with non-profit organizations and occasional reliance on verbal agreements.
3. Restriction of 12-Monthly CSR Reporting
The compulsory 12-monthly reporting of CSR spending acts as another obstacle. This requirement encourages investments that show outcomes within a year, resulting in reporting focused on headcount rather than actual impact.
4. CSR Spending: A Significant Leap and Changes in Law
Despite these challenges, the MCA newsletter, recently published, revealed a considerable increase in CSR spending from Rs 14,542 crore in FY 2016 to Rs 26,210 crore in FY 2021. The CSR law amendments recognize the need for multi-year investments, introducing the notion of “ongoing projects.”
5. Need for Flexibility in CSR Projects
However, some projects necessitate a more extended incubation period, potentially requiring changes in scope and strategy as implementation progresses. Incorporating flexibility in the law could lead to more meaningful outcomes.
6. Compliance Mindset: An Obstacle to Actual Impact
A compliance-centric approach, rather than a focus on actual impact, limits investment in the CSR sector. Corporates’ high compliance mindset inhibits multi-year planning and spending.
7. Fragmented Traditional CSR Spending
Traditional CSR spending often appears fragmented, with expenditure dispersed over numerous small programs and regions, diluting the overall impact.
8. Need for Collaboration and Scale in CSR
Experts suggest that sustainable impact needs scale, achievable if corporations collaborate and partner in project implementation. However, companies tend to operate programs in silos, affecting long-term value creation at scale. Pooling funds, collaborating, and leveraging networks could also manage the risk associated with budget commitment amidst profit uncertainties. This approach would diversify risks, similar to mutual fund investments.
