A year ago, India passed a new law making corporate social responsibility initiatives mandatory for companies of a certain size. Sustainability consultant Peter ter Weeme evaluates how it has panned out a year later.
By Peter ter Weeme
On April 1, 2014, India became the first country to legally mandate corporate social responsibility (CSR). The new rules in Section 135 of India’s Companies Act make it mandatory for companies of a certain turnover and profitability to spend two percent of their average net profit for the past three years on CSR.
More than one year into this grand experiment and the results are mixed at best. We’ll get into that in a minute.
First, some background….
About India’s CSR law
The law, which stipulates that CSR activities should be undertaken only in “project/programme” mode, provides detailed guidelines regarding what kinds of activities are eligible across several categories. This includes hunger and poverty, education, health, gender equality and women empowerment, skills training, environment, social enterprise projects and promotion of rural and national sports.
There are conflicting figures regarding the number of companies that fall within the purview of the law but 16,000-17,000 (out of more than 600,000 registered firms in India) is an oft-quoted range. Similarly, estimates of the amount of funds to be spent annually vary widely from 10,000 – 20,000 crore rupees or between one-and-a-half to three billion USD.
It’s been 13 months after the rules came into force and implementation has been slow. As a result, spending estimates have been slashed. Most companies don’t expect to meet their targets.
This delay in spending isn’t entirely surprising. The original legislation was spearheaded under the Congress government led by Manmohan Singh. When Modi’s pro-business BJP party handily won the 2014 national elections, many expected it would soften or delay the law. That didn’t happen and now companies have to play catch-up.
Is the law working as intended?
“It’s been 13 months after the rules came into force and implementation has been slow. As a result, spending estimates have been slashed. Most companies don’t expect to meet their targets.”
According to an article on Devex, Venkatesh Kumar, director of the Tata Institute of Social Sciences is quoted as saying, “There are some [companies] who are doing exceptionally good work, there are some who are catching up, there are some who have also not understood the concept of CSR and probably are not doing it the way it should be done.”
Many large corporations are handling CSR through their foundations while midsize companies are setting up internal teams to supervise projects carried out by implementing partners. Regardless, many companies have grabbed at the easiest solutions for their required spend – investing in the government’s priorities such as building toilets as part of Modi’s “Clean India Mission” (Swachh Bharat Abhiyan), “adopting” local villages or pumping money into the Prime Minister’s National Relief Fund.
These are all good causes but are these actions really advancing CSR in India? Are they building real value for the companies and the communities? Are they transforming corporate behaviours? Or are they just a sop to please the government?
Truth is: it will take a few years to see whether the law delivers. Given India’s track record at enforcing legislation, I’m sceptical. However, I hope to be proved wrong.
That said, this fall, the rubber will really hit the road when the companies who fall under the law are required to share a report on their activities and spending. Those reports must include information about the company’s CSR policy, the composition of its CSR committee, the amount of CSR expenditures and details on the projects where it was spent. If the company does not spend the required amount, it must publicly disclose it and the reasons why. Failure to report is punishable under the Act.
Bureaucrats will be poring over reports from September onwards. At that point, a clearer picture will emerge. Until then, civil society is keeping a watchful eye and lending pressure to efforts to ensure compliance.
Meanwhile, in NGO-land…
The rules regarding the law highlight the importance of “implementing agencies” and also make it clear that corporates are not required to conduct CSR programmes by themselves. As a result, many NGOs are conducting research, building internal capacity, hiring staff, and crafting corporate engagement strategies. Some of the largest are positioning themselves as influencers and enablers.
Many NGOs are getting listed on databases set up by government, NGO groups and private players to connect companies with implementing partners. In particular, the Indian Institute of Corporate Affairs (IICA) is working on launching a CSR Implementing Agency Hub that will:
1. Provide a database of implementation partners with information about their geographical presence, area of work and previous projects executed
2. Present a database of agencies conducting baseline surveys, impact assessments and social audits
3. Assist with relevant training and development, convene sectorial events and showcase success stories
India is currently home to 3.3 million (33 lakhs) registered NGOs and about one-third are estimated to be fully functional and ready to support implementation of the law. However, it looks like the small or marginal NGOs are not likely to reap much reward. They don’t have the capacity, systems, governance or transparency that companies require. Similarly, the IICA will be challenged to monitor the performance of all implementing partners. In the end, there will be winners and losers.
CSR in India – whither the future
There’s no question that India faces enormous development challenges and that it’s only by working together that government, civil society and corporations have any hope of addressing them.
Is India’s CSR law the answer?
It’s too soon to tell but everyone’s watching.
(Peter ter Weeme is a principal of Junxion, an international consultancy with offices in Delhi, London and Vancouver.)
(Sourced from: http://www.eco-business.com/opinion/one-year-into-indias-csr-law-the-jurys-still-deliberating/)