By BILAL HUSSAIN
Given the enormous amount of about two billion dollars involved in the CSR (Corporate Social Responsibility) spending, India Inc will be able to engage in CSR provided they have properly crafted CSR programs that would reflect values of a corporate while fulfilling the societal and environmental requirements.
In late February 2014, the Ministry of Corporate Affairs, Government of India notified rules under the Section 135 of Companies Act 2013 for CSR spending which will be effective from 1st April 2014. Under the legislation, certain class of companies have to shell out at least 2 per cent of their three year annual average net profit towards social welfare activities.
As per the provisions of section 135, a company with turnover of INR 1000 crore or more or a net-worth of INR 500 crore or more or net profit of INR 5 crore or more in any financial year shall constitute a CSR Committee and would be required to spend at least 2 per cent of their average net profits of the past three years on CSR activities. If for any reason a company is unable to do so, they would be required to explain the reason for that. An annual report on CSR activities must be included in the Board Report of a company spending on CSR.
According to an estimate by the Ministry of Corporate Affairs, companies could end up spending up to INR 30,000 crore on CSR activities following the new recommendations. While, Ernst & Young, the audit and advisory company, estimates that the law would cover about 3,000 companies in India and about $2 billion of expenditures on CSR activities. Even at that rough estimate, the BSE-500 companies would have to shell out around INR 8,000 crore.
As defined by the Act “CSR Policy” relates to the activities to be undertaken by the company as specified in Schedule VII to the Act and the expenditure thereon, excluding activities undertaken in pursuance of normal course of business of a company.
Most of the companies that would fall in mandatory CSR category don’t have a CSR strategy in place, but rather numerous disparate CSR programs and initiatives. This could seriously hamper the motive of Section 135 of Companies Act 2013 for CSR spending.
The type of CSR programs a company should focus on could be based on its core competencies and institutional capacity, and its ability to excel in either philanthropic activities or transformative ecosystem CSR efforts.
Having said this, the challenges of crafting a CSR strategy is largely due to the differing motivations for corporations to undertake initiatives compared to the expected benefits that companies hope to derive which many a times could be different.
The top executives in the corporates have to understand that success is difficult to evaluate, especially when corporates try to connect the CSR initiatives with company’s profit-driven goals. The various decision makers initiating CSR programs will face these difficulties while trying to make that connection, because attempting to measure the business advantage of charitable endeavors would decline their authenticity. However, the corporates in India have to realize that CSR initiatives may be more important than quantitative measurements of their effectiveness.
It is the time for every corporate that falls in this category to craft a CSR strategy that would integrate the diverse range of a company’s philanthropic activities, supply chain, and marketing all under one roof.