This Paper was presented in the National Seminar (27th & 28th, 2016) at University of Lucknow, Lucknow and was Published in Journal of Asian Business Management (Jan - June, 2017) ISSN : 0974-8636.
-Dr. S. Vijay Kumar
-Dr. S. Vijay Kumar
The Government of India in 1976 had inserted the term “socialist” in the preamble of country's constitution thereby committing itself to ensuring a development process which would be guided and spearheaded by the state. But the ground situation is now fast changing in India. Post 1991, there is increasingly a receding role of the state in the economic and social sphere. An increasing acceptance of CSR by large number of corporate, post liberalization can thus be seen in the context of the larger role being consciously carved for the private sector in an economy which was earlier largely controlled and managed by the State. The corporate world is keen to exploit the opportunities that are being provided by the new economic outlook of the State. Today, 93% of the world’s largest 250 companies now publish annual corporate responsibility reports, almost 60% of which are independently audited.
India's ancient wisdom, which is
still relevant today, inspires people to work for the larger objective of the
well-being of all stakeholders. For example, our Rushees, Munees and Saints
preached us to serve the society. The idea of CSR first came up in 1953 when it
became an academic topic in HR Bowen’s “Social Responsibilities of the
Business”. Since then, there has been continuous debate on the concept and its
implementation. Although the idea has been around for more than half a century,
there is still no clear consensus over its definition.
World Business Council for
Sustainable Development defined CSR as “the
continuing commitment by business to behave ethically and contribute to
economic development while improving the quality of life of the workforce and
their families as well as of the local community and society at large.”
Brief History
and Evolution of CSR in India: India has the world’s richest tradition
of corporate social responsibility. Though the term CSR is comparatively new,
the concept itself dates back to over a hundred years. CSR in India has evolved
through different phases, like community engagement, socially responsible
production and socially responsible employee relations.
CSR &
Hinduism: Social
responsibility is a manifestation of dharma, the duty of human beings towards
society. Atharvana Veda says that “one
should procure wealth with one hundred hands and distribute it with one
thousand hands”. The Yajurveda says
that “enjoy riches with detachment, do not cling to them because the riches
belong to the public, they are not yours alone”. In the Rig Veda, there is also a mention of the “need for the wealthy to
plant trees and build tanks for the community as it would bring them glory in
life and beyond. “Let us walk together,
Let us talk together, Let our heart vibrate together” – Rig Veda. KautiIya also “emphasized ethical practices and principles while
conducting business”.
CSR & Islam:
Islam
had a law called Zakaat which ruled that a portion of one’s earning must be
shared with the poor in the form of donation.
CSR &
Sikhism: Similar to Islam’s Zakaat, Sikhs followed what they called
Daashaant.
Phases of CSR in India:
Phase 1 (1850 to
1914): The first phase of CSR is known for its charity and
philanthropic nature. CSR was influenced by family values, traditions, culture
and religion, as also industrialization. The wealth of businessmen was spent on
the welfare of society, by setting up temples and religious institutions. In
times of drought and famine these businessmen opened up their granaries for the
poor and hungry. With the start of the colonial era, this approach to CSR
underwent a significant change. In pre-Independence times, the pioneers of
industrialization, names like Tata, Birla, Godrej, Bajaj, promoted the concept
of CSR by setting up charitable foundations, educational and healthcare
institutions, and trusts for community development. During this period social benefits were driven by political motives.
Phase 2 (1914 to
1960): The second phase was during the Independence movement.
Mahatma Gandhi urged rich industrialists to share their wealth and benefit the
poor and marginalized in society. His concept of trusteeship helped socio-economic
growth. According to Gandhi, companies and industries were the ‘temples of
modern India’. He influenced industrialists to set up trusts for colleges, and
research and training institutions. These trusts
were involved in social reform, like rural development, education and
empowerment of women.
Phase 3 (1960 to
1990): This phase was characterized by the emergence of PSUs (Public
Sector Undertakings) to ensure better distribution of wealth in society. The
policy on industrial licensing and taxes, and restrictions on the private
sector resulted in corporate malpractices which finally triggered suitable
legislation on corporate governance, labour and environmental issues. Since the success rate of PSUs was not significant
there was a natural shift in expectations from public to private sector, with
the latter getting actively involved in socio-economic development. In
1965, academicians, politicians and businessmen conducted a nationwide workshop
on CSR where major emphasis was given to social accountability and
transparency.
Phase 4 (1990 onwards):
In
this last phase CSR became characterized as a sustainable business strategy. The wave of liberalization, privatization
and globalization (LPG), together with a comparatively relaxed licensing
system, led to a boom in the country’s economic growth. This further led to an
increased momentum in industrial growth, making it possible for companies to contribute more towards social
responsibility. What started as charity is now understood and accepted as
responsibility.
Phases of CSR in India - Table: 1
1st Phase
(1850 – 1914)
|
2ndPhase
(1914–
1960)
|
3rd Phase
(1960 – 1990)
|
4th
Phase
(1990 onwards)
|
Mainly
Philanthropy
and
Charity
during
Industrialization.
Organization
solely responsible to Proprietor and
Manager.
|
During the
Independence
struggle CSR
used
as a tool for
Social
Development.
Organization is
for
proprietor,
managers and
employees
|
CSR
under the aegis
Of
mixed economy.
Organizations
Responsibility
towards
proprietor,
managers
and other
Environmental
Factors.
|
CSR in a
globalized
world in
a puzzled
state.
Organizations
Responsibility
towards
Proprietor,
Managers,
Environment and
Public
in general.
|
Significance of CSR: It has become an important topic because of the following factors:
·
CSR helps in strengthening the relationship between companies
and stakeholders.
·
It enables continuous improvement and encourages innovations.
·
Attracts the best industry talent as a socially responsible
company.
·
Provides additional motivation to employees.
·
Mitigates risk as a result of its effective corporate
governance framework.
·
Enhances ability to manage stakeholder expectations.
The four models of Corporate Responsibility
(Arora & Puranik 2004) – Table: 2
Model
|
Focus
|
Champions
|
Ethical
|
Voluntary
commitment by companies to public welfare
|
M.K Gandhi
|
Statist
|
Statist
State ownership and legal requirements determine
|
Jawahar Lal Nehru
|
Liberal
|
Corporate
responsibilities limited to private owners
(shareholders)
|
Milton Friedman
|
Stakeholder
|
Companies
respond to the needs of stakeholders, customers, employees, communities, etc.
|
R. Edward Freeman
|
Drivers of CSR:
1. Care for all Stakeholders: The companies should respect the
interests of, and be responsive towards all stakeholders, including
shareholders, employees, customers, suppliers, project affected people, society
at large etc. and create value for all of them. They should develop mechanism
to actively engage with all stakeholders, inform them of inherent risks and
mitigate them where they occur.
2. Ethical functioning: Their governance systems should
be underpinned by Ethics, Transparency and Accountability. They should not
engage in business practices that are abusive, unfair, corrupt or
anti-competitive.
3. Respect for Workers' Rights
and Welfare: Companies
should provide a workplace environment that is safe, hygienic and humane and
which upholds the dignity of employees. They should provide all employees with
access to training and development of necessary skills for career advancement,
on an equal and non-discriminatory basis. They should uphold the freedom of
association and the effective recognition of the right to collective bargaining
of labour, have an effective grievance redressal system, should not employ
child or forced labour and provide and maintain equality of opportunities
without any discrimination on any grounds in recruitment and during employment.
4. Respect for Human Rights: Companies should respect human
rights for all and avoid complicity with human rights abuses by them or by
third party.
5. Respect for Environment: Companies should take measures to
check and prevent pollution; recycle, manage and reduce waste, should manage
natural resources in a sustainable manner and ensure optimal use of resources
like land and water, should proactively respond to the challenges of climate
change by adopting cleaner production methods, promoting efficient use of
energy and environment friendly technologies.
6. Activities for Social and
Inclusive Development: Depending
upon their core competency and business interest, companies should undertake
activities for economic and social development of communities and geographical
areas, particularly in the vicinity of their operations.
Key
Issues in CSR:
Labour
Rights: Child labour, Forced
labour, Right to organize, Safety and health.
Environmental conditions: Water
& Air emissions, Climate Change, Human
Rights, Cooperation
with Paramilitary Forces, Complicity in Extra-Judicial Killings.
Poverty
Alleviation: Job
Creation, Public Revenues, Skills and technology.
CSR Current Scenario in India: Although the
roots of CSR lie in philanthropic activities (such as donations, charity, relief
work, etc.) of corporations. The 21st century is characterized by unprecedented
challenges and opportunities, arising from globalization, the desire for
inclusive development and the imperatives of climate change. Indian business,
which is today viewed globally as a responsible component of the ascendancy of
India, is poised now to take on a leadership role in the challenges of our
times. In India, CSR has evolved to encompass employees, customers,
stakeholders and sustainable development or corporate citizenship. Numerous
organizations grade companies on the performance of their corporate social
responsibility. As a result CSR has emerged as an inevitable concern for
business managers in every organization. A
shift from ‘profit maximization’
to ‘profit optimization’ and from ‘shareholders’ to ‘stakeholders’.
CSR Activities in India: Education, gender
equity and women’s empowerment, combating HIV/AIDS, malaria and other diseases,
eradication of extreme poverty, contribution to the Prime Minister’s National
Relief Fund and other central funds, social business projects, reduction in
child mortality, improving maternal health, environmental sustainability and
employment enhancing vocational skills among others. Investment in education, health, skill development and social
infrastructure will enhance capabilities of the youth by improving their
nutritional, skill and educational level, which in turn will better their
employment prospects.
Specific Features of Companies
Act – 2013:
·
These rules came in to force from 1st
April, 2014.
·
The government of
India made it mandatory for companies to undertake CSR activities under the
Companies Act, 2013.
·
The CSR activities
will have to be within India, and the new rules will also apply to foreign
companies registered here.
·
Funds given to political
parties and the money spent for the benefit of the company’s own employees (and
their families) will not count as CSR.
·
The concept of CSR is defined in clause 135 of the Act, and it
is applicable to companies which have:
·
An annual turnover of Rs 1,000 crore or more, or a
·
Net worth of Rs 500 crore or more, or a
·
Net profit of Rs 5 crore or more.
·
An
average of the previous three financial years PAT will be considered for
calculating the 2% for CSR.
·
CSR
policy of a company should ensure that surplus arising out of a CSR activity
will not become part of business profits.
·
CSR
policy should specify that the CSR corpus will include the following: a) 2% of
average net profit; b) any income arising thereof; c) Surplus arising out of
CSR activities.
·
The companies can
carry out these activities by collaborating either with a NGO, or through their
own trusts and foundations or by pooling their resources with another company.
·
The law also entails setting up of a CSR committee which shall
be responsible for decisions on CSR expenditure and type of activities to be
undertaken. Prior to each annual meeting, the board
must submit a report that includes details about the CSR initiatives undertaken
during the previous financial year.
·
This committee shall
consist of three or more directors, with at least one independent director
whose presence will ensure a certain amount of democracy and diversity in the
decision-making process.
·
All companies falling under the provision of Section 135 (1) of
the Act should report, in the prescribed format, the details of their CSR
initiatives in the director’s report and on the company’s website.
·
In case a company has failed to spend 2% of the average net
profit, the reason for doing so should be mentioned in the annual board report.
However, the act does not provide any
guidance on what constitutes acceptable reasons for which a company may avoid
spending 2 % on CSR.
CSR will increase availability of funds for welfare
activities and may lead to delivery of goods and services to the people in a
cost-effective manner. The clause on
environmental sustainability will help in bringing down pollution and emission
of greenhouse gases and will help in compliance with international norms and
regulations. Therefore, this clause is a step towards achieving social and
environmental sustainability, which will benefit society in future.
2013 Vs 2014 Rankings – Table: 3
Rank (2014)
|
Company
|
Rank (2013)
|
Company
|
1
|
Mahindra & Mahindra Ltd.
|
1
|
Tata Steel Ltd
|
2
|
Tata Power Company Ltd.
|
2
|
Tata Chemicals Ltd.
|
3
|
Tata Steel Ltd.
|
3
|
Mahindra & Mahindra Ltd
|
4
|
Larsen & Toubro Ltd.
|
4
|
Maruti Suzuki India Ltd
|
5
|
Tata Chemicals Ltd.
|
5
|
Tata Motors Ltd
|
6
|
Tata Motors Ltd.
|
6
|
Siemens Ltd.
|
7
|
GAIL (India) Ltd.
|
7
|
Larsen & Toubro Ltd
|
8
|
Bharat Petroleum Corporation Ltd.
|
8
|
Coca-Cola India Pvt. Ltd
|
9
|
Infosys Ltd.
|
9
|
Steel Authority of India Ltd
|
10
|
Jubilant Life Sciences Ltd.
|
10
|
Infosys Lt
|
Source: Economic Times (13-10-2015)
Analysis: The CSR Study of finds that many
companies have scaled up operations in CSR and are looking at it as a priority.
Mahindra and Mahindra lead the pack. Compared to the previous study it has
jumped two ranks. There are four Tata group companies in the top 10 list. GAIL
replaces SAIL in the public sector honours; while Bharat Petroleum joins the
top ten list. Interestingly no foreign players make it to the top 10 list.
Interestingly, Jubilant Life sciences, a healthcare company has entered the top
ten list.
A Study by NGOBOX: Selected 100 BSE-listed
companies that have published their annual report and where information about
the CSR spending was available as on July 16, 2015. These 100
companies are a good representation of large and medium companies and account
for 33 sectors as per the BSE sector classifications. Public Sector Units and
Public Sector Banks out of the purview of this analysis as the required
information were not available.
Key
Findings of the study (2015):
·
Nearly
one-fourth (27%) of the companies spent more than the prescribed CSR spend and
about two-third (64%) of the companies spent less than the prescribed CSR
spend.
·
2%
of the companies spent zero amount from their prescribed CSR spend and 9% the
companies spent exactly same as the prescribed CSR amount. 39% of the companies
spent more than 50% of the prescribed CSR spent but missed the target of the
prescribed CSR spend.
Top 10 Companies (Percentage-wise) in
Spending More than the Prescribed CSR (2015) – Table: 4
Sl. No.
|
|
Actual
CSR spend to the % of the Prescribed CSR
|
Prescribed
CSR Spent (INR Cr.)
|
Actual
CSR Spent (INR Cr.)
|
||||
|
VIP
Industries Ltd
|
210.1%
|
1.19
|
2.5
|
||||
2
|
Tech
Mahindra Ltd
|
172.3%
|
30.88
|
53.21
|
||||
3
|
UPL Ltd
|
153.2%
|
6.93
|
10.62
|
||||
4
|
Reliance
Industries
Ltd.
|
142.7%
|
533
|
760.58
|
||||
5
|
Godrej
Consumer Products Ltd
|
129.6%
|
12.41
|
16.08
|
||||
6
|
Marico
Ltd
|
117.8%
|
9.50
|
11.19
|
||||
7
|
Torrent
Pharmaceuticals Ltd
|
109.6%
|
13.69
|
15.01
|
||||
8
|
Bharat
Forge Ltd
|
106.3%
|
10.56
|
11.23
|
||||
9
|
Tata
Power Co Ltd
|
104.4%
|
29.80
|
31.1
|
||||
10
|
Wipro
Ltd
|
103.7%
|
128.00
|
132.7
|
Analysis: VIP Industries emerges as the
best performer by spending more than the double of prescribed CSR spend, followed
by Tech Mahindra Ltd and UPL Ltd.
Bottom
10 Companies (Percentage-wise) in spending prescribed CSR spends (2015) –
Table: 5
Sl. No.
|
Bottom
10 Performers
|
Prescribed
CSR
|
Actual
CSR
|
Actual
CSR Spend as % of the prescribed CSR
|
1
|
Monsanto
India Ltd
|
1.8
|
0
|
0.0%
|
2
|
Nilkamal
Ltd
|
1.15
|
0
|
0.0%
|
3
|
Motherson
Sumi Systems Ltd
|
11.7
|
0.15
|
1.3%
|
4
|
Oberoi
Realty Ltd
|
6.96
|
0.16
|
2.3%
|
5
|
Finolex
Cables Ltd
|
3.03
|
0.11
|
3.6%
|
6
|
Dewan
Housing Finance Corp Ltd
|
11.58
|
0.45
|
3.9%
|
7
|
Sonata
Software Ltd
|
0.68
|
0.034
|
5.0%
|
8
|
IFB
Industries Ltd
|
0.724
|
0.046
|
6.4%
|
9
|
Bajaj
Electricals Ltd
|
2.076
|
0.1628
|
7.8%
|
10
|
Shriram
Transport Finance Co Ltd
|
38.15
|
6.924
|
18.1%
|
CSR Spending in Pharmaceutical Sector
Companies (2015) – Table: 6
Sl.
No.
|
Company
|
Prescribed
CSR Spend (INR Cr.)
|
Actual
CSR Spend (INR Cr.)
|
1
|
Torrent
Pharmaceuticals Ltd
|
13.69
|
15.01
|
2
|
Novartis
India Ltd
|
3.24
|
3.33
|
3
|
Abbott
India Ltd
|
4.52
|
4.63
|
4
|
Ajanta
Pharma Ltd
|
3.74
|
3.82
|
5
|
Biocon
Ltd
|
7.10
|
7.13
|
6
|
Dr
Reddy's Laboratories Ltd
|
36.6
|
29.17
|
7
|
Unichem
Laboratories Ltd
|
3.08
|
2.41
|
8
|
Ipca
Laboratories Ltd
|
9.68
|
7.09
|
9
|
Alembic
Pharmaceuticals Ltd
|
4.72
|
3.1
|
10
|
Lupin
Ltd
|
39.6
|
12.6
|
11
|
Pfizer
Ltd (India)
|
6.02
|
1.29
|
Analysis:
Out of 11 pharmaceuticals
sector companies only 5 companies could spend the prescribed CSR amount.
CSR Spending in Banking & Finance
Sector Companies (2015) – Table: 7
Sl. No.
|
Company
|
Prescribed
CSR Spend
|
Actual
CSR Spend
|
Percentage
of the Prescribed
|
1
|
Mahindra
& Mahindra Financial Services Ltd
|
24.87
|
24.87
|
100.0%
|
2
|
IDFC
Limited
|
47
|
46.5
|
98.9%
|
3
|
Axis
Bank Ltd
|
133.77
|
123.22
|
92.1%
|
4
|
ICICI
Bank Ltd
|
172
|
156
|
90.7%
|
5
|
Bajaj
Holdings and Investment Ltd
|
5.47
|
4
|
73.1%
|
6
|
Bajaj
Finserv Ltd
|
1.48
|
1
|
67.6%
|
7
|
Cholamandalam
Investment & Finance Co. Ltd.
|
8.6
|
5.73
|
66.6%
|
8
|
SREI
Infrastructure Finance Ltd
|
2.26
|
1.38
|
61.1%
|
9
|
HDFC
Bank Ltd
|
197.13
|
118.55
|
60.1%
|
10
|
Housing
Development Finance Corp
|
9.93
|
4.49
|
45.2%
|
11
|
Manappuram
Finance Ltd
|
10.173
|
4.46
|
43.8%
|
12
|
Yes
Bank Ltd
|
38.02
|
15.71
|
41.3%
|
13
|
Capital
First Ltd.
|
1.93
|
0.75
|
38.9%
|
14
|
Magma
Fincorp Ltd.
|
3.78
|
1.26
|
33.3%
|
15
|
Kotak
Mahindra Bank Ltd
|
39.2
|
11.97
|
30.5%
|
16
|
Shriram
Transport Finance Co Ltd
|
38.15
|
6.924
|
18.1%
|
17
|
Dewan
Housing Finance Corp Ltd
|
11.58
|
0.45
|
3.9%
|
Analysis: Only
one company managed to spend the prescribed CSR spend among 17 Banking and
Finance sector companies. Almost 50% of the companies could not spend even half
of the prescribed CSR spend. While Mahindra & Mahindra Financial Services
managed to spend all of the prescribed CSR spend while DHFL could spend only
3.9% of the prescribed CSR making it to the last spot in the list.
CSR Spending in Public Sector Enterprises –
Table: 8
As per
central government guidelines all Central Public Sector enterprises would need
to allocate a percentage of profit for CSR and sustainable activities. The
range of these financial allocations is as follows:
PAT of Central Public Sector
Enterprises in the Previous year
|
Range
of the Budgetary allocation for CSR and Sustainability activities
(as %
of PAT in previous year)
|
(i) Less than Rs. 100 crore
|
3%-5%
|
(ii) Rs.
100 crore to Rs. 500 crore
|
2%-3%
|
(iii)
Rs. 500 crore and above
|
1%-2%
|
Future CSR in
India: Companies’ journey towards
business transformation via sustainability and CSR initiatives with some of the
following key trends would be emerging:
1. Make in India but with Responsibility: The new thrust towards “Make in India” shifts focus from services to manufacturing. It
includes both Indian as well as foreign companies catering to both domestic as
well as international demand. This has a number of implications:
(a). Manufacturing companies require larger investments
and are more likely to fall in the mandatory CSR bracket.
(b). The CSR lifecycle for manufacturing typically starts
with local community driven inventions. This is likely to see a surge as Make
in India picks up steam.
(c). International markets demand greater focus on social
interventions. This is manifested in no child labour, humane working
conditions, environmental safeguards etc. This will force companies to spend
more on CSR in India.
(d). The demand for trained CSR managers will increase
multifold.
(e). Make in India will lead to a thrust towards
efficient supply chains. Sustainable supply chains will demand attention.
(f). Support system for improved disclosure and CSR
governance will be in demand.
2. Global Indian Corporations need to manage International
Risk and Reputation: Indian
companies are going global. They are addressing not just customers of developed
countries but under explored markets in Africa and Latin America. Mining rights
in Australia, factories in South Africa and telecom networks in Kenya are the
growth engines of the future. Globalization and this expansion in scale for
Indian companies offers unique opportunities, though at the same time it brings
tremendous risks. Scale is many times difficult to manage when companies use
strict command and control structures that can’t really adapt to changes in
local environments. Technology and the fast moving flow of information are
great disruptors that have brought many a global corporation to its knees. Customers, Suppliers and Governments
have been joined by NGOs, Communities, Employees and Media over information networks to create Social Risk. Global
Indian companies now need to factor in the new reality where Reputation,
Responsibility and Risk are increasingly interconnected.
3. CSR and Reputation will be part of Strategic
Intelligence: Going forward companies
will connect not just as producers but as people. The personal digital brand is now the most powerful
entity in the world. It can influence consumers to promote or turn away from
corporations. It can influence trends and shake up the established norms. Information
is today freely and readily available, what one does with the flow of
information and how quickly the corporation responds is really what will matter
in the digital world of tomorrow. CSR will be more about genuine impact that
simple philanthropy. It will be about connecting causes to brands and people.
Genuine inside out responsibility for the world we live in built into product
lifecycle, communication and on ground engagement.
4. CSR management will need insight and adaptation not just
knowledge and skill: Linkages of
CSR to core business and strategic intelligence management will help companies
navigate the quickly changing landscape and even manage unexpected twists.
Though this can only happen if the CSR manager of tomorrow has not just
knowledge and skill but insight. Insight into stakeholder groups, customers,
suppliers and communities. These insights will help companies find
breakthroughs that can help solve everyday problems, connect through
conversations and help people. The connected world no longer forgives centralized
model of one way corporate communication that was the norm in the last century.
The insight is necessary to tune CSR
activities to local needs and aspirations rather than a common approach across
the global footprint. Adaptation to changing needs, regulations and societal
changes will be imperative.
5. Innovate, Transform and Engage: Most corporates think inside out – “I spend so much money
therefore I am a socially responsible company”. Others focus on the no of
activities or Spread. They key question though is, Are my activities impactful?
Are they genuinely changing the ground reality? Companies need to build,
innovate and transform on a regular basis. India’s top companies are investing
in products and services that will build sustainability at the core. New
Technologies, Dematerialization, Reuse and Recycling will drive business
innovation. Companies need to earn trust and so do the causes they support.
Providing a service without looking at customer safety, selling products which
do more harm than good won’t help in getting customers to believe in your brand
no matter how charitable you are. Responsibility is about the values that
integrate with the 4 Ps of marketing – product, price, place and promotion. Just
as FMCG (Fast Moving Consumer Goods) companies need to think about better
packaging, Banks need to think about whether services at concessional rates or
loan waivers to the poor really qualify as CSR.
Public Sector fails to utilize 50% of their
funds under CSR:
Though, the Companies Act, 2013 mandates
two percent compulsory corporate social responsibility spending by the
companies has been in force for over a year, yet the central public sector
companies have not utilized over 50 percent of their funds under CSR. BJP’s Rajya
Sabha MP Shanta Kumar-led committee on public undertakings presented its report
on Friday (4-12-2015). The panel
pointed out an anomaly in the act saying that under the Act a company can only be penalized for not
filing of details regarding CSR, but no penal action for no-performance. The
committee recommended redefining the term "CSR". "CSR should be
clearly defined in the Act itself after incorporating the broader principles of
CSR i.e. serving the interest of the most marginalized sections of the society
in line with great words of the father of the nation Mahatma Gandhi, who
believed that development is 'Sarvodaya' through 'Antyodaya' implying the
welfare of all by serving the last man in the queue, the poorest of the
poor," the recommendation said.
Challenges of
CSR:
Lack of
Awareness of General Public in CSR Activities: There is a lack of interest of the general
public in participating and contributing to CSR activities of companies. This
is because of the fact that there exists little or no knowledge about CSR. The
situation is further aggravated by a lack of communication between the
companies involved in CSR and the general public at the grassroots.
Need to Build
Local Capacities:
There is a need for capacity building of the local non-governmental
organizations as there is serious dearth of trained and efficient organizations
that can effectively contribute to the ongoing CSR activities initiated by
companies. This seriously compromises scaling up of CSR initiatives and
subsequently limits the scope of such activities.
Issues of
Transparency:
Lack of transparency is one of the key challenges for the corporate as there
exists lack of transparency on the part of the small companies as they do not
make adequate efforts to disclose information on their programmes, audit
issues, impact assessment and utilization of funds. This negatively impacts the
process of trust building among the companies which is a key to the success of
any CSR initiative.
Non-Availability
Of Well Organized Non-Governmental Organizations: There is non -
availability of well organized nongovernmental organizations in remote and
rural areas that can assess and identify real needs of the community and work
along with companies to ensure successful implementation of CSR activities.
Visibility
Factor:
The role of media in highlighting good cases of successful CSR initiatives is
welcomed as it spreads good stories and sensitizes the population about various
ongoing CSR initiatives of companies. This apparent influence of gaining
visibility and branding exercise often leads many non-governmental organizations
to involve themselves in event based programmes; in the process, they often
miss out on meaningful grassroots interventions.
Narrow
Perception towards CSR Initiatives: Non-governmental organizations and
Government agencies usually possess a narrow outlook towards the CSR
initiatives of companies, often defining CSR initiatives more as donor-driven.
As a result, corporates find it hard to decide whether they should participate
in such activities at all in medium and long run.
Non-Availability
of Clear CSR Guidelines: There are no clear cut statutory guidelines or
policy directives to give a definitive direction to CSR initiatives of
companies. The scale of CSR initiatives of companies should depend upon their
business size and profile. In other words, the bigger the company, the larger
its CSR programme.
Lack of
Consensus:
On Implementing CSR Issues There is a lack of consensus amongst implementing
agencies regarding CSR projects. This lack of consensus often results in
duplication of activities by corporate houses in areas of their intervention.
This results in a competitive spirit between implementing agencies rather than
building collaborative approaches on issues. This factor limits company’s
abilities to undertake impact assessment of their initiatives from time to
time.
Key Concerns of the Companies Act, 2013:
·
The Act does not prescribe any penal provision if a company fails
to spend the stated amount on CSR activities. The Board will need to explain
reasons for non-compliance in its report.
·
The threshold limit of Rs.5 crores net profit for applicability of
CSR requirements seems, in comparative terms, to be on the lower side vis-Ã -vis
net worth and turnover thresholds of Rs.500 crores and Rs.1,000crores
respectively. This may result in companies getting covered under CSR even when
they do not meet net worth/turnover criteria.
·
It is not absolutely clear whether a company will need to create a
provision in its financial statements for the unspent amount if it fails to
spend 2% on CSR activities in a particular year.
·
After
some initial confusion over the tax applicable, it is now clear that CSR
expenditure will be taxable, although for a few activities tax exemption will
be allowed from the financial year 2014-15. However, there is no clarity yet on
these activities.
Critiques:
·
A
disturbing aspect of Section 135 relates to the linking of a company’s
profit-making with the development of local areas. Companies are required to
spend 2% of their average net profits from the preceding three years and focus
on local areas around which they operate. This is an absurd proposition as it
will increase inter-state disparities in social indicators. For instance,
states like Gujarat, Maharashtra and Andhra Pradesh (as also Odessa in 2013),
with their large number of industrial units, are likely to see greater social
development on account of higher CSR spend by the private sector.
·
What
happens to development projects when companies make losses? According to one
estimate, of the 5,138 firms listed on the BSE, the total number of companies
qualifying under Section 135 has come down from 1,500 in FY 2010 to 1,372 in FY
2012. So has the number of total qualifying companies with profit after tax
greater than zero: from 1,457 to 1,265.
·
It is during recessionary times, when the need for CSR expenditure
may be highest among vulnerable groups, that such spending may actually become
unavailable.
·
The rules in the Companies Act-2013 would make it difficult for
companies to pursue strategic CSR - aligned to business strategy - since any
expense that can be traced back to financial profits may have to be set aside
from CSR, as indicated by the law.
·
It is possible that companies would prefer to spend on activities
specified in the Act, (such as protection of national art, heritage and
culture, promotion of sports, contribution to the Prime Minister’s National
Relief Fund), which have a lower long-run social impact, ignoring real problems
like inter-regional inequality or particular social stigmas.
Suggestions:
·
Under the Companies Act – 2013, a
company can only be penalized for not filing of details regarding CSR, but no
penal action for no-performance. Hence, there should be a clarification
for penal action.
·
Creating
awareness among the general public in CSR activities and improving communication between the companies
involved in CSR and the general public at the grassroots.
·
There
is a need for capacity building of the local non-governmental organizations as
there is serious dearth of trained and efficient organizations that can
effectively contribute to the ongoing CSR activities initiated by companies.
·
There
is a need for improving transparency on the part of the small companies as they
do not make adequate efforts to disclose information on their programmes, audit
issues, impact assessment and utilization of funds, which is a key to the
success of any CSR initiative.
·
There
is a need for well organized non-governmental organizations to ensure
successful implementation of CSR activities.
·
The
role of media in highlighting good cases of successful CSR initiatives is
welcomed as it spreads good stories and sensitizes the population about various
ongoing CSR.
·
Broad
perception towards CSR initiatives is essential, as non-governmental
organizations and Government agencies usually possess a narrow outlook towards
the CSR initiatives of companies, often defining CSR initiatives more as
donor-driven.
·
Clear
cut statutory guidelines or policy directives are required to give a definitive
direction to CSR initiatives of the companies.
·
Consensus
amongst implementing agencies regarding CSR projects is the need of the hour,
because lack of consensus often results in duplication of activities by
corporate houses in areas of their intervention.
·
As the act does not provide any guidance
on what constitutes acceptable reasons for which a company may avoid spending 2
% on CSR, hence it should be clarified.
·
The companies in their CSR activities should
give more preference for education, poverty elevation programmes, employment generation,
roads and power etc.
Conclusion: It is too early to say what the real impact of this
act will be, especially given that passing it and enforcing it are too
different things. Moreover,
today the concept of corporate social responsibility is firmly rooted on the
global business agenda. But in order to move from theory to concrete action,
many obstacles need to be overcome. A key challenge facing business is the need
for more reliable indicators of progress in the field of CSR, along with the dissemination
of CSR strategies. No clear cut regulatory framework regarding also acts as a
hindrance in implementing CSR. It is found that the degree of CSR activities of
companies should depend upon their business size and profile. In other words,
the bigger the company, the bigger is its CSR program. Non-governmental
organizations and Government agencies generally possess a constricted viewpoint
towards the CSR activities of companies. As a result, they find it hard to
decide whether they should contribute in such activities at all in medium and
long range. Lack of transparency is another issue which needs focus. This is
mainly due to the fact that there is little or no knowledge about CSR within
the local communities since no sincere efforts have been made to create
awareness about CSR and win the confidence of local communities. There is a
need to increase the understanding and active participation of business in
equitable social development as an integral part of good business practice.
References:
Annual
Reports of the Companies
Ministry of Corporate Affairs,
Government of India
Arora, B. and Puranik, R. (2004),
“A review of corporate social responsibility in India”.
Economic Times: 13 – 10 – 2015
www.k4d.org/Health/sustainable-development-challenges-and-csr-activities-
in- india.
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