Judge CSR Success By Impact not Money Spent

India’s mandated Corporate Social Responsibility has failed to live up to expectations generated when it was being debated and put on the statute books four years ago. Over the years there have been examples of success but also areas where a lot more needs to be done to reach the level anticipated at the start of its innings.

Recent Survey reports indicate that a larger number of companies have jumped on to the CSR bandwagon. CSR spend has increased substantially with a larger number of companies crossing the threshold of their CSR obligations. And yet the impact in sectors where major investments are supposed to have been made reveal little signs of improvement.

According to the provisions Section 135 of the Companies Act law all firms with a net worth of Rs  500 crore or more, or a turnover of Rs 1,000 crore or more, or a net profit of Rs 5 crore or more  have to spend 2 percent on CSR activities. It was estimated that about 15,000-20,000 crore would be generated for CSR activities.

The Ministry of Corporate Affairs has revealed that in 2016-17, 19933 companies spent Rs 13,465 crore on 21,171 projects across 36 states and Union Territories. Other reports reveal that the annual CSR spend of 500 top companies is Rs 12,000 crore. Between April 2014 and March 31, 2017 the CSR spend amounted to Rs 38,000 crore. The expectation is that the figure will shoot up to Rs 50,000 crore for the period between April 1, 2014 and March 2019.

 No Change In Pattern of Funding

Surveys show that there has been no change in the pattern of funding over the past three years. Education and healthcare continue to receive the bulk of funding across all companies. It is interesting to note that the top 10 companies continue to account to 50 percent of the total CSR spent every year.

It has been the bane of CSR in India that government has been placing more stress on the

amount of money each corporate is spending rather than on the impact it has managed to create through its investments. CSR is not about merely spending money but  about bringing a material and social change in the lives of the people it is supposed to impact/benefit. 

The excessive stress on spending rather than impact allows increased irresponsibility. While the top companies have increased their investments in CSR there are reports that a large number of companies are involved in green washing their CSR. Many of these companies, in order to comply with the law, report their ‘CSR activities’ undertaken through NGOs who help them to divert the money back to the company.                                                                                                                                                                                                                                         
Several Surveys have revealed that most of the money is being spent only to meet the compliance requirement laid down in the law. The spirit of responsibility is lacking both among those heading the organizations as also those responsible for creating and implementing the policy. While top management claim that they lack the necessary time at the implementation level the staff fail to deliver in full because  they lack the knowledge, confidence and authority.

                                                                

Business Needs To Play Responsible Role

The Corporate Social Responsibility movement was started because of the need for business to play a more responsible role in tackling the social problems created by their economic power and over reaching presence in the daily life of the people, more particularly the people they impacted. There was also the need to operate and grow as responsible corporate citizens helping in tackling the social and economic problems with the use of their money and management skills.

According to a study by  Ameeta Jain, Senior Lecturer in Finance, and Sandeep Gopalan, Professor of Law,  Deakin University, Australia it is time to introduce reform in the CSR policy.  The two researchers “suggest it’s time to reform laws – to socialise corporations and CEOs in terms of their legal obligations and the benefits of CSR activity, to design enforcement mechanisms, and to generate ethical behaviour. They say the law in its current form is failing to promote CSR activity. Its poor design and lack of clear obligations, set in a milieu of poor law enforcement, is also not generating an ethical obligation to obey the law in spirit”

It has been pointed out that the language of the law is vague which allows a high degree of self-interpretation which undermines the actual intent of the legislation. The two authors have  cited as a example the provision which allows banks to list “staff training in fire safety” as a CSR activity.                                                                                                                                                                                                                                                                           Pointing out that the law “is perhaps purely expressive as the provision stipulates minimal penalties for non-compliance and relies on a comply-or-explain philosophy. This exacerbates the lack of ethical obligation to obey laws in India where there’s a level of high corruption, low levels of public confidence, weak institutions, low levels of development, and education,among other  such issues"                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                Need For More Precise Law 

Provisions of the law, the authors point out, “ appear to be formulated based on a traditional understanding that top management is solely responsible for ethical behaviour and CSR activity, without making the connection between the company and its stakeholders. They stress on the need for the law to be made more precise, backed  by effective enforcement and penalties for non-compliance, to  promote CSR and make companies engage more with stakeholders.

The demand for reform and the need to monitor CSR projects undertaken by business

organization seems to have struck a cord within the Ministry of Corporate Affairs. Recent Minister of State (MoS) for Corporate Affairs, Law and Justice P Chaudhary commented publicly on CSR non-compliance by companies, indicating steps to check CSR spending would begin.

These reports claim that the MCA is planning to undertake “random checking” of projects. It plans to engage third party agencies to undertake this task. A Committee is  to be set up to suggest changes to overhaul   the CSR framework to ensure compliance and audit of 

welfare schemes undertaken by Corporate bodies.

There is a strong opinion that the various provisions of the CSR provision in the Companies Act need to be made more stringent. It has been pointed out that companies have the liberty of self-disclosure over the last four years. The fact that the MCA had decided to review this is an indication that there must have been gross violations and discrepancies for the notices to have been sent.

Need To Make Audit of CSR Project Compulsory

Government should make audits of CSR projects compulsory to ensure programme outcomes. There is also the need to undertake an assessment of the impact made at the end of every project by independent agencies that understand the finer points of social development. According to a Company Secretary few companies get their company secretaries to audit CSR spending.“Only 0.01 per cent of the companies have CSR audited,” he says.

The 2018 Edition of the Status of Corporate Responsibility in India highlights the fact that “ Businesses have enormous opportunity to shape the lives and destinies of the people of India. However in the midst of their extraordinary power and influence, there are severe doubts around the sincerity of their attention to the interests of the people. There is clear need for effective instruments of public accountability, and particularly of better means of measuring private sector impacts.”

Recent reports suggest that the Corporate Affairs Ministry plans to make the existing provisions tighter for compliance. The Department has decided to replace the “show and Shame “ Policy of 2014 with a “spend or get spanked” policy in an efforts to ensure that companies devote greater attention to their responsibilities.

According to Noshir H Dardrawala, a sharp CSR Observer, “It appears that merely providing explanation for not undertaking expenditure on CSR activities would not be considered as adequate compliance of law and the Government seems intent on strictly dealing with issues encompassing CSR and its compliance. He says The MCA has started to review the functioning of CSR implementation. This has been initiated to recommend a uniform approach for its enforcement amongst corporate. It is expected that the policy will be streamlined to ensure proper implementation of CSR projects and reporting.

There is a strong need to move away from money spent concept of judging the efficiency of CSR delivery to the impact creating concept for judgement.