Indian firms' CSR spending needs more accountability and transparency

With the enforcement of the Companies Act in 2014, India became the first country to make corporate social responsibility, or CSR, mandatory. The legislation stipulates that companies conscientiously contribute to society by integrating development programmes in their business models and culture. For this, firms with net worth of Rs 500 crore, or turnover of Rs 1,000 crore, or net profit of Rs 5 crore or more in a fiscal, must contribute 2 per cent of their profits to programmes that benefit society. Four years later, these big companies have spent much more on CSR than expected. But are they actually engaging in social respon sibility with commitment, or just finding convenient ways to be on the right side of the law?

Corporate India increased its prescribed amount for CSR expen diture from Rs 5,779.7 crore in 2014-15 to Rs 7,096.9 crore in 2017-18, states auditor KPMG’s 2018-19 report which analysed the CSR work of 100 companies. It found that companies were spending more than what was prescribed. From Rs 4,708 crore total expenditure on CSR in 2014-15, it increased to Rs 7,424 crore in 2017-18. But the country’s most backward districts that require maximum CSR support, remain deprived.

According to the Ministry of Rural Development, 115 of the 718 districts in India are backward. NITI Aayog stipulates that corporate handholding can ensure the development of these districts. Jharkhand has 19 such districts, Bihar 13, Chhattisgarh 10 while Madhya Pradesh, Odisha and Uttar Pradesh have eight each. But only one per cent of all CSR progra mmes have been implemented in Jharkhand and Chhattisgarh each. Bihar has received just 2 per cent, Madhya Pradesh 3 per cent and Odisha 11 per cent.

Maharashtra, Rajasthan, Gujarat, Karnataka and Andhra Pradesh, which account for only 15 per cent of the aspirational districts, have recei ved 60 per cent of the CSR money. Twelve per cent of the districts in the Northeast require CSR attention, but just about 4 per cent received CSR money in 2017-18.

Companies say the Act is new and will take time to integrate CSR projects into their business models. However, they have found convenient ways to wriggle out of their responsibility. A large number of companies transfer CSR funds to government programmes such as Prime Minister’s Relief Fund and consider their responsibility over.

In 2016-17, the public sector Oil and Natural Gas Corporation, Hindustan Petroleum, Oil India and Indian Oil Corporation together contributed about Rs 146 crore as CSR towards the Rs 3,000-crore Statue of Unity, built in the memory of Sardar Vallabhbhai Patel in Gujarat. Uttar Pradesh Chief Minister Yogi Aditya nath has written to all district magistrates to use CSR funds to set up cow shelters.

Although schedule VII of CSR policy allows contributions to govern ment schemes, such contributions contradict the principles of CSR. Instead of engaging with commu nities to uplift them, companies do a one-time cheque-signing exercise. CSR policy stipulates that one-time activity cannot be considered responsible business. “CSR funds should not be used as a source of funding government schemes,” states the Ministry of Corporate Affairs FAQs on CSR norms. At a time when the country eagerly awaits a robust policy, companies are not even complying with the present one.

Non-compliance by firms

In July 2018, a good 272 companies were served notices by the Registrar of Companies for non-compliance with CSR expenditure. Between July 2016 and March 2017, as many as 1,018 companies, such as Adani Infrastr ucture and Developers, DLF Assets, and Vodafone India Services were issued notices for non-compliance. KPMG has identified three principal areas of non-compliance—disclosure of direct and overhead expenditure on projects, details of overhead expenses, and keeping these overhead expenses below 5 per cent of total CSR spends.

Poor understanding of the social needs of communities is assessed as the main reason for poor CSR compli ance. The problem is aggravated by inadequate infrastructure and imple mentation capability within organi sations and lack of required expertise. “There is no data to know if companies are undertaking need-based assess ment studies, a must since it priori tises the requirements of the impacted communities,” says Sujit Kumar Singh, senior programme manager at Delhi nonprofit Centre for Science and Environment (CSE). Such an assessment should be inclusive and participatory on the lines of gender, caste and religion. Often, professi onals handling CSR are not trained to comprehend societal nuances. In most cases those heading the human resource department handle CSR activities. The need now is a policy which drive companies towards self-regulation, the key to CSR, Singh says.

Recognising that CSR is still nascent and a grey area, CSE has prepared reporting guidelines for companies. For this, it formed a committee representing media, civil society and industry. According to the guidelines, companies should self-regulate and be responsive to the disadvantaged, vulnerable and marginalised sections of society. They should respect and promote human rights, make efforts to protect and restore the environment, and support inclusive growth and equitable development. The guidelines show how to improve accountability and transparency in CSR spending, and make it an integral part of business.

(This article was first published in Down To Earth's February 16-28, 2019 print edition)