Even if this concept of compassion was there since ages, term CSR becomes much more important in the present context as far as Indian Inc. is concerned, as Company Act 2013 made it compulsory for every company, (be it private, public, listed or unlisted). That being the reason Governance Democracy& Politics (GDP) Magazine has decided to come out with first-of-its-kind Special Issue on CSR that will do a deep dive into this crucial subject and how Indian Inc. is looking towards this “mandatory obligation.” Importantly 2691 companies spent Rs 9822 crore on CSR during FY16 in comparison to Rs. 8803 crore spend by 3139 companies during FY15. What was more encouraging is that fact that during FY 15, Rs 8803 crore expenditure was 74% of the prescribed CSR expenditure limit of Rs 11883 crore, Surely, a giant “first leap” of India Inc. by any standard, Reports Amit Bhanot in the Cover Story of Governance Democracy&Politics (GDP), Special Issue on CSR “Responsible Institutions of India 2016”
India is a country of scarcity and with more that 1.2 billion population living in subcontinent, any amount budgeted by the government for welfare of people, seems miniscule by any given global standard. Though government is planning various schemes for the upliftment of poor and needy, when it comes to real spending on various schemes, Government finds it difficult to satisfy all the people concerned. Be it education or healthcare or any other human development index centric sector that calls for focused government intervention and huge financial support to change the standard of living of people of country, whatever government earmarked, become peanuts when compared with the mammoth need of the country like India. Just to mention here that government has earmarked Rs. 79686 crore for education (3.7% of budget) and Rs 48878 crore (2.27%) for health sector in the FY18 budget, but state of Indian education and health care sector is known to everybody. Interestingly it is not only about money and finance that Indian could improve upon the human development index, where it is placed at 131 spot among 188 countries, but a focused approach, not only by the government but also by all the “stakeholders”, is necessary.
Perhaps it is this “sense of responsibility” that defines the “stakeholders” in any set up and in our opinion this is the very foundation of Corporate Social Responsibility or CSR, as famously called today in corporate jargon. Though concept of CSR is quite old in India and our religious beliefs since ages also preach towards “giving back” to the society, whatever a person takes. In fact great Indian corporate like Tata, Birla, etc. always remained focus on this concept of “giving back” to society and often named as charity, aid, assistance etc. Even PSUs, which are regarded as temples of modern India, had their very initiation on the concept of Sustainability, Growth and Compassion. Even if this concept of compassion was there since ages, term CSR becomes much more important in the present context as far as Indian Inc. is concerned, as Company Act 2013 made it compulsory for every company, (be it private, public, listed or unlisted). That being the reason Governance Democracy& Politics (GDP) Magazine has decided to come out with first-of-its-kind Special Issue on CSR that will do a deep dive into this crucial subject and how Indian Inc. is looking towards this “mandatory obligation.” Aware of it, GDP has taken initiative depicting the ground zero situation, going through the psyche of organizations, public perception and most importantly mode of implementation that are being used by the companies.
Giant First Leap of Indian Inc.
The main problem with CSR and its analysis is that though this concept is there since decades, it got its legal sanctity till recently and there is dearth of data regarding CSR spending. Also there are still various confusions among corporate as to which activities do qualify for CSR and how CSR budget will be spend upon various activities. As far as data is concerned, during FY16 (being the second year after CSR Spending became mandatory) 5097 companies spent Rs. 9822 crore on CSR, with Reliance industry continue to lead the list with Rs 652 crore (though RIL’s CSR spent declined from last year expenditure of Rs. 760 cr) spent followed by NTPC, ONGC, TCS and South Indian Coalfields. Interestingly NTPC toppled ONGC (Rs 421 crore) as the biggest PSU spender on CSR with Rs 491 crore expense. Interestingly, on one hand top 10 companies contributed towards 28.5% (Rs.2800 crore) of the total CSR spend, at the same time 2079 companies spent less that Rs 1 crore on CSR, clearly depicting that CSR spend still remained just a formality of maximum companies. Most unfortunate part was that out of 5097 reporting companies, 2406 didn’t spend a single penny on CSR while, top 122 companies spent Rs 7746 crore (79% of the total spend), showing a great degree on skewedness towards top. Just 2691 companies made contributions towards CSR during FY16.
On the positive side, as Rs 8803 crore was the CSR spent from 7334 companies during FY15, while just 5097 companies spent Rs. 9822 crore during FY16. Interestingly various big guns (that were present in FY15 list) are missing from FY16 list of CSR spenders and number of companies also declined during FY16 (during FY15 there were 7334 companies). When we deep dived into the reason for it, we were shocked at the reason. MCA has fetched this data with a cut off date of December 2016, but many companies have filed their balance Sheet with annual reports to Registrar of Companies (ROC) in January and February 2017 (or still filing by paying late fee) too. Due to this CSR spend for FY16 would surely be much more for FY16. As per MCA assessment CSR spend would surely cross Rs. 10,000 crore mark for FY16 as companies have now started taking CSR rule seriously.
During FY15 (being the first year for mandatory CSR spending), there were 10475 companies eligible for CSR spending but 7334 companies have “reported” to MCA regarding CSR. Although, more encouraging was that fact that, 3139 companies have spent whooping Rs 8803 crore on CSR during FY15, which is 74% of the prescribed CSR expenditure of Rs11883 crore. Really a giant “first leap” of India Inc. by any standard. What was encouraging is that 39 companies spent upon CSR activities despite incurring losses during previous years, really calls for applause…
At the same time GDP staff members come across companies who hand over the CSR department/workload within the company to individuals who are either not exposed to or do not understand the nuances of any given social problem. But we are also aware of the fact that since the law is new, the thought and approach to it are evolving. And yes, things are looking up.
Companies Need To Change Their Mindset
Though first step is towards CSR spending and responsibility seems ok but now this campaign needs to get momentum. There is no denying the fact that with the mandatory spending on corporate social responsibility (CSR) pretty much minimized to just another ineffectual legislation piece, a modification in mindset that entails looking at CSR as growth opportunity is fast becoming the change agent in India.
Whether it is the requirement for roads or clean drinking water or inexpensive housing or even broadband access in the remotest parts of India, the Sustainable Development Goals adopted in 2015 by the UN, are now becoming the fulcrum for emerging growth markets.
In a run-up to CSR activity, organizations begin with charity, then they go for starting educational institutions, then espouse causes related to marketing, and then CSR. The point that is missing is the work towards societal good and reducing the environmental footprint, not that something you superimpose on the business—that’s the subtle difference.
There is no denying the fact that companies need to reinvent their growth model. Emphasis need to be put on economic growth married to human needs. The key to this is committed leadership, and it is the quality of the leader, his point of view and morality that is very pivotal.
Beyond the numbers what it highlights is the passivity of corporate social responsibility (CSR), with its ring of self-righteousness, is giving way to the more positive intent captured by the phrase corporate social opportunity.
On a more significant note, for those companies, which have integrated these sustainability goals with the core of their businesses, the commercial returns have been well worth the efforts. That’s the real marker for the future because regardless of which end of the pyramid one is in, there are some needs that are universal.
As far as more recent development is concerned and quantum of CSR funding is concerned, Indian Inc. are slowly but steadily changing its mindset towards CSR goals. Recently parliament was informed that around 400 companies together shelled out about Rs 5,857 crore towards corporate social responsibility (CSR) activities in two years.
Interestingly many companies are voluntary coming forward to spend on CSR and spending more than mandated amount. Importantly, an assessment of CSR expenditure of 172 companies in FY15 clearly highlights that these companies spent Rs 3,360 crore in FY15 against the mandated Rs 2,660 crore on such activities.
PSUs remained much more responsible towards CSR spending as during FY 15 out of 226 PSUs 142 remained to be positive spenders on CSR activity while 84 companies haven’t spent on CSR, which is 37% of the total. However private peers performed badly in comparison to PSUs as 4111 companies didn’t spend a penny on CSR out of the total tally of 7108 companies, which is 58%, while 2997 companies spent money on CSR. Interestingly, State-owned companies’ CSR spends rose 41 percent in the last financial year. In a nutshell, we are of the view that companies need to approach CSR more strategically to be able to address the root causes of problems rather than just throwing money at them.
Top CSR Spenders
Energy companies were the biggest CSR spenders in the last financial year at Rs 2,170 crore, followed by mines and metals at Rs 740 crore and bank and non-banking financial companies at Rs 130 crore. On top of the list is Reliance Industries Limited with 652 Crore CSR spend followed by NTPC (492 Crore), ONGC ( 421 Crore), Tata Consultancy Services Limited ( 294 Crore) and South Eastern Coalfields ( 270 Crore).
Despite all this, there are few experts who are of the view that most companies still consider the mandatory 2% CSR spending to be a burden and therefore, their focus is merely on complying and not on the outcome of the initiative.
While companies are investing in CSR initiatives, it still remains at the periphery of their vision. It is pivotal to understand and measure the impact and return on investment of the CSR initiatives.
| Top 20 CSR Spenders in FY 16 | ||
| S.No. | Company Name | (Rs. In Crores) |
| 1 | RELIANCE INDUSTRIES LIMITED | 652.0 |
| 2 | NTPC LIMITED | 491.8 |
| 3 | OIL AND NATURAL GAS CORPORATION LIMITED | 421.0 |
| 4 | TATA CONSULTANCY SERVICES LIMITED | 294.2 |
| 5 | SOUTH EASTERN COALFIELDS LIMITED | 270.9 |
| 6 | ITC LIMITED | 247.5 |
| 7 | CENTRAL COALFIELDS LIMITED | 212.8 |
| 8 | NMDC LIMITED | 210.1 |
| 9 | TATA STEEL LIMITED | 204.5 |
| 10 | INFOSYS LIMITED | 202.3 |
| 11 | POWER FINANCE CORPORATION LIMITED | 195.5 |
| 12 | HDFC BANK LIMITED | 194.8 |
| 13 | ICICI BANK LIMITED | 171.5 |
| 14 | GAIL (INDIA) LIMITED | 160.6 |
| 15 | WIPRO LIMITED | 159.8 |
| 16 | INDIAN OIL CORPN. LIMITED | 156.7 |
| 17 | AXIS BANK LIMITED | 137.4 |
| 18 | RURAL ELECTRIFICATION CORPORATION LIMITED | 128.2 |
| 19 | BHARAT PETROLEUM CORPORATION LIMITED | 112.6 |
| 20 | LARSEN AND TOUBRO LIMITED | 111.9 |
Going the Foundation route
Another question of prime importance is that: What is the best way for a company to discharge its corporate social responsibility (CSR)? Should it set up a foundation? Or work through partnership with others? Or implement its schemes directly?
All these options are open to companies but now an increasingly large number of them are choosing either to spend directly or are setting up their own foundations to carry out CSR as it gives them more control over the programmes they choose to undertake. During FY15 whooping 53% of the companies spent CSR budget directly, while 4% spent through their own foundations. At the same time 39% of the companies spent through Societies/Trust or through Section 8 companies.
Furthermore, companies find donations to foundations to be a convenient method of using up their mandated CSR spend for a given year. By transferring the CSR funds to a foundation, the company is easily able to meet its mandate.
The CSR guidelines give organizations the choice of implementing such activities through a registered trust or society with a minimum of three years experience in an area, a foundation established by the company (foundations are a Section 25 company) or a subsidiary/associate company.
While majority of organizations like Tata Motors Ltd and Marico Ltd adopt a mixed model of CSR—they execute some projects themselves as well as set up a foundation and work through non-profits—some like State Bank of India (SBI) and Reliance Industries Ltd prefer to the foundation route.
As per media reports number of projects implemented through foundations alone has gone from 99 in FY15 to 153 in FY16. It is worthwhile pointing out that organizations adopt a certain mechanism taking into consideration the size of their corpus. SBI, which set up its foundation in June 2015, had a Rs 99.5 crore budget in FY16.
The argument in favor of setting up a foundation is that it helps bring in better corporate governance as it needs one to set up a separate board dedicated to this entity. To be sure, foundations are popular even among companies with smaller budgets.
Point to be noted here is that when a company provides a CSR grant to its own foundation or an NGO having an 80G certificate, the company enjoys a 50% tax deduction on the amount spent on CSR. Meaning, if company’s total income is Rs 1,000 but gives Rs100 to its own foundation or NGO having 80G certificate, it can deduct Rs50 while computing its income liable to tax.
If experts are to be believed, setting up foundations also helps firms create a legacy. Foundations all around the globe create lasting legacies, as corporate foundation is a visible and positive symbol of the company’s dedication to philanthropy and CSR. It can help the company develop a community investment and involvement strategy that furthers the company’s social vision and its business interests.
Foundations may be gaining in popularity, but a majority of companies still rely on non-profits to carry out their CSR programmes. The large chunk of listed companies still does its CSR by giving money to NGOs (non-governmental organizations). Companies take this route when they don’t have expertise in an area. Whatever the route, experts believe that the objective should be to maximize impact.
This article is part of Special Issue of GDP Magazine on CSR. Governance Democracy& Politics (GDP) Magazine’s Special Issue on #CSR Takes A Deep Dive on the state of CSR Spending. It has a regressive database of 5000+ companies on CSR Spending.
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