It has been over four years since spending on Corporate Social Responsibility (CSR) was made mandatory. The government, by amending the Companies Act, made it compulsory for firms, having a net worth of Rs 500 crore, or a turnover of Rs 100 crore, or a net profit of Rs 5 crore, to spend 2 percent of their net profits on CSR programmes.
India was the first and is the only country that has mandatory CSR spend. In the initial days, there was much debate as to whether such a law that compels corporates to spend on social causes was preferable or not, the progress made so far seems to validate the efficacy of the Act.
There's another simple and straightforward way to evaluate the effectiveness of CSR in India. That is to do the data crunching. Fortunately, the CSR law has been ingrained with a lot of measures that mandate the sharing of data.
Companies are required to publish their CSR policy in the public domain, constitute a CSR committee with an independent director, and scores of other disclosures around spending and also what has not been spent. An analysis of this data can be a good guide to measure how corporate India is faring on the CSR front.
And this is what accounting company KPMG has been doing for the past four years. Bringing out a report card on CSR in India in a form of an annual report. This year also KPMG has examined the CSR spend in their study titled, ‘India’s CSR reporting Survey 2018’, using data from public filings of top 100 (N100) listed companies as per market capital.
Here are some key takeaways from the report: In 2017-18, N100 companies have spent Rs 7536.3 crore which is 47 percent higher as compared to 2014-15. Against the prescribed CSR amount, companies have committed to spending Rs 8,099 crore during 2017–18, up 22 percent as compared to that in 2014–15. It is 12 percent higher than the prescribed 2 percent CSR amount Education has received the highest traction, which is consistent over the last three years and continues for the current year. Expenditure towards education has increased by over 75 percent over the last four years, from Rs 1,249 crore (2014–15) to Rs 2,202 crore (2017–18). CSR expenditure in rural areas has increased by over 135 percent in the last four years, from Rs 430.21 crore (2014–15) to Rs 1,029 crore (2017–18). 99 of the N100 companies had a CSR policy in the public domain. There has been a 50 percent increase in the number of companies having more than one woman director in their CSR committee since 2015–16. 33 companies have spent less than this prescribed amount, and thus, were mandated to provide an explanation/reason this. Of these, 27 have provided the reason/explanation statement. A total of nine sectors have committed higher CSR budget against the prescribed 2 percent CSR expenditure, of which energy and power tops the list with a commitment of 129 percent, followed by mining and metals (124 percent), industrial manufacturing (114 percent), banking and financial services (112 percent), and services sector (111 percent). Telecom, IT consulting and software, pharmaceuticals, industrial manufacturing and media and entertainment are at the bottom of the list, with spending less than the prescribed amount. Maharashtra (Rs 268.5 crore), Gujarat (Rs 185.9 crore), Rajasthan (Rs 154.9 crore), Uttar Pradesh (Rs 94.3 crore) and Karnataka (Rs 57.1 crore) are the top five states from an expenditure perspective, contributing Rs 760.6 crore (10 percent of the total expenditure by N100 companies).
Going by the report, the trends seem to be largely positive. Not only Indian companies are now spending sums on CSR, but they are also doing it in a transparent manner. The number of companies sharing details of projects and spends increasing over the years is a welcome sign. Given the fact that education and healthcare are the top spends area, it aligns well with the social scenario.
Also, the fact that MDs and CEOs are becoming part of the CSR committee, it shows active participation by the top management, and that too is a good side. Finally, as companies are becoming conscious of global practices like Sustainable Development Goals (SDG), it shows a maturity of approach. It is no more ad hoc, making cheques, but companies are becoming concerned about their play in the overall system and doing their bit. On the downside, the spend continues to be concentrated on the top industrial states of India garnering the major chunk. The CSR spend is not spread wide and far.
Earlier this year, the government had taken a stern note by sending out notices to a number of companies asking them to detail their CSR spend. With the constant pushes and nudges, the CSR space in India is coming of age. So much so, that other nations might now be encouraged to enact a similar act.
Shashwat DC is Features Editor at CNBC-TV18. He is closet-activist for sustainability and CSR, when not pondering over the future of humanity or contemplating the launch of the new Android phone.