October 24, 2014:
For India Inc, the season of giving has begun. The new Companies Act requires corporates to spend 2 per cent of their profits on Corporate Social Responsibility (CSR) initiatives. But six months since the Rules took effect, many corporates are still grappling with structuring and implementation.
Big issue for small firms
For smaller companies embarking on CSR, structuring the activity isn’t easy as it involves overheads and compliance costs. Large companies, on the other hand, often have foundations or trusts in place to channel CSR initiatives. So, small and medium companies are either looking to undertake short-term CSR activities in-house by appointing designated employees or using third-party implementing agencies, says Anand Mehta, Partner, Khaitan & Co.
If that proves difficult, donating to the PM’s Relief Fund is an easy option. “Certain smaller companies have been fulfilling CSR obligations by making donations to the PM’s Relief Fund, thereby avoiding overhead and compliance costs,” he notes.
Many first-time implementers are also looking to pool resources that they plan to hand over to NGOs, which will implement the actual initiatives. Government regulations allow pooling of CSR funds to achieve scale. With an estimated 8,500 companies falling under the minimum CSR spend mandate, a large pool of money is going to be generated, making NGOs keen to engage.
“Non-profits are looking to tap into the CSR spends of first-time companies and small and medium enterprises. These companies do not have specialist teams and will, therefore, find it difficult to plan and monitor the spending,” says Atul Raja, Executive Vice-President, Marketing, Wadhwani Foundation. He notes that corporates are also demanding more professionalism and better disclosure standards from the NGO sector.
Business as usual
While small companies are searching for effective solutions, CSR seems to be business-as-usual for some larger firms. For instance, mining major Sesa Sterlite, along with its group companies, brought in nearly ₹300 crore in 2013-14, says Roma Balwani, President, Sustainability and CSR, Vedanta Group. “Our CSR initiatives are implemented in the local communities by a team of over 200 people, through public private partnership programmes”. While the company has been socially active in the communities where it operates, to comply with the new rules, a board-level CSR committee has now been constituted.
Companies seek to create an immediate or visible impact that can be strong talk-points in communicating with external stakeholders, notes Raja. The lion’s share of spends may thus go to education, health, community development and environment.
Given that they aren’t confident of deploying the entire 2 per cent in the first year, companies are also worried about the consequences of non-compliance.
The Companies Act, 2013 requires companies to report if the mandated CSR expense is not incurred in a given fiscal year. The CSR panel has to submit an explanation for non-compliance in the directors’ report. But it is not clear if penalties will be imposed in the event of failure to meet CSR obligations.