The Future of CSR in India

Introduction:

Corporate Social Responsibility (hereinafter CSR) is making a significant impact on our country's development. In the Companies' Act 2013 a groundbreaking provision was made. Companies were required to allocate a minimum of 2% of their net profits over the preceding three years to CSR, and spend the said amount on livelihood, health, education and environment for the betterment of communities. Section 135 of the Companies’ Act formalised CSR as a legal requirement, while its Schedule VII and the Companies (CSR Policy) Regulations 2014 provided the operational guidelines.

It has been ten years since then; which provides a good opportunity to look back and evaluate. To do that I will look into the following questions: what is the concept of CSR; what has been achieved in these ten years; what were the shortcomings; and how can CSR become better, going forward??

Background:

The opportunity to reflect on the aforesaid questions came for me during the 18th Annual CSR conference on the theme ‘CSR and Exploring Evolution of ESG in the New World Economy’ organised by the Institute of Directors in Mumbai in December 2023. The conference had panel discussions on various aspects of CSR, where experts and practitioners expressed their candid views. The deliberations of the conference are covered in the January 2024 issue of the Director Today Magazine, a publication of the Institute of Directors, India .?

During the conference, Golden Peacock Awards for excellence in CSR were also presented. In a special session that I got a chance to preside over, the award winning companies presented their CSR initiatives. The session - lasting for almost three hours -? was very interactive and insightful; and a learning experience, too.?

What is the concept of CSR??

In the public policy literature, inclusive growth concept is an essential part of development strategy. Its aim is to include those sections of the society that had thus far remained excluded from the mainstream of development. CSR was “conceived as an instrument for integrating social, environmental and human development concerns in the entire value chain of corporate business”(Voluntary Guidelines on CSR 2009, Ministry of Corporate Affairs). This policy was further modified and presented as “National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business 2011”. Finally the concept of CSR found a place in the Companies’ Act 2013. Now, I will deep dive into the questions that I set out to explore.?

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What has been achieved in the past ten years??

There have been numerous notable achievements.

1. CSR as a statutory concept is unique, when compared to most countries in the world. Participants (at the CSR Conference in Mumbai) from many developed countries expressed the view that their laws governing companies do not have such a provision. Most of them felt that this is a progressive legislation that enables the companies to think beyond profits and encourage them to look at the commitment to their communities in a more focused manner. In that sense, Indian laws stand out globally.
2. Large sums of additional money became available for social sector activities. According to the data available on the National CSR Portal , an estimated ?150,000 crore was earmarked nationally by the companies for CSR in the seven years since the concept became operational. Of this amount, Maharashtra got nearly ?52,000 crores in these ten years (more about it later).?
3. Many companies have experimented with different approaches to better deliver better results for the communities that they cater. These different approaches provide useful experience and learning, particularly if the government was to decide on scaling up any of these interventions to the state or national level.
4. There is very encouraging performance of the Public Sector Undertakings (PSUs). Central PSUs collectively spend almost ?4000 crores every year. Even though the bulk of this amount goes into areas of their operations, almost 250 PSUs have come forward to spend thematically on the Aspirational Districts Program of Niti Aayog, covering almost 100 backward districts. This is bound to have a salutary effect on the development of these districts.
5. During Covid-19 pandemic, the PM CARES Fund - PM's Citizen Assistance & Relief in Emergency Situations Fund was established. Schedule VII of the Companies’ Act 2013 was amended to make donations from CSR to the said fund an eligible expenditure under CSR. Due to this, in a short span of time, much needed resources were mobilised to fight Covid. In a very short period after the amendment, the central PSUs contributed ?4000 crores. This was helpful in managing Covid-19 effectively.
6. CSR funds have helped the companies to extend a helping hand to the communities who may be displaced or adversely affected by their activities, or with whom they interact on a daily basis, being in the vicinity of their establishments.

Thus the experience of the past ten years suggests that the provision for CSR enacted in 2013 has had a far reaching and beneficial impact on socio-economic development. Many communities have directly benefited from CSR and a huge bank of experience and learning is now available for implementing some of the success stories at scale.

What were the shortcomings??

In the ten years, some limitations and shortcomings of CSR were also noticed. Any new experiment has its own share of successes and failures. The purpose of examining the shortcomings is to draw lessons and improve things for the furure.?

1. Firstly, CSR spending has largely been localised in the areas where the companies have their establishments. As a result, more developed states were the largest beneficiaries of CSR spending. For instance, almost one third of the total CSR amount (?52,000 crores) was spent in Maharashtra alone. While it is a matter of satisfaction for me as an ex-bureaucrat of the state, seen from the national perspective this would be a matter of concern. Ideally, CSR spending should be more evenly distributed across the country. Some policy interventions are necessary.
2. The second limitation, which is corollary of the first point is that there is hardly any CSR funding being directed towards the North East Areas as also our island territories, like the Andamans and Lakshadweep. Their unique problems could be addressed by the companies through innovative programs.
3. Thirdly, some company representatives pointed out (during the informal discussions at the conference) that as per current regulations, it is not possible for two or more companies to undertake joint or syndicated efforts towards CSR. Many successful CSR projects can be conceived and implemented in collaboration and syndication, which perhaps under the current regulation is difficult.
4. Fourth, some candid company representatives (at the CSR conference) said that CSR becomes another form of taxation, and why was there a need for that when the companies already pay huge sums as taxes to the government. Moreover, they were apprehensive that in the course of time the government may increase the mandatory spending on CSR.
5. Finally, an issue came up about the CSR by the PSUs. Being Government companies, they do encounter some inertia as compared to the private sector when implementing CSR projects. In addition, there are murmurs about undue political influence, which make CSR project implementation fraught with some risks for the PSUs.??

It is therefore necessary to understand these issues and take timely steps to make improvements to gain maximum advantage of CSR.

How can CSR become better, going forward??

Many points came up during the formal presentations and informal deliberations at the conference.?

1. Firstly, it was felt that the present stipulation regarding the quantum of CSR funding is adequate and the government must resist any call for increasing CSR share beyond two percent of profits. This is a valid point. Companies pay taxes, too. In that sense they are contributing to nation building as taxpayers. In addition to that they are contributing to nation building through CSR as well. Creating more burdens on companies may turn out to be counter-productive. Thus CSR policy should remain stable in the coming future.?
2. Secondly, there is a need to incentivise CSR spending beyond the area of influence of the company. Increasing CSR spending in North-East regions and island territories is necessary. At least, those companies that operate virtually and nationally should find ways to channel their CSR to these areas.?
3. Thirdly, the company representatives strongly felt that there is the need to? establish rules by which companies can jointly implement CSR projects in collaboration or through syndication. At least an enabling legal provision can be considered by the Government.
4. Fourthly, for better implementation of CSR, the companies must interact with local government authorities for designing and implementing projects. If any innovation or experiment is found successful, it is only the government that can scale up to a state level or all India level scheme and policy.?
5. Fifthly, Governments must avoid the temptation to pool the CSR funds into any government controlled funds, unless there is a calamitous emergency. By and large the funds must be left in the hands of the companies and they should conceive, design and implement programs under CSR. The diversity of approaches and strategies and stories of success or failures will be very valuable for crafting robust development strategies for the future.?
6. Lastly, it is also necessary that various CSR initiatives are properly documented in regard to the nature of problems identified, intervention designs, implementation strategies and success or failure. This documentation could provide valuable insights to the policy makers for designing schemes in the areas of health, education, environment and livelihood.

Conclusion:

The groundbreaking concept of CSR has produced positive results for our country. Every new experiment shows certain limitations and shortcomings. These will be addressed in due course of time. It is quite clear that the CSR concept has stabilised and will continue in the years to come. We can hope to see many successful projects implemented by the companies, and also some of these success stories becoming part of schemes and policies implemented on a larger scale by state and central governments.