Analysing the spend
Since April 2014, India's largest companies have been mandated to spend two percent of their average profit from the last three years on social development activities.
Final reports of the first year of mandatory CSR spending (FY 14-15) came in last summer and the Energy industry (Oil, Gas and Power) had the highest CSR spend obligation at INR 2181 crore. Additionally, ONGC, an O&G public sector company, had the second-largest CSR spend in India with INR 495 crore (the largest being from Reliance Industries). Thus, the sector has a huge impact on shaping CSR as whole in India. DOT works closely with British Gas (BG) India on their social investment and thus, we have a keen interest in understanding trends within the sector. We conducted a study on the Oil & Gas (O&G) Industry’s first year of CSR spend, with a focus on 12 of the top O&G companies in India.
Missed two percent but not by far
On average, the O&G industry spent 1.5% (INR 972.9 crore)* of its net profits on CSR, slightly missing its two percent target of INR 1296.7*. Three O&G companies (India Oil, HPCL and BG India) spent their exact CSR budget whereas Oil India exceeded its budget by 36%. Given the magnitude of funds the sector was obligated to spend, it was a great start, and a clear indication that companies are committed to CSR.
Some observed trends
Within the O&G sector, several key trends emerged regarding how their CSR budgets were spent, much of it in line with India’s top companies across industries.
- Most O&G companies invested in at least one large project aligned with government initiatives, especially Swachh Bharat and Skill India. This gave companies a strong direction, reputational benefit and a good social license to operate driver. However, spending large sums of money on government initiatives under CSR doesn’t seem to be in the true spirit of the law as it shifts accountability of money’s impact from the company to the govt.
- About 90 percent of the CSR expenditure was in four of the ten spend areas of Schedule VII: Education and Vocational Skills; Hunger, Poverty, Healthcare and Sanitation; Environmental Sustainability; and, Rural Development. This made sense since these are the most basic provisions and broadest categories on the list, but also meant investments in tech incubators, sports development, and reducing inequalities were disproportionately low.
- Roughly 60% of the O&G sector’s CSR budget was through implementation agencies rather than direct implementation of CSR activities, working with credible and transparent NGOs and organisations on large projects.
- However, O&G Companies deployed a greater number of projects locally around their areas of operation, meeting the needs of panchayats and local communities. Activities tended to be ad-hoc rather than strategic, focused on driving license to operate in areas of operation. Although some are worthwhile on a small scale it’s questionable whether some are truly compliant with Section 135.
- Overall, the CSR focus of O&G companies leaned towards social development rather than environmental sustainability as the latter tends to be integrated within business operations and covered separately in sustainability strategies and reports.
- Of the companies that didn’t meet their two percent target, many indicated their reasons for underspend were to on-board expertise and focus on creating strategic projects that will have a larger impact on society.
Going beyond compliance
Compliance-wise, FY 2014-15 has definitely been a good start for CSR in India. However, mere compliance doesn’t necessarily make for good quality CSR. On the one hand, it forces companies to spend hurriedly and focus on spend instead of impact. This was clear in some reports where companies clearly interpreted the law liberally, investing their CSR funds in ad hoc or misaligned projects like horse shows or parades.
At the same time, it was evident that companies were struggling to create innovative, long-term, impactful projects for their CSR spend. As such, we hope that in the coming years, the sector will focus on a more strategic approach that will deliver enduring benefits for communities.
Suggestions for improvement
More innovation: There is a great need for companies to create systemic change in the way development is done, rather than simply supporting the programmes that already exist. By combining monetary contribution with the skills and technologies at their disposal, O&G companies can enhance their social impact. For example, apart from spending on building and running vocational centres, companies can also channel their knowledge to come up with standardized mechanisms for impact measurement of these centres – monitoring enrollment, attendance, absenteeism, placement and quality of training. Such innovations can also be scaled across industries, multiplying the impact of the initial CSR investment.
Increased collaboration: There is significant similarity in the social investment initiatives being taken up by the O&G companies. By pooling their expertise and CSR funds, O&G companies can collectively work on more innovative and strategic interventions, potentially resulting in an industry-wide coalition to ensure high impact of the CSR funds in the O&G industry. For example, in 2013, Europe’s fruit juice industry launched the Fruit Juice CSR Platform with the aim of integrating CSR across complex supply chains via a collaborative sector-wide approach.
Beyond mere alignment with government initiatives: Considering a significant number of O&G companies are public sector enterprises, aligning with government initiatives such as Swachh Bharat and Skill India is in-line with expectations. However, if companies go beyond mere fund allocation and work with the government to identify specific gaps that can be filled by CSR funds, the O&G industry’s CSR investment could have a larger, nation-wide impact. For example, companies have spent a significant sum of money on construction of toilets under Swachh Bharat, whereas there is a dire need for investment and expertise in other aspects of Swachh Bharat such as, implementing waste management programs and reforming open-defecation behavioural patterns.
(*Aggregated on the basis of secondary data from the 12 O&G companies in India)