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By Anant Shrivastava
In our latest bi-monthly roundup we cover recent CSR circulars and amendments, and interesting reports on employee engagement and Swachh Bharat. Exciting times for India Inc! New financial year, better CSR?
No CSR for tobacco companies?
A circular released by the Ministry of Corporate Affairs (MCA) on 16 May, 2016 states that CSR activities undertaken by companies cannot prohibit or conflict with any other prevailing laws of the land including Cigarette and Other Tobacco Products Act (COTPA), 2003. This could mean that tobacco companies are prohibited from undertaking CSR activities as they can be viewed as marketing or promotion of the brand, which is prohibited under COTPA. This essentially allows tobacco companies to escape from any kind of social responsibility. We question whether this circular is a smart move on the Government’s part. While it’s important that tobacco companies are not allowed to promote their brands through CSR, there can be smarter ways to ensure they still undertake CSR activities as mandated by the Companies Act, 2013. Companies can implement CSR activities without promoting individual brands. We hope that the Government issues clear guidelines on the matter and ensures that all companies that fall within the purview of the Act participate in CSR.
Integrating CSR into leadership boosts employee engagement across companies
We’ve always held the view that CSR should be strategically integrated from the top down within organisations. A new study by the Hay Group division at Korn Ferry has found out that including CSR into leadership development results in a higher employee engagement throughout the company and boosts overall performance. While the study provides evidence that leadership programmes with components of social responsibility have delivered high impact, it also points to a huge current gap – only 36% of employees are “highly engaged”. Further, only 59% of the participants felt that their organisation actually included CSR in leadership development. This presents a huge opportunity for companies to get their act right and leverage CSR for business benefits. Such studies serve a useful purpose by providing data-backed proof of the business value of social responsibility!
The Government’s unrealistic expectations on CSR?
Is the Government expecting too much from companies in the form of CSR and deviating from the core purpose of mandatory social responsibility? This Livemint article suggests so. The Government regularly urges private companies to contribute to its own social welfare schemes to “fill in the gap” that it is failing to adequately address. But as the article highlights, the total spending on CSR by companies is miniscule compared with the amount spent by the Government. Further, some Government requests are in clear violation of the Companies Act itself. We think the companies should be allowed freedom to choose and implement their own CSR initiatives that leverage their expertise to deliver maximum impact. The Government should realise that companies are not responsible for supporting its own schemes. The nation stands to benefit more if there is spending in diverse areas than if all the funds are pooled into few Government initiated schemes. We can only hope they are listening.
Proposed FCRA amendment – a boon for companies, NGOs, and controversially, even political parties!
A proposed amendment to the FCRA aims to makes it easier for companies that have more than 50 percent foreign shareholding to spend on CSR activities without the non-profit partners requiring FCRA clearance. If the amendment goes through, it will reduce the burden of additional due diligence warranted in case of FCRA contributions. Many NGOs, especially smaller ones that do not opt for FCRA clearance and therefore miss out on corporate funding, also stand to benefit from this. However, as this article states, the amendment may also help certain political parties get away with FCRA violations. We certainly welcome the proposed amendment if it simplifies giving and receiving of corporate funding for social good but at the same time, it should not be leveraged for political gains.
Treat CSR expenses as non-cost items – Institute of Chartered Accountants of India
ICAI, the apex body of chartered accountants in India, has issued an exposure draft of the guidance note on treatment of CSR costs. The note specifies that companies should not treat CSR expenses, including expenses above the 2% obligation, as business expenses (product or service costs) and should only include them in the profit reconciliation statement, commonly known as the profit loss account. The note also specifies that any income or surplus through CSR activities cannot form part of the business profit and should be adjusted against the CSR expenses to give the actual amount. This note does not have a significant implication for companies. Donations by companies have always been accounted in the profit reconciliation statement and CSR expenses should continue to be treated that way. But it serves a useful purpose of providing clarity on accounting of CSR expenses and ensuring full compliance with the Companies Act, 2013.
The complete exposure draft can be found here.
Has CSR funding helped the Swachh Bharat Mission?
Samhita, in association with the Indian Sanitation Coalition, has released a report that states the contribution of CSR funding in the Swachh Bharat Mission. 90 out of the top 100 BSE companies were involved in the initiative in some way, including public sector companies. It is evident that Swacch Bharat is getting corporate funding. But are companies making efforts with the aim to deliver maximum benefit and actually changing the state of sanitation in India? Consider this: according to the report, 75% of the amount spent was on infrastructure projects i.e. building toilets and only 25% on the other aspects such as community behaviour change programmes, maintenance etc. The majority of the amount was spent in states with heavy industry presence, while states like J&K, Assam, Arunachal Pradesh missed out, despite dire need for sanitation facilities. With just 17 percent of the amount spent on urban areas, companies also largely ignored the requirement of sanitation facilities in poor urban slums.
We feel there is a learning for all the three parties involved in ensuring the mission is a success. The Government needs to shift focus from developing infrastructure to addressing community behaviour around toilet use, something that has been repeatedly asserted by experts in the field. The NGOs working in this sector need to ensure that programmes around behaviour change have robust impact measurement and can show tangible outcomes to corporate donors. Intangible outcomes are a big factor for companies to be disinterested in such initiatives. Finally, companies ought to resist tokenistic participation in the mission and start thinking about the entire lifecycle of a sanitation project. Building toilets is just the start. Equally important is ensuring the community uses them and that they are maintained in the long-run. Corporate India should think about the enduring benefits from this programme rather than the one-time activity it has become!