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Two-thirds of Companies Failed on CSR Spend: What Went Wrong?

Anant Shrivastava

By Anant Shrivastava

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As the annual reports for FY 2014-15 are coming in, it’s become quite clear that many companies have missed the two percent mandatory CSR spend mark with two thirds of companies apparently not fulfilling the obligations.

Some companies who didn’t meet the requirement come as a surprise, including HSBC, Axis Bank and HDFC, all of which have comprehensive and long-standing CSR policies and commitments. Each has a reason for not hitting the number in this financial year, with Infosys stating that they narrowly missed the March deadline but completed the spend in April of this year.

While the headline statistic reflects poorly on corporate India and no doubt includes a lot of companies who simply didn’t take the requirement seriously, it may have been unrealistic to expect absolute compliance from the first year itself. Potential reasons for non-compliance are numerous and may not be entirely down to lack of appetite to spend. This Business Standard article presents quite a detailed study of the rules on CSR spending and the limitations it imposes on the corporates.

In our experience, the legislation is both restrictive and highly ambiguous in parts, which caused companies considerable back and forth with legal advisors to decipher what’s technically “compliant”. Amongst our own clients, we found that some of the funds that were already committed as CSR spend were not eligible to be declared under the Companies Act rules due to technicalities, causing last-minute re-planning to hit the deadline.

Many companies found themselves with huge budgets to spend for the first time but with limited internal capacity and few qualified people in-house to identify appropriate and credible programmes. Spending responsibly on effective programmes against clearly outlined KPIs is a critical part of good CSR spending but can make for a time-consuming process and requires expert inputs.

The Act did allow for companies to park their funds with the Prime Minister’s Relief Fund, considered a potential “back-up” options. But it also gives companies the option to explain reasons for not meeting the target, which is the option many companies seemed to prefer in order to enable strategic spending rather than entrusting money to a government fund.

We’ve said before that the rules around CSR spending are restrictive and need to be changed; the issues mentioned here are not new and reflect the comment sentiment of the corporates. Perhaps it is a good time for MCA to determine if changes are required in the CSR rules – from areas where the funds can be utilised to the mode of channelising the funds – and to specify which explanations for underspend in a financial year are acceptable. We’re hopeful that this year’s failures in complying with the obligation might nudge the Government to take corrective steps and that the situation will improve in the coming years.

However, not everything can be blamed on the unfriendly rules around CSR spend, corporates do have responsibility to ensure that they deliver on their commitments and do their best to comply with the Companies Act, as our clients all managed to do. Recently, Union Minister for Women and Child Welfare, Maneka Gandhi, criticized industry associations like CII and Assocham at a function over their non-seriousness in delivering on commitments made on CSR initiatives. She quoted examples of failure across two areas - building toilets in girls’ schools and having a woman director on companies’ board. The criticism may be strong and have a mocking tone but we hope those companies who didn’t take the CSR spend seriously this year are listening and cleaning up their act.

 

[Anant is one of DOT's resident social investment and CSR managers. Check him out here.]