Five years into the passage of the “Companies Act, 2013” provision requiring a minimum corporate spending on social responsibility (CSR) initiatives, less than 40 percent of qualifying public companies in India are fully compliant.
The time needed to search for and evaluate viable CSR projects, the phased rollout that many projects require, and the process for legal approval are among the reasons why many Indian businesses are still on a learning curve regarding the CSR Mandate. This is a key finding from a Director Notes India Series released today by The Directors’ Collective™, a partnership among The Conference Board, KPMG in India and Russell Reynolds Associates, in collaboration with St. Francis Institute of Management and Research, Mumbai.
The study was conducted based on disclosure documents published by a sample of 100 randomly selected Bombay Stock Exchange (BSE) listed companies, representing 18 different business sectors. Under the CSR Mandate, publicly traded companies with a net worth of at least INR 5 billion, a turnover of at least INR 10 billion, and a net profit of at least INR 50 million are expected to spend at least two percent of their average net profit on qualifying CSR initiatives. But what is truly mandated by the law is the disclosure of CSR expenditures, rather than the spending itself: If a company does not spend the prescribed amount, then it is required to explain the reasons for its non-compliance. As Indian corporations are clearly still grappling with the mandate, The Directors’ Collective publication is intended as a resource to recognize the progress made and the obstacles encountered so far.
Other key findings include:
- About 85 percent of companies spent at least part of their CSR expenditure on promoting healthcare services—to reduce child mortality and improve maternal health, and to combat endemic diseases in India such as HIV and malaria. In fact, more than one-fourth (27 percent) of total CSR expenditures supported healthcare initiatives.
- However, the category that received the highest median amount through the CSR mandate was education (INR 210 million). Companies also chose to fund initiatives on rural development, environmental sustainability, small entrepreneurship, and the promotion of gender equality.
- The majority of companies have been selecting and overseeing their CSR spending through an outsourced agency (in most cases, a vetted NGO with a definite social purpose). Only a few companies have established their own trust/foundation for CSR activities.
- Only a few companies have engaged their employees in their chosen CSR activities.
- While some companies attributed their CSR Mandate non-compliance to an operating loss incurred in one or more of their prior fiscal years, other loss-making companies still chose to honor their CSR commitment. They include Tata Motors, United Spirits, and Sun Pharmaceutical Industries.
“The analysis on CSR expenses can enable decision makers to better appreciate the context in which many of these social activities are undertaken and what it takes for corporations to fully comply,” said Dr. G Ramesh, Professor and MMS Programme Head at St. Francis Institute of Management and Research, Mumbai, and author of the report. “The research will definitely pave the way in defining the scope of CSR activities within organizations and have an impact on society,” added Shilpa Peswani, Assistant Professor at St. Francis Institute of Management and Research, Mumbai and co-author of the publication.
“One of the major commitments undertaken by The Conference Board through The Directors’ Collective is to document and disseminate knowledge on emerging practices so that members of the business community can learn from the experience of their peers. In India and elsewhere, progress on sustainability and CSR is incremental, and so much has happened already. This issue of Director Notes recognizes what Indian companies have accomplished so far, and we hope it can be used by corporations to continue to build on today’s practices,” said Matteo Tonello, Vice President and Managing Director of Corporate Leadership at The Conference Board.
According to Sanjay Kapoor, Managing Director at Russell Reynolds Associates, “The formal CSR commitment is still new to India and not enough research has been disseminated in this area. The unique perspective presented by these Director Notes will examine current CSR dynamics and also hopefully guide CSR Committees to maximize their impact on society.”
“These Director Notes provide a good perspective on where India is currently in its CSR journey, and importantly, what challenges need to be overcome by India Inc to achieve the full socioeconomic benefits of the mandate,” concluded Pankaj Arora, Partner, Governance Risk and Compliance Services, KPMG in India.
To download Director Notes India – CSR Activities in India, click here.
For an overview of The Directors’ Collective, please click here.
About The Conference Board
The Conference Board delivers trusted insights for what’s ahead. We connect senior executives across industries and geographies to share ideas, develop insights, and recommend policy to address key issues. Our mission is to help leaders anticipate what’s ahead, improve their performance and better serve society. The Conference Board is a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. http://www.conference-board.org.
About KPMG in India
KPMG in India, a professional services firm, is the Indian member firm affiliated with KPMG International and was established in September 1993. Our professionals leverage the global network of firms, providing tax and advisory services, besides knowledge about markets and competition. KPMG has offices across India in Ahmedabad, Bengaluru, Chandigarh, Chennai, Gurugram, Hyderabad, Jaipur, Kochi, Kolkata, Mumbai, Noida, Pune and Vadodara. KPMG in India offers services to national and international clients in India across sectors. We strive to provide rapid, performance-based, industry-focused and technology-enabled services, which reflect a shared knowledge of global and local industries and our experience of the Indian business environment.
About Russell Reynolds Associates
Russell Reynolds Associates is a global leader in assessment, recruitment and succession planning for boards of directors, chief executive officers and key roles within the C-suite. With more than 370 consultants in 46 offices around the world, we work closely with public, private and nonprofit organizations across all industries and regions. We help our clients build teams of transformational leaders who can meet today’s challenges and anticipate the digital, economic, environmental and political trends that are reshaping the global business environment. To find out more, please visit: www.russellreynolds.com
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