Mandated CSR Moving Conundrum

Mandated CSR Moving Conundrum

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Lalit-kumar-Sulabh-International

DR. LALIT KUMAR

Hony. Senior Vice President, Sulabh International Social Service Organisation
(Former Adviser, Planning Commission)

The caravan of corporate social responsibility (CSR), which started moving in early 1950s, continues to move forward at a faster pace, throwing up interesting challenges, opportunities and partnership models around the world. In some countries,the shift from a voluntary to mandatory CSR, emphasizing mainly the non-financial reporting or disclosures began in the late-2000s. The need for sustainability reporting on activities undertaken by companies has been emphasized in countries like UK, USA, South Africa and even European Union (EU). The EU’s non-financial disclosure directive and some other similar attempts by public authorities to regulate CSR, met with vigorous business opposition.

The type of mandatory CSR, which started in India from 1st April 2014,has been initiated earlier in Indonesia in the year 2007. Mauritius mandated2% CSR spend, similar to India, in 2009. One of the raison- d’tre for mandated CSR in both Indonesia and Mauritius was continuous exploitation of their resources by different MNCs/TNCs (whom David Korten calls as direct descendants of the great merchant companies of 15th & 16th century England and Holland). In this article, after recounting briefly the Indonesia and Mauritius experience, a snapshot on the ongoing scenario and futuristic perspective for the mandated CSR in India would be attempted.

In Indonesia, Article 15 of Law 25 2007, prescribes every company to implement corporate social & environmental responsibility. The obligation is inherent without exception for all companies and in all business sectors. The Article 74 of Law 40 2007, obligates CSR for companies operating in certain sectors related to natural resources, and neglecting this obligation carries with it sanctions. When the proposal was being considered in the Indonesian parliament, business representatives reportedly tried their best to withdraw mandatory requirements for CSR contained in the draft law. As per some of the Indonesia’s leading CSR experts, the legal CSR mandate is under active consideration for a review by the present government (personal communication on4/5 December 2017).

In Mauritius, the mandated CSR was introduced through the Income Tax Act in 2009. As per guidelines of the Ministry of Finance & Economic Development,profitable companies are required to devote 2% of their profits for CSR activities.The mandated CSR guidelines were amended in 2012 and from 2015, all CSR guidelines were revoked and companies were allowed to use funds as per their own CSR frameworks. Recently, a new CSR policy has been announced in 2016/17, with a proposal to setup a National CSR Foundation, under the Ministry of Social Integration & Economic Empowerment. Companies will be required to contribute at least 50% of their CSR Funds to the new Foundation in 2017 and thereafter 75% of the CSR Fund to the Director-General of the Mauritius Revenue Authority.

In India, as it is well-known by now, the Companies Act, 2013 mandated that companies meeting specific conditions had to spend 2% of their average net profits for CSR activities. Schedule VII,section 135, of this Act,includes a vast range of subjects, which may be undertaken under CSR,like:eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation, [including contribution to the Swachh Bharat Kosh for the promotion of sanitation]'; promoting education, livelihood enhancement projects; promoting gender equality, ensuring environmental sustainability, protection of national heritage, art and culture; contribution to the Prime Minister’s national relief fund and so on. The Ministry of Corporate Affairs (MCA), Government of India further clarified in June 2014 that entries in the Schedule VII must be interpreted liberally to capture the essence of subjects enumerated.

The data available for CSR spend by number of companies, shows that in the first year of mandated CSR,i.e. 2014-15, there were 14,944 companies which spent INR 9,565crore. In 2015-16, there were 19,184 companies who spent INR 13,828 crore. For the year 2016-17, 6,286 companies reported their CSR spend as INR 4,719 crore, as on 30/04/2018. The figures for 2016-17 are provisional, as per the recently launched National CSR portal (www.csr.gov.in) of MCA and the numbers are likely to increase.

Data also shows that CSR spend by private companies is much more (about 70%) than public sector enterprises.Lump-sum contribution to the Prime Minister’s National Relief Fund or to the SwachhKoshwas not substantial. The mandated CSR has significantly supported the national development agenda, by providing funds to schemes like: Swachh Bharat Mission’ – launched in October 2014, to make India clean and open defecation free, Skill India’, Digital India’ and so on.

One of the problems being faced by companies is to find credible implementing partners. Similarly, many NGOs/CSOs are struggling to locate and contact companies, which may be interested in their type of work. These partnership forging challenges are being addressed in different ways by some organizations, like Credibility Alliance, GuideStar India, Give India, Samhita, CRISIL, etc. These agencies are providing the much needed match making services to both companies and CSOs. As early as 2001, the Steering Committee Report on Voluntary Sector of Planning Commission for the 10th Five Year Plan (2002-07) highlighted the need for accrediting or validation of VOs / NGOs for facilitating CSR. As the Member-Secretary of the above and similar Steering Committee Report for the 11th Five Year Plan (2007-12), I emphasized the need for a platform of stakeholders, including representatives of MCA, Department of Public Enterprises and Ministry of Small Scale Industries, etc. to facilitate implementation of CSR. Like the recommendation to have accreditation methodology for NGOs to facilitate CSR, another recommendation to ask MNCs/TNCs to adhere to CSR standards remains un-fulfilled, as MCA is not monitoring the CSR spend of MNCs/TNCs.

Dr. Lalit Kumar is Hony. Senior Vice President, Sulabh International Social Service Organisation. Earlier, as Adviser, Planning Commission; he dealt mainly with policy issues for the Voluntary Sector and also looked after sectors like: Environment & Forests, Project Appraisal & Management, Social Development and Youth Affairs & Sports, in different capacities. NitiAayog invited him as an expert to contribute for drafting the 15 Year Vision Document’, acknowledged in the Three Years Action Agenda (2017-20)’.

He has also served as Secretary, National Foundation for Communal Harmony, Ministry of Home Affairs, Government of India, shaping the Foundation into an effective organization during his tenure.

Dr. Lalit conducted (i) Post-Doctoral Research at the University of Arizona, USA and also at the Newberry Library, Chicago, USA; (ii) He holds M.Sc. (Economics) degree from the University of Wales, UK and Ph.D. (Anthropology) from the University of Delhi; (iii) He also conducted research as a Senior Philanthropy Fellow at the Johns Hopkins University, USA.

Dr. Lalit has published two books and more than 50 Papers in national and international journals.

Macro-picture on the real impact of mandatory CSR, based on detailed research & analysis of the third party impact studies of CSR programs is yet to emerge. However, it is not really away from sight that contours and complexities emerging from the practice of mandated CSR in India will be able to provide newer insights for academics, civil society, companies and government organizations of other countries.

It has been observed that generally companies support flexible regulations and oppose stringent binding arrangements, therefore, when regulations are stringent, business resistance will be severe and when regulations are flexible business will be more supportive. Therefore, the comply orexplain’ model of mandated CSR in India appears to be a balanced one. However, some observers are wary of distrust between government and companies, for example the report Too many regulations are ruining CSR’

Report of the High Level Committee (HLC) of MCA observed in September 2015 that first couple of years would appropriately be a learning experience’ for all stakeholders and recommended ” leniency may be shown against the companies for non-compliance in initial two/three years to enable them to graduate to a culture of compliance” and “It would be desirable to conduct a review of the programme, after three years”. As a follow-up of the above recommendations of the HLC a new higher level committee would be constituted in the coming months/years to review the implementation of mandated CSR. If the next incarnate of HLC or forthcoming review committee by any other name is able to provide a judicious balance between regulation and flexibility, CSR would continue successfully and yield desired results. If in future, more stringent regulations and notifications issued,mandated CSR is likely to lose steam.

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CSR VISION
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