As 'action year' approaches, Indian companies seek compliance with CSR law

When India became the world’s first country to make corporate social responsibility spending mandatory it was expected to trigger a wave of development across the subcontinent. Results are now rolling in for the first year companies had to spend 2 percent of their average net profit for the past three years on development projects under India’s Companies Act 2013 — so long as they were registered in India and met requirements like having a net worth of 5 billion rupees ($76 million), or turnover of 10 billion rupees. Early analysis reveals most of the 16,500 odd companies required to spend on CSR fell short of the 2 percent target. Companies aren’t penalized for underspending but have to report why they did. Authorities have also slashed their estimate for total spending to 90 billion rupees from 150 billion rupees. The government plans to report the final figure at the end of the year. “There has been a lot of talk but what has resulted on the ground hasn’t been substantial,” said Sudhir Singh Dungarpur, executive director of CSR compliance at PricewaterhouseCoopers India, which helps companies report on CSR. Dungarpur said many companies spent the year setting up for the law, which requires them to make a CSR policy and set up an executive-level committee. “Actually deploying the money hasn’t happened,” he said. Some CSR committees have struggled to find projects in this first year, said Sachin Joshi, director of the industry-association backed CII-ITC Center of Excellence for Sustainable Development, adding that he expects more would be implemented next year. “Companies took time figuring out what they should be doing because their approach [to CSR] needed to change,” Joshi said. At the same time, many of India’s largest companies spent more than the required amount on CSR. The biggest spenders out of the top 10 companies on India’s Bombay Stock Exchange were: Reliance Industries with 7.61 billion rupees, Oil and Natural Gas Corp. with 4.95 billion rupees and Infosys with 2.43 billion rupees. Most of these large companies had long-running philanthropic programs that only needed to be restructured or expanded to fit the requirements of the new legislation — which states that work has to be done in “project mode” with measurable outcomes and not one-off donations or events. The legislation also lists sectors companies can support as a guide, like education, health and environment, with a preference has to be given to projects in their local area. The most popular sectors for companies to support were education, sanitation and health, according to Joshi, who’s overseeing an analysis of CSR reports filed by 1300 BSE-listed companies. He predicts “this year we might see more investments in skills training.” Many also contributed to government development programs like Swachh Bharat, or Clean India. Dungarpur said this was the preferred option for those that couldn’t find projects or underspent, and predicted it would reduce as more projects kick off. All the top 10 BSE-listed companies reported education and health as focus sectors, and seven contributed to government programs or relief funds. How have companies set up to spend? India’s legislation allows companies to implement projects through NGOs registered in the country that have been running for three years, or their own nonprofit foundation. Many companies set up foundations last year, including Tata Consultancy Services, Housing Development Finance Corp. and Oil and Natural Gas Corp. Neelima Khetan, director for CSR and sustainability at Coca-Cola India, said separate entities could “develop a rhythm and style of working that’s more suited to philanthropy or CSR.” In India, the multinational beverage-maker conducts CSR through its corporate wing and Anandana Foundation, established in 2007. Activities are guided by The Coca-Cola Co.’s long-running global sustainability framework. Khetan said companies typically set up foundations in India to implement projects and “very few are into re-granting”. But she said both Coca-Cola India’s CSR wing and foundation partner with NGOs. And there are other exceptions like India’s billionaire Wipro Chairman Azim Premji who last year set up Azim Premji Philanthropic Initiatives purely to re-grant to NGOs, having established Azim Premji Foundation to implement education projects in 2001. Among the top 10 BSE-listed companies, nine implemented projects through NGO partners last financial year. Joshi said those opting to work with NGOs preferred local organizations if the intervention was local. “But if the company needs to tie up with an organization with national reach then they are likely to go with foreign NGOs, like CARE,” he said. “They have to be domain experts, or have something innovative that aligns with what we want to do,” said Joy Deshmukh Ranadive, Tata Consultancy Services’ global head for CSR. The software maker has a long-standing global CSR policy based on its core competency human capital. In India they have run skills training programs that impacted 56,000 people — 3,500 of which the company then employed. But this type of skills program is no longer seen as CSR in India because the legislation has been widely interpreted to dictate that CSR can’t be linked to company value chains — bucking the trend for CSR globally. The interpretation stems from paragraphs defining CSR as projects, “excluding activities undertaken in pursuance of its normal course of business.” “As a corporate I’m not allowed to donate money or incur CSR expenditure in anything linked to my value chain,” Dungarpur said, noting that companies were upset about having to change programs. Tata Consultancy Services responded by amending some activities, but retaining its core priorities like education. “We haven’t thrown what we were doing out the window,” said Ranadive. “But we have very seriously merged what the government required with what we have been doing.” It also set up a foundation. Both Tata Consultancy Services and Coca-Cola India champion the partnership model for CSR. If you just grant money “there’s no learning, there’s no sense of ownership from our side and that’s very important to TCS,” said Ranadive. Khetan said Coca-Cola India’s most effective CSR initiative, Support My School, demonstrated the power of partnerships. It started in 2010 when the company talked to some of its long-standing partners including U.N. Habitat and Indian media company NDTV about doing a joint project. They started off focusing on improving girls’ education by addressing sanitation in 100 schools but the project snowballed as more funding and implementation partners joined. Khetan said Coca-Cola India used its marketing strength to raise awareness “not only about the initiative but also this issue of lack of sanitation in schools.” Support My School now has near 100 partners and 600 schools have benefitted with upgraded infrastructure, covering everything from toilets to computers and rain water harvesting. 1000 schools are planned next year. “It could not have happened if we had not been inclusive and said ‘let everyone own this idea,” said Khetan. Looking ahead, Dungarpur predicts enforcement of CSR could become stricter in India if authorities feel “uptake is poor”. In August, India’s Minister of Finance Arun Jaitley told Parliament it was too soon to crack down on companies. A government panel is due to produce a report on compliance next month. But Dungarpur is optimistic the development wave will kick in soon — whether or not authorities crack the whip. “There is a definite change in companies understanding and willingness to explore CSR,” he said “This year is the action year.” Check out more insights and analysis for global development leaders like you, and sign up as an Executive Member to receive the information you need for your organization to thrive.