Corporate social responsibility (CSR) programmes have emerged as a major source of social elevation in India. The largest 500 Indian companies had the prescribed CSR fund of `12079 crore in the financial year 2018-19. This amount has increased to Rs 13405 crore in the 2019-20 fiscal. Additionally, the top 10 Indian companies would have to spend Rs 4770 crore on CSR projects in the 2019-20 fiscal - more than one-third of the total CSR budget for that fiscal year. The banking and finance sector leads with 19% of the total CSR funds followed by companies in the mining, metal and mineral sector with 10% of the total CSR funds.
CSR activity is in transition from philanthropy mode to project-driven and goal-oriented mode. The focus is more about the quality of the impact/change created by the CSR project rather than about the number of people reached.
Compliance to increase
CSR compliance, in line with the prescribed CSR budget per year, is going to increase. According to industry insiders, it has reached the range of 97%-99% in the 2019-20 fiscal. Detailed disclosures in the annual reports will be a common practice. The Ministry of Corporate Affairs had in April, 2018, established the Centralised Scrutiny and Prosecution Mechanism (CSPM) for enforcement of CSR provisions. Acting on its inputs, the ministry issued notices to nearly 300 companies for not complying with CSR spending requirement under the Companies Act, 2013 for the year 2015-16. This practice is likely to get more elaborate and strict, increasing compliance. As companies will not be allowed to carry forward the unspent CSR fund to the next financial year, compliance will be increased. Under new regulations, the unspent fund needs to be deposited in one of the three funds of the central government namely the PM Relief Fund, the Swachh Bharat Kosh and the Clean Ganga Fund.
Government partnerships to increase
More companies would look to align their CSR obligations with government projects. Ayushman Bharat, Aspirational District Programme, Skill India Mission, and the National Nutrition Mission are likely to be the most popular programmes for CSR funds.
Focus on education
Education is the most preferred intervention area for companies. Most of the top 100 CSR spending companies in India are supporting at least one programme in education. This trend is likely to strengthen in the coming fiscals.
CSR funds to cross 50,000 crores
The total CSR fund investment by companies in India would cross Rs 50,000 crore, since the implementation of the mandatory CSR policy, five years ago. The future of corporate philanthropy in India is going to be defined by how well the funds have been used in the past four years and how well it is being planned to be used in near future. The challenge for corporate leaders is to set up priorities by combining immediate gains of sheer philanthropy with long-term benefits of sustainability-oriented projects.
Focused spending by PSUs
Public Sector Units (PSUs) will now identify central themes for corporate social responsibility activities every year, with 60% of their CSR expenditure dedicated to thematic programmes, according to new government guidelines. The newly rolled out norms call for aspirational districts to be accorded preference by central public sector enterprises (CPSE) for their CSR activities. The Niti Aayog has identified 112 aspirational districts. A large portion of PSU CSR funding will be concentrated in these aspirational districts.
Foundations to government agencies
A 2013 study by the Indian Institute Management (IIM), Kolkata, found that 64 corporations, in their sample of top 200 Indian corporations, had their own dedicated foundations to carry out their CSR activities. Foundations are not for profit organisations created for serving the society through various developmental activities. In India, foundations are generally registered as charitable trusts for the purpose of social development. The same study also stated that 62 out of the 200 Indian companies work with NGOs, charitable trusts and other like-minded organisations for achieving their objectives. At the time of this study, only 46 of the companies worked with government agencies. However, this trend has reversed and now government agencies enjoy a sizeable portion of CSR funds.
According to the Indian Institute of Corporate Affairs, a minimum of 6,000 Indian companies will be required to undertake CSR projects in order to comply with the provisions of the Companies Act, 2013 with many companies undertaking these initiatives for the first time. The gradual shift from CSR funding to foundations and NGOs to government agencies can be linked to the governmental push to use CSR funds to even out the irregular distribution of benefits of growth in India.
Ethical investors are drawn to invest in ethical businesses. Secondly, being a responsible, sustainable business may make it easier to recruit new employees or retain existing ones. Employees may be motivated to stay longer, thus reducing the costs and disruption of recruitment and retraining. CSR activities are also likely to draw positive media responses which translate to enhanced brand building for corporates. Adapting social responsibility is an excellent positioning strategy, since it increases the value of the brand. It may lead to enhanced influence of a company in the industry. Some CSR practices like reducing waste influence operational efficiency and make the production process more cost-effective. CSR activities may lead to reduced regulatory burden as good relationships with local authorities and communities can often make doing business easier. For companies in less developed markets, abiding by CSR rules enables them an access to some bigger markets. Developed countries frequently demand applying certain international standard certificates in companies that want to trade with them. For instance, respecting international sustainability rules in China opened European and US markets for Chinese clothing in the last decade.
Researchers of the Sino-German CSR Project (2012) divided the benefits companies experience as a result of devoting funds to social and environmental issues into four intertwining groups: internal and external to direct and indirect.
Internal direct benefits of developing CSR activities are learning, expanding a talent pool, increased employee commitment and performance whereas external direct benefits include positive PR and better relationship with stakeholders. The authors also found some indirect perks of CSR like innovation, cost savings, better quality and productivity being the internal ones. External indirect benefits include improved access to capital and markets, customer satisfaction and mitigating risks.