India CSR Report: Five Years and INR 100,000 Crore

With the enforcement of the Companies Act, 2013 on 1^st April 2014, India became the first country to make Corporate Social Responsibility (CSR) mandatory. This Act requires large companies to spend at least 2% of their average profits of previous three years on CSR each year. Four years post its enforcement, when the implementation of the Act had gained enough traction, a High Level Committee (HLC-CSR) was set up by the Government of India to review the CSR Framework and reconcile stakeholders’ concerns with overarching national priorities to leverage its potential for social development.

The HLC comprised of eminent individuals from the Government, public sector enterprises, private sector, civil society and academia, the Committee submitted its report to the Ministry of Corporate Affairs on 13^th Aug 2019.

This report ‘India’s CSR Report: Five Years and INR 100,000 Crore’ is an extension of the data and information provided in the Report submitted by the HLC. We at CSRBOX have tried to simplify the data-sets and present an overview of the fund-flow with additional insights.

Most of the research studies and reports till July 2019, indicated that India’s total CSR spend reached INR 50000 crore in FY 18-19 while the data reported by the Ministry of Corporate Affairs indicate that the total prescribed CSR fund has crossed INR 100,000 Crore (INR 10,00,000 million) in FY 18-19.

The Numbers Simplified

• Prescribed CSR Fund reached INR 100,000 Cr in five years
• On an average 36% companies, falling under the ambit of the mandatory CSR, did not report any data on CSR. In FY17-18 there were 9753 companies that did not report any data on CSR despite the fact that they were covered under the Section 135 of the Companies Act.
• In terms of CSR compliance (expenditure-wise), 2015-16 was the best year where companies were (out of companies that were reporting) able to spend 85% of the prescribed CSR fund.
• Top 2% companies contribute almost 53% of the total actual CSR spend (FY17-18).
• 43% of the CSR projects were implemented by implementing partners (NGOs/Societies) while 34% of the projects are implemented by companies directly.
• Companies are increasingly focusing on their core geographies or local areas near the plants or operations sites. Local areas received over 50% of the actual CSR spend in FY 17-18
• The PM Relief Fund received INR 757 Cr between FY 14-15 to FY 17-18 from CSR fund while SwachBhaartKosh received INR 835 Cr during the same period.
• 574 companies had prescribed CSR of above INR 5 Cr. while 7970 companies had prescribed CSR of less than INR 10 Lac in FY 17-18
  

10 Major Insights: The (to be) Levers of CSR Impact

The High-Level Committee on Corporate Social Responsibility presented its recommendations to the Ministry of Corporate Affairs in the 2^nd week of August 2019. The detailed report was released on 13^th August, 2019.

Followings are the 10 major expected impact/changes in the CSR and social sector landscape of India, if all the recommendations of the HLC-CSR are accepted and made a part of the Circular for the Companies Act 2013.

         1.     Applicability of CSR Provisions

Extending the applicability of CSR provisions to Limited Liability Partnerships, Banks registered under the Banking Regulations Act, 1949 and other similarly placed entities that have not been covered under the Companies Act, will positively impact the CSR ecosystem with close to INR 900 to 1200 Cr. increase in prescribed amount for CSR/annum.
         2.     Constitution of CSR Committee

Exemption to companies with prescribed amount less than 50 Lakhs from forming a separate CSR Committee would reduce the undue burden of operational costs on almost 16000 companies falling under the ambit of the mandatory CSR. Almost 80% of the total number of companies eligible for CSR between FY 2014-15 and FY 2017-18 fall under this category.
         
        3.     Obligation to Carry Out CSR and Carrying Forward of Unspent CSR Amount

Considering the financial and operational challenges of companies, varied nature of projects, gestation period (short/ medium/ long), flexibility in project design etc., provision of flexibility to spend CSR amounts based on need will go a long way in encouraging value creation and desirable impact of social development projects.

         4.     Schedule VII of the Act and SDGs Alignment

Aligning CSR with SDGs and broader national priorities will encourage social inclusion and will contribute to firmly establishing businesses as partners in achieving Global Goals. Discontinuation of considering contribution to Central Government Funds as CSR will encourage more spend towards social development projects and partnerships with local non-profits.

            5.     Deepening CSR Impact

Mandating companies above INR 5Cr. prescribed CSR to undertake the need and Impact Assessment studies will push companies to identify need-based impactful CSR projects and o invest CSR fund for sustainability of the intervention.

            6.     Reporting for CSR

Since CSR is to be monitored and regulated through a disclosure-based regime, more holistic reporting and granular capturing of data in machine readable formats will enable technology-based assessments for regulation and seamless data for information dissemination.

           7.     Investing in Social Enterprise

The recommendation to allow CSR fund for creation of social impact companies and then investing in social capital bond raised by these companies will go a long way to create an enabling ecosystem for building social capital and impact investing through CSR.

          8.     Mere Disbursal of Fund is not CSR

Transaction-based approach of CSR where fund transfer for companies to implementing agencies’ account takes place, will not be accounted as CSR spend. The actual spent on projects need to be done in the same financial year. This will encourage companies to look at CSR in more programmatic way. 
         9.     Random Audit of Companies’ CSR Work

Random third-party assessment of CSR projects of 5% of the companies will help in sensitizing companies and management to get more engaged in CSR project planning and execution.

       10. Participation of International Organization in CSR

The idea to allow international organizations in CSR project design and implementation on pilot basis is a good move to bring in domain specific expertise in social sector.

    Download the Report ‘India CSR: Five Years and 100000 Cr’