Companies need to improve disclosures on CSR expenditure:

 

NEW DELHI: Many Indian companies might be shelling out money on social welfare activities but the quality of disclosures, particularly on the amount spent for such work, needs to be improved, says a report.

Under the new companies law, certain class of entities have to spend at least two per cent of their three-year average net profit towards Corporate Social Responsibility (CSR) activities.

"For most companies, current CSR disclosure levels are poor. There is a need for significant improvement in the quality of disclosure on CSR activities - particularly with regard to quantum of spending," Institutional Investor Advisory Services has said in a report.

As per the law, in case, companies are unable to shell out the required amount for CSR efforts the same has to be explained.

According to the report, most of the larger companies have committees for oversight of CSR activities and undertake independent audits.

The new Companies Act places greater board level responsibility for CSR activities, including having at least one independent director in the CSR committee.

"It does appear that the frequency of review/monitoring will need to be increased, to ensure adequate tracking of CSR related activities by the board," the report said.

Noting that it is important for companies to formalise and have an effective framework to monitor CSR activities, the report said that shareholders too need to evaluate this spend.

The CSR rule would be applicable to the companies with turnover of Rs 1,000 crore and more, or networth of Rs 500 crore and more, or a net profit of Rs 5 crore and more.

Last week, the Corporate Affairs Ministry had ruled out any change in the proposed minimum quantum of mandatory CSR spending by companies..