This is a great opportunity for corporate India to step into the
government’s shoes and effect a social transformation
Gautam Chemburkar
Gautam Chemburkar
Philanthropy, charity and donations have a long tradition in India and
continue as an integral part of the local culture across sections of society.
Indian industry and business too have been increasingly patronising Corporate
Social Responsibility (CSR) over the years. Thanks to the new Companies Act
2013, the mandatory spin on CSR is stirring up an interesting debate.
For the first time ever, profit-making Indian companies will have to mandatorily comply on the CSR requirement. This is an interesting development that deserves a closer review, more so to understand and appreciate the distinction between the mandatory and obligatory parts of the CSR requirement. Contrary to general perception, spending on CSR is not mandatory – only the requirement on compliance and reporting is.
A company may trigger the CSR obligation to spend two per cent but may decide not to spend and still be compliant with the regulation. While the trigger does not make it mandatory to spend, it does make it mandatory to comply with section 135 of the Companies Act 2013 that requires appointment of a CSR committee to formulate CSR policy, recommend and monitor spends. The board of directors is mandatorily required to report annually on CSR policy and implementation including digitally through a CSR website. The Ministry of Corporate Affairs seems keen for the company’s CSR policy to be scrutinised by the wider society and reward or punish that company for not spending appropriately.
While Schedule VII of the Companies Act 2013 prescribes specific CSR activities to spend on, a closer scrutiny of the Companies Rules seems to allow the flexibility to spend on other legitimate causes too.
Being voluntary earlier, corporate CSR seems to have been traditionally driven by narrow considerations such as satisfying the vanity of promoter or management group, or help for the community based around the company’s immediate influence. These contributions focused on philanthropy and charitable causes and have typically been of a nominal size.
The new obligation to spend two per cent on CSR now substantially raises the scale of contribution. Corporate India’s increased obligation is speculated to range between Rs.100 – 250 billion and surely changes the dynamic of this subject. Companies will have to start thinking wider and smarter and the emphasis on sustainable CSR ideas consequently is likely to be a lot more pronounced. CSR spends going forward may cover wider societal objectives instead of limiting themselves to smaller community initiatives, and the sustainability factor could influence a healthy alignment between social and commercial business goals. It will surely help companies to identify some pressing and relevant social challenges and develop innovative business solutions to appropriately redress them.
An automotive company’s CSR commitment to donate economy vehicles to replace old taxis from city roads not only addresses serious problems of traffic congestion and carbon emissions, it also helps provide a sustainable livelihood to the taxi drivers. Commercially, it helps the company release working capital by easing out inventory of old vehicles. A food supermarket chain’s willingness to invest its’ CSR obligation on a contract farming platform for marginal farmers could help the cause of the weaker sections of the farming community but importantly secures a steady source of fresh farm produce for the donor company.
This is a great opportunity for corporate India to step into the government’s shoes and effect a social transformation through the raised bar on corporate governance.
(The author, Gautam Chemburkar is Partner, KPMG)
For the first time ever, profit-making Indian companies will have to mandatorily comply on the CSR requirement. This is an interesting development that deserves a closer review, more so to understand and appreciate the distinction between the mandatory and obligatory parts of the CSR requirement. Contrary to general perception, spending on CSR is not mandatory – only the requirement on compliance and reporting is.
A company may trigger the CSR obligation to spend two per cent but may decide not to spend and still be compliant with the regulation. While the trigger does not make it mandatory to spend, it does make it mandatory to comply with section 135 of the Companies Act 2013 that requires appointment of a CSR committee to formulate CSR policy, recommend and monitor spends. The board of directors is mandatorily required to report annually on CSR policy and implementation including digitally through a CSR website. The Ministry of Corporate Affairs seems keen for the company’s CSR policy to be scrutinised by the wider society and reward or punish that company for not spending appropriately.
While Schedule VII of the Companies Act 2013 prescribes specific CSR activities to spend on, a closer scrutiny of the Companies Rules seems to allow the flexibility to spend on other legitimate causes too.
Being voluntary earlier, corporate CSR seems to have been traditionally driven by narrow considerations such as satisfying the vanity of promoter or management group, or help for the community based around the company’s immediate influence. These contributions focused on philanthropy and charitable causes and have typically been of a nominal size.
The new obligation to spend two per cent on CSR now substantially raises the scale of contribution. Corporate India’s increased obligation is speculated to range between Rs.100 – 250 billion and surely changes the dynamic of this subject. Companies will have to start thinking wider and smarter and the emphasis on sustainable CSR ideas consequently is likely to be a lot more pronounced. CSR spends going forward may cover wider societal objectives instead of limiting themselves to smaller community initiatives, and the sustainability factor could influence a healthy alignment between social and commercial business goals. It will surely help companies to identify some pressing and relevant social challenges and develop innovative business solutions to appropriately redress them.
An automotive company’s CSR commitment to donate economy vehicles to replace old taxis from city roads not only addresses serious problems of traffic congestion and carbon emissions, it also helps provide a sustainable livelihood to the taxi drivers. Commercially, it helps the company release working capital by easing out inventory of old vehicles. A food supermarket chain’s willingness to invest its’ CSR obligation on a contract farming platform for marginal farmers could help the cause of the weaker sections of the farming community but importantly secures a steady source of fresh farm produce for the donor company.
This is a great opportunity for corporate India to step into the government’s shoes and effect a social transformation through the raised bar on corporate governance.
(The author, Gautam Chemburkar is Partner, KPMG)
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