Coming clean on CSR
Initial CSR reports suggest firms are more or less complying with the law but lack of impact assessment, consolidated reporting are concerns
Companies have begun publishing their corporate social responsibility (CSR) reports as mandated by rules that took effect in April last year, although not all of them have met the targets set for them.
The CSR rules state that companies with a net worth of at least Rs.500 crore or revenue of Rs.1,000 crore or net profit of Rs.5 crore should spend 2% of their average profit in the last three years on social activities laid down by the Companies Act, 2013.
They have to report the total amount they spent on CSR activities in a given financial year, the activities towards which the money was directed, and unspent amounts, if any, specifying the reason why they hadn’t met the target.
“So far, there has been no shortage in disclosure. As the 2014 rules are prescriptive in nature, whatever has been mandated is being reported,” explained Abhay Gupte, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, an auditing and consulting firm. “The Act, if read between the lines, is clearly focused more towards getting companies to report even if they are not spending.”
For instance, Bharti Airtel Ltd, which failed to spend even 1% of its net profit on CSR initiatives (its annual report states that 0.59% was spent), has explained that 2014-15 “being the first year (the CSR rules kicked in), the company is in the process of evaluating the key focus areas and areas of intervention”.
The annual report said Bharti Airtel spent Rs.41.1 crore on CSR in 2014-15, mostly through the Bharti Foundation—the charitable arm of India’s largest telecom company.
Among the top 100 BSE-listed companies, firms like Bharti Airtel, Infosys Ltd, Tata Steel Ltd and Tech Mahindra Ltd have adhered to the CSR reporting standards to a T.
One reason for remaining true to compliance standards is that in 2012, the Securities and Exchange Board of India (Sebi) asked the top 100 listed companies to publish a Business Responsibility Report (BRR) alongside their annual report.
This report is based on the ministry of corporate affairs’ National Voluntary Guidelines of 2011 and consists of a set of detailed questions on what companies are doing by way of promoting social inclusion, environmental causes and transparency, among others.
The companies that have been publishing this report have made sure they are in compliance with reporting their spending on CSR activities.
“They already have mechanisms and infrastructure in place to collate and disseminate the data, while those undertaking CSR initiatives for the first time are still in the process of putting in place the mechanisms,” said Rajeev Chugh, partner, tax and regulatory services, EY.
Still, there are some concerns. For one, information related to CSR expenditure is scattered across annual reports, profit and loss statements, directors’ reports and the BRRs.
There is no uniform format for all companies to follow. Also, some companies have chosen to explain the focus area of their initiatives while others have not.
“Disclosure in the financial statements is varying currently,” acknowledged Rajeev Saxena, director, Mazars, an international auditing and advisory firm, suggesting that for auditing and monitoring purposes, the differing templates would be a challenge.
For instance, Infosys has published all CSR expenditure-related information for financial year 2014-15 in its annual report and annexure.
Tata Steel outlined the broad expenditure in its annual report and spelled out the finer details of why, when and how in the BRR.
In another instance, the Tech Mahindra report clubbed its expenditure on CSR under the subhead ‘overhead cost and direct expenditure’ while Tata Steel showed it separately. The Infosys annual report specified the location of each CSR project, which the Tech Mahindra report did not.
“This segregated information means the companies have not yet put in place an integrated reporting mechanism, which may lead to inconsistencies. Some of the information will be reported by the CSR team, some by the financial team or the director’s office. Thus no one person or authority at present seems to have all the information and can act as a one-point contact,” said Abhishek Humbad, co-founder of NextGen PMS Pvt. Ltd, a Bengaluru-based CSR consulting firm.
One challenge in terms of disclosure is that the information is disintegrated and specific responses are missing, saidPradeep Narayanan, director (research and consultancies) at Praxis Institute for Participatory Practices, a research-based not-for-profit.
While the financial details are given because the rules ask for them, there is no impact assessment, he said. The lack of physical verification of company claims or third-party impact assessment of the CSR reports is a risk, he cautioned.
“Financial claims of a company are easily verifiable through the stock market but in CSR spend, so far, we have to take the company claims on face value alone. This is not a best business practice,” Narayanan said.