Many companies still grappling with new CSR rules of Companies Act

ET Bureau Jan 3, 2015, 09.41AM IST

Tags:

• CSR|
• corporate social responsibility|
• Companies Act

• 

(Companies with a net worth…)

By Kiran Somvanshi

Realty major DLF, in its 2008 annual report, identified sponsoring the Indian Premier League as part of its responsibility as a corporate citizen. Now, many would believe that the new legislation under the Companies Act, 2013, has removed many of the loose connotations associated with corporate social responsibility (CSR), but the fact remains that companies are still grappling with the new rules that are binding from the current fiscal.

Companies with a net worth of Rs 500 crore, or a turnover of Rs 1,000 crore, or net profit of Rs 5 crore, need to spend at least 2 per cent of their average net profit for the immediately preceding three financial years onCSR activities.

Schedule VII of the Act provides a list of activities that can be undertaken as CSR. For construction major Larsen & Toubro (L&T), the new rules meant rethinking the way the company approached its CSR initiatives, which so far revolved around its facilities.

In FY14, the company spent about Rs 76.5 crore on sustainability and social responsibility activities, or approximately 1.4 per cent of its profits. Excluding sustainability initiatives, the spend stood at Rs 50 crore. This financial year, under the new guidelines though, the company could spend as much as Rs 110 crore on CSR alone, focusing on building social infrastructure.

According to Sharad Abhyankar, partner, Khaitan & Co, most large companies believe in their sustainability initiatives and are keen to continue their endeavours for social empowerment. They are streamlining their current CSR activities to meet the provisions of law.

For instance, the welfare initiatives which were so far restricted to the company's workforce and their families are now opened up to other sections of society as well. Some of the CSR committees have also proposed to undertake CSR programmes involving a large outlay. They have recommended to the boards accumulation of CSR reserve for initial years to ensure availability of adequate funds when the project is launched.

Spending the entire budget of 2 per cent of net profit is also proving to be a challenge. While the CSR initiatives of multinational engineering company Siemens fulfill most requirements under the Companies Act, 2013, it doesn't meet the 2 per cent net profit contribution as mandated.

Siemens officials said they would start small and scale up to reach this target in a sensible and sustained manner rather than spread themselves too thin. "We could give money to an NGO and tick it off the list, but we wanted to do something that would be sustainable," Sunil Mathur, company's managing director & CEO, told ET.

Incidentally, companies with no past experience of CSR, end up adopting a check-list approach. Under the head of CSR, smaller firms are adopting questionable practices like tying up with nongovernmental organisations (NGOs) run by friends and families. There are instances of CSR funds being diverted to sponsorships of activities done by people known or related to the executives of the company.