Charity may soon make more business sense in India.
The Centre is encouraging companies to disclose on their balance sheets the social work they do so that other firms will be inspired to follow their example to earn the goodwill of investors. The effort by the ministry of corporate affairs, or MCA, is in line with global trends to help investors make choices in favour of transparent and responsible firms, boosting company valuations.
Corporate social responsibility, or CSR, initiatives are popular in the West, where they are considered to be indicators of a company’s standing in the eyes of investors. Social work, according to the ministry, could be anything for public good—from planting trees to running schools.
“Though there will be no binding regulations on companies, MCA feels disclosure of CSR initiatives will help them obtain better image of themselves which they can leverage while going in for an initial public offering or launch of a financial product such as a mutual fund,” said a senior ministry official who asked not to be named.
Every firm in the country has to register with the ministry to be incorporated as a company. Once companies are incorporated by the registrar of companies, or RoC, which is part of the MCA, they have to consistently file annual returns and balance sheets with the RoC.
Company balance sheets and other information—promoters’ names and addresses, directors’ names, shareholding pattern—can be accessed on the ministry’s website.
The ministry is talking to regulators, professionals and other parties as part of the effort to encourage companies to do social work.
“The ministry is roping in all stakeholders such as regulators, professionals such as chartered accountants, company secretaries, legal advisers, investors and the companies themselves to launch this initiative,” said the MCA official.
An Indo-German working group is being set up so that German firms can share their experience with Indian counterparts, the official said.
A CSR report would demonstrate a company’s intention to be transparent, said Xavier Houot, partner for risk advisory services and sustainability advisory and assurance services at Ernst and Young.
“With such an approach, which contrasts with a lack of disclosure, trust is built faster, and as an outcome, share value can be positively impacted,” he said.