Energy companies spent the highest on corporate social responsibility (CSR) initiatives in the year ended 31 March, the first year after rules were implemented requiring companies to spend 2% of their net profit on social development.
The energy sector was followed by financial services and IT when it came to firms that committed to CSR, according to data collected from the annual reports of 85 publicly traded companies by NextGen, a CSR management firm.
Consumer goods companies were, however, the only companies that exceeded the mandatory spending limit of 2% of annual profits. The telecom sector spent only Rs.51 crore, while it was expected to spend Rs.194 crore.
India’s companies law requires companies with net worth of more than Rs.500 crore to spend 2% of their net profit on social sector initiatives.
With oil and gas companies being among the largest corporations in India by revenue and profit, they emerged as the highest spenders. They spent Rs.1,945 crore in 2014-15, or 38% of the total CSR money spent, according to NextGen.
Reliance Industries Ltd spent Rs.761 crore, the most by an Indian company, followed by state-run Oil and Natural Gas Corp. Ltd at Rs.495.2 crore and power producer NTPC Ltd at Rs.205 crore.
The energy sector focused on initiatives around hunger, poverty, preventive health care, sanitation and safe drinking water, spending Rs.913 crore on this. Of that RIL’s spending on healthcare accounted for Rs.608 crore. For the rest, much of it would went toward Swachh Bharat Abhiyaan as most state-run firms were directed to spend on toilets by the ministry of public enterprises, points out Sushil Kumar, chairman of the centre for business sustainability, Indian Institute of Management, Lucknow.
“Allocating to government’s wish list is not the best way to do CSR. It seems like tokenism. Had their initiatives been aligned to their business, it would be more helpful,” said Kumar.
The sector also linked its CSR spending to business, allocating Rs.412 crore for environmental sustainability initiatives. This includes initiatives such as building rain-water harvesting structures, improving quality of soil, tree plantation among others.
The energy sector, however, did not spend the entire 2% of their combined net profits. It met only up to 89% of what they were supposed to spend. The financial services sector, even though it was the sector that spent the second highest on CSR with Rs.736.9 crore, fulfilled only 54% of what it was supposed to spend.
“Till 2013, ICICI Foundation was issuing grants and not doing initiatives other than financial inclusion. From 2013, skill development has been a key focus area for the Foundation,” said Ramkumar K, president, ICICI Foundation for Inclusive Growth.
Financial services companies have spent the most on rural development, where they are mostly carrying out financial inclusion. While government banks are mandated to achieve financial inclusion by opening bank accounts in under-banked areas under the Jan Dhan Yojana, private banks have been asked to participate but not mandated to so.
“The banks view financial inclusion as a social initiative and not a business initiative. Since the objective is to reach benefits without leakage and also provide banking benefits to the unbanked, without putting viability as the filter, banks view their financial inclusion initiatives as a social spend,” said Ramkumar. Of the Rs.155 crore ICICI Bank spent on CSR, it spent Rs.113 crore on financial inclusion initiatives.
Banks are seeking clarity on whether financial inclusion is a part of CSR.
ICICI Bank is looking to increase its focus on skill development and job creation through ICICI Foundation, through which it does CSR.
The technology sector fared better than energy and financial services industries when it came to meeting the 2% spend. They spent Rs.656 crore, which is 91% of what they had to.
The sector focused on education and skill building initiatives, as nearly half the money was spent in this area. Joy Deshmukh, global head of CSR at Tata Consultancy Services (TCS), attributes this to the fact that IT companies recruits a large number of engineering graduates every year. The company relies on this talent pool for growing its business. “We want to give back to education and skilling as we depend on it greatly,” she said.
TCS’s employees developed software in nine Indian languages for adult literacy programmes giving them free of cost to organizations such as Lucknow District Jail, HELP NGO in Hiriyur Karnataka and Tata Power Delhi Distribution Ltd, reaching out to as many as 231,178 adults.
Still, TCS having spent Rs.219 crore last financial year, missed meeting the 2% target by Rs.66 crore. Some others such as Bharti Airtel Ltd had as much as Rs.99 crore unspent of the Rs.140 crore budget.
“Being the initial year, the company was in the process of evaluating the focus areas and locations of intervention for CSR activities to cater to the pressing needs of society and deliver optimal impact,” said Bharti Airtel in its annual report.
It is not a violation of the law when a firm does not meet 2% spending target, but it is a violation if it does not report its spending and does not disclose why it failed to meet the target.
Consultants and the finance minister have speculated that FY 15 would see about Rs.14,000 crore in CSR spends; now it seems unlikely that the first year will see such a large amount.
“Even though I don’t expect the total CSR spend to exceed Rs.11,000 crore this year, I don’t think it is a disappointing start,” said Santhosh Jayaram, director, sustainability practice, KPMG India. “Many companies have faced challenges in spending that amount. Next year, we should see a better turnout.”
This story has been modified from its previous version to reflect a correction.