Ever so often, the true test of compliance boils down to how rather than how much was done. The mandatory spending on corporate social responsibility (CSR) prescribed under the Companies Act, 2013, is a case in point.
Under the rules, corporates with net worth of Rs500 crore or revenue of Rs1,000 crore or more, or profit after tax of Rs5 crore or more in any of the three financial years preceding are required to spend 2% of their average profits of the past three years on CSR.
Crisil’s analysis of 4,887 companies listed on BSE shows India Inc moved closer to that mark in fiscal 2016.
As many as 1,505 of these companies, or 30%, met the criteria for mandatory spending and reporting on CSR, and of this lot, over 1,150, or 77%, reported CSR spend, compared with 75% of those eligible in fiscal 2015.
Overall CSR spending was up 22% over fiscal 2015, and there were fewer companies (7% of those meeting the criteria, compared with 10% in fiscal 2015) that did not disclose such details. (For more details, see Altruism rising – The Crisil CSR Yearbook, 2017).
However, the quality of reporting leaves a lot to be desired, with vital details lacking in several places.
The Companies Act prescribes a tabular format for reporting on CSR activities in the annual report.
The table captures the following details: CSR project or activity identified; sector in which the project is covered; projects or programmes (1. local area or other, 2. state and district where project or programme was undertaken); amount outlay (budget) project/programme-wise; amount spent on the projects or programmes (1. direct expenditure on projects or programmes, 2. Overheads); cumulative expenditure up to the reporting period; and amount spent (direct or through implementing agency).
While companies typically furnish information in this format, there are gaps galore in the reporting.
Some do not detail out activities—in terms of specifying the geographical location within the state mentioned, or the projects and programmes, etc.—while some only report the total spend and give no breakup.
Also, some do not provide the names of the implementing agency used.
Collating data from the annual reports throws up its own challenges, beginning with selection of public-listed companies that are due for mandatory CSR spend under the rules. Some companies upload image files, so the data cannot be copied.
Some include a large set of activities (more than 50 activities), which are difficult to fit into the format.
Finally, the nomenclature tends to vary across reports, so identification of the right activity as per the defined format becomes difficult.
All this defeats the very purpose of CSR, which positions companies as partners in development—a force multiplier for the government.
Ideally, CSR should complement public spending. So, if private sector companies analyse and delineate areas where government spending is inadequate, they could then direct their CSR spending to those areas and be a force of complementarity. But inability to gauge the exact area and quantum of spending could result in overspending or underspending.
From the regulatory standpoint, such reporting for compliance’s sake leaves scope for omission and obfuscation, and limits the audit trail.
But bigger damage is done to collaboration among corporates—a pet theme of the government, and one the Prime Minister has flagged often. Lack of adequate data prevents corporates from identifying opportunities to enhance on-the-ground impact through sharing know-how and resources. A survey conducted by Crisil for its yearbook showed a majority of corporate respondents are keen to collaborate but are not able to do so primarily for lack of information and clarity on rules.
Crisil has published the CSR yearbook twice now by physically poring through annual reports—quite telling in this time and age of technology.
Non-standard reporting formats have meant software couldn’t be used for data capture and analytics. And lack of detailed information also tells how much better things could be.
For the national CSR agenda to succeed, therefore, it is imperative to ensure adequate information is available, alongside clarity on rules.
The reporting should be strictly in the format prescribed, capturing relevant, granular data under the respective categories, and in a format that is easy to compile and crunch.
A provision of online reporting, as available for income tax purposes, will be handy in keeping the audit trail alive and also help gauge the impact.
Further, the current reporting requirement does not cover all the qualitative information a corporate requires to be able to identify corporates and implementing agencies to work with. The online form can easily capture such information, and in fact create scope for generating something akin to a pan-India grid on which collaboration opportunities will show up automatically.
Ramraj Pai is president, Crisil Foundation; and Maya Vengurlekar is senior director, Crisil Foundation.